While all investing requires at least a bit of risk, the right strategy can go a long way toward making your money grow. And creating the right strategy starts with education. 

We’re here to teach you about the different types of investment accounts to help you reach your financial goals.

An investment account is a type of financial account designed to help you grow your money by holding assets like stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These accounts aren’t just cash, like a regular savings account that earns a relatively small amount of interest while keeping your money easily accessible. 

The main goal of an investment account is to put your money to work. Instead of just sitting in a bank, your funds are actively invested in the market, offering the potential for higher returns than you’d get even with a high-yield savings account (HYSA).

Now that you understand the basics of investment accounts, let’s break down the different account types, along with the perks and drawbacks of each.

A brokerage account is a general investment account (GIA), which means it’s taxable. Brokerage accounts let you buy and sell securities like mutual funds, bonds, stocks, and ETFs. There’s no limit to what you can contribute to your account, and you can withdraw funds whenever you want.

Joint and individual brokerage accounts are great for general investing and wealth-building, especially if you want to invest for long-term growth without limiting your access to funds. 

But the lack of tax advantages is a drawback. The gains earned from this type of brokerage account are subject to capital gains tax, and whatever dividends or interest you earn will be taxed in the year they’re received. That could lower your long-term returns. 

A traditional individual retirement account (IRA) is a tax-advantaged retirement account. You contribute pre-tax income, which reduces your taxable income for the year. That doesn’t mean you won’t get taxed, but the taxes are deferred; you won’t pay taxes until you start withdrawing funds at retirement.

Since withdrawals from this type of investment account get taxed as ordinary income, traditional IRAs are ideal for people who’ll be in a lower tax bracket at retirement than their current position. An IRA is also a good way to supplement an employer-sponsored retirement plan like a 401(k). But it’s important to note that traditional IRAs have required minimum distributions (RMDs) starting at age 73, which means you have to start making withdrawals or pay a penalty. You’ll also pay a 10% penalty if you take out any money before the age of 59½. 

Roth IRAs are similar to traditional IRAs, but with a couple of key differences: Contributions are made with after-tax dollars, meaning you don’t get a tax break upfront. But the money doesn’t get taxed once it’s in the investment account. As long as you meet the age and holding requirements, any withdrawals you make after retirement (including earnings) are completely tax-free. And you don’t have to worry about RMDs with a Roth IRA, so you can delay withdrawals and let your money grow indefinitely.

This type of IRA is ideal for younger investors or those who expect to be in a higher tax bracket later in life. Since taxes are paid upfront, future tax hikes won’t affect your retirement savings. There are income limits to contribute, though, so high earners may need to explore other options.

A 401(k) or 403(b) is an employer-sponsored retirement plan that lets you contribute pre-tax income, lowering your taxable income for the contribution year. It’s common for employers to offer matching contributions, which is essentially free money added to your account. As with traditional IRAs, your investments grow tax-deferred, with post-retirement withdrawals taxed as ordinary income.

Because of the high contribution limits and potential employer match, these plans are one of the best ways to save for retirement. But investment options are usually limited to a selection of funds chosen by your employer, and early withdrawals before 59½ typically come with a 10% penalty. If a Roth 401(k) is an option, you can contribute after-tax money and enjoy tax-free withdrawals in retirement — again, a great option if you think you’ll retire in a higher tax bracket than you’re in now.

A 529 plan is a tax-advantaged investment account that help families save for education expenses. Any money invested in a 529 grows tax-free, and withdrawals for qualified expenses like tuition, books, and some housing costs are also tax-free. Your state may even offer tax deductions or credits for contributions.

This type of investment account is ideal for parents or guardians saving for a child’s education. But you do have to use the funds for educational purposes to receive tax benefits. If you withdraw money for non-qualified expenses, you’ll owe taxes and a 10% penalty on earnings. 

Worried about contributing more than your kids will need for school? There’s a possible workaround: some plans now allow you to roll unused funds into a Roth IRA for the beneficiary, giving you more flexibility for any leftover savings.

A UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account is a way for parents or guardians to invest on behalf of a child. These custodial accounts can hold mutual funds, stocks, bonds, and in the case of UTMA accounts, even real estate. Once the child reaches the age of majority (usually 18 or 21), they’ll gain full control of the funds.

Custodial accounts are great for gifting money to children while allowing it to grow over time. But because the assets legally belong to the child, they can’t be transferred back to the parent, and the funds may impact financial aid eligibility. UGMA and UTMA accounts also lack the tax benefits of education-specific accounts like 529 plans.

Health savings accounts (HSAs) are tax-advantaged accounts for people with high-deductible health plans (HDHPs). Contributions are tax-deductible, investments grow tax-free, and withdrawals for qualified medical expenses don’t get taxed. This triple tax advantage makes it one of the most powerful savings tools available.

HSAs are great for covering medical costs, but they can also act as a stealth retirement account. After age 65, you can withdraw funds for any purpose without a penalty (though non-medical withdrawals are taxed as income). Unlike flexible spending accounts (FSAs), HSA funds roll over from year to year, making them a smart, low-risk choice for long-term savings.

A solo 401(k) is a retirement plan designed for self-employed individuals or small business owners with no employees. It offers the same tax advantages as a traditional 401(k), but the individual acts as both employer and employee, allowing for higher contribution limits. You can contribute both as an employee (pre-tax or Roth) or as an employer (pre-tax only).

Solo 401(k)s are ideal for freelancers or entrepreneurs who want to save aggressively for retirement while reducing taxable income. But they do come with more administrative requirements than an IRA, including annual tax filings if the account balance exceeds $250,000.

A trust account is an investment account set up for estate planning. A trustee manages the assets (stocks, bonds, or real estate) on behalf of beneficiaries. Depending on the structure of the trust, there may be tax advantages and legal protections for the assets.

Trust accounts are best for individuals looking to pass down wealth efficiently. They can help avoid probate, provide tax benefits, and make sure assets are distributed according to your wishes. Trusts can be pretty complex to set up, though, and you may have to deal with high legal and administrative costs.

Choosing the right personal investment account depends on your financial goals, investment timeline, and tax situation. Start by defining your goal, whether it’s retirement, wealth-building, or education savings. Tax-advantaged accounts like 401(k)s, IRAs, or HSAs tend to be a good fit for long-term goals like retirement. But if you want flexibility and no withdrawal restrictions, a brokerage account may be a better fit.

Next, consider how soon you’ll need the money. If you’re investing for decades, an account with tax-deferred or tax-free growth is ideal. For shorter-term goals, a taxable brokerage account allows easy access. 

Finally, check eligibility requirements. Some accounts, like Roth IRAs and HSAs, have income or health plan restrictions. If you're unsure, check in with a financial advisor or use an online investment tool to guide your decision.

Choosing the right investment account is crucial to achieving your financial goals — and having the right tools makes all the difference. With EarnIn¹, you can access personal finance tools that complement your investment journey and help you manage your cash, like financial calculators² and free Credit Monitoring.³

Download EarnIn today to make your money work for you.