Investment accounts can help you reach different financial goals. Retirement options include traditional and Roth IRAs, as well as self-employed retirement plans such as SEP IRAs, SIMPLE IRAs, and solo 401(k)s. Other choices, such as a taxable brokerage account or cash management account, offer flexibility, while an HSA, 529 plan, UTMA account, UGMA account, Roth IRA for Kids, and Trump Account serve more specific purposes. Understanding how these accounts work, along with their benefits and trade-offs, can help you choose the right mix for your financial future.
Accounts for retirement savings
Retirement accounts can help you save and invest for life after work, often with tax advantages. You may be eligible to contribute to a tax-advantaged retirement plan through your employer, and they may even match your contribution. So it’s a good idea to check out your workplace retirement options, which may include a 401(k) or Roth 401(k), 403(b), or 457(b). Ask your benefits department for more information.
Individual retirement accounts
What is a traditional IRA?
A traditional IRA is an investing account designed to help you save and invest for retirement on your own, independent from a workplace account. Each year you can contribute up to the annual IRA contribution limit. Once money is invested through your traditional IRA, those dollars have the potential to grow until you withdraw them in retirement. You’ll have to pay taxes on those withdrawals, but all that potential investment growth is tax-deferred if you wait until you’re age 59½.1 Deferring taxes may help grow your wealth faster by keeping more of your money invested and potentially growing.
What are the advantages of a traditional IRA?
- Tax savings today: If you’re within the IRS income limits, you may be able to deduct all or part of your contributions from your federal taxes.2
- Some access to your money: You can withdraw penalty-free for certain expenses, such as your first home purchase, birth or adoption, or qualified higher education expenses.3
- Easy to qualify: To be eligible to contribute to an IRA, you just need to have earned income. You cannot contribute more than you’ve earned or more than the annual IRS contribution limit. You can contribute to your traditional IRA as well as your 401(k) or another workplace plan, but IRA contributions may just not be tax-deductible.
What are the disadvantages of a traditional IRA?
- Lower contribution limits: You can stash away a sizable chunk of change in your IRA, but that limit is much less than other retirement savings accounts, like a 401(k), for example.
- Early withdrawal penalties: Any unqualified withdrawal from a traditional IRA before the owner reaches age 59½ not only requires income taxes to be paid but also an additional 10% penalty on the amount withdrawn.
- Required minimum distributions (RMDs): Once you reach age 73, you’re required to start taking money out of your traditional IRA, regardless of whether you need the funds.
What is a Roth IRA?
A Roth IRA is an individual retirement account that allows eligible savers to make after-tax contributions, subject to annual contribution limits and income-based phaseout rules. Those dollars can then be invested and potentially grow federally tax-free and be withdrawn tax-free once you reach age 59½ and have met the 5-year aging requirement.4 The catch? To be eligible to contribute you have to fall within the IRS’s Roth IRA income limits.
What are the advantages of a Roth IRA?
- Tax savings in retirement: Any investment growth or potential investment growth in a Roth IRA is federally tax-free, with tax-free withdrawals provided you’re at least 59½ and your account meets the 5-year aging rule.
- Flexible access to your money: Any amount you contribute to your Roth IRA can be withdrawn without taxes or penalties, anytime for any reason.
- No RMDs: Unlike traditional IRAs, there are no required distributions for Roth IRAs at any age.
What are the disadvantages of a Roth IRA?
- Income and contribution limits: If you make more than the IRS’s income limits, you may only be eligible for a partial contribution, or may be ineligible to contribute altogether.5 Even if you’re within the income limits, Roth IRAs have the same contribution limits as traditional IRAs. But you can’t contribute more than the annual contribution limit across the 2 accounts.
- Non-deductible contributions: You can’t deduct contributions to your Roth IRA from your federal income taxes, meaning there are no immediate tax savings. Of course, the trade-off is future tax-free withdrawals.
What is a rollover IRA?
A rollover IRA is an individual retirement account funded with money moved from a former employer’s retirement plan, such as a 401(k), 403(b), 457(b), pension, or other workplace retirement plan. A rollover IRA allows you to maintain the tax-advantaged status of your retirement savings while keeping rollover assets separate from other IRA assets, which may make it easier to move them into a future employer’s plan if the plan permits it.
What are the advantages of a rollover IRA?
- Tax-deferred growth: A rollover IRA helps preserve the tax-deferred status of your retirement savings and can help you avoid taxes and penalties that may apply if you cash out a workplace plan.
- Retirement plan options: Depending on your situation, you may be able to roll assets into an IRA, move them to a new employer’s plan (if plan allows), keep them in your former employer’s plan, or cash out the account. Each option has different considerations for taxes, fees, investments, and access to your savings.
- Account consolidation: A rollover IRA can help simplify your finances by bringing retirement assets from previous employers into one account.
- Helpful tools and resources: Depending on the provider, a rollover IRA may offer planning tools, educational content, and research resources to support your investment decisions.
What are the disadvantages of a rollover IRA?
- Potentially higher costs: Because plan sponsors have fiduciary responsibilities when selecting investment options, many employer-sponsored plans offer access to institutionally priced investments that may have lower fees than comparable IRA investments.
- Reduced creditor protection: Workplace retirement plans may offer stronger protections from creditors than IRAs in certain situations.
- No loan option: Unlike some 401(k) plans, IRAs don’t allow you to borrow against your account balance.
- Loss of Rule of 55 benefits: If assets are rolled into an IRA, they generally no longer qualify for the Rule of 55, which may allow penalty-free withdrawals from certain workplace plans before age 59½.
Self-employed and small-business retirement accounts
If you’re self-employed or a small-business owner, these are some potential options that might fit your goal.
What is a SEP IRA?
A SEP IRA (Simplified Employee Pension Individual Retirement Account) is a retirement plan for self-employed individuals and small-business owners. It’s specifically designed to help small-business owners provide retirement savings plans to themselves and their employees with fewer administrative fees and requirements than typical workplace plans, like 401(k)s.
What are the advantages of a SEP IRA?
- Tax benefits: Contributions to a SEP IRA are tax-deductible, reducing your taxable income for the year and potentially reducing your tax bill.
- Easy setup and maintenance: SEP IRAs are relatively easy to start up and maintain, with minimal administrative requirements and paperwork compared to some other workplace retirement plans.
- High contribution limits and flexibility: SEP IRA contribution limits are much higher than other IRA options. Plus, business owners have the flexibility to decide how much to contribute each year, allowing for adjustments based on business profitability.
What are the disadvantages of a SEP IRA?
- No catch-up contributions: Unlike some other retirement accounts, SEP IRAs do not allow catch-up contributions for individuals aged 50 and older, potentially limiting retirement savings for older workers. Also, no employee deferral contributions are allowed.
- Limited withdrawal flexibility: Withdrawals from a SEP IRA before age 59½ may be subject to taxes and penalties, similar to traditional IRAs.
- Required employer contributions: If you’re a business owner and want to contribute to your own SEP IRA, you are required to make contributions to all SEP IRA eligible employees.
What is a Solo 401(k)?
A solo 401(k), or self-employed 401(k), is a retirement account designed for self-employed individuals or small-business owners with no employees (apart from their spouses). Similar to a traditional 401(k), you fund the account through contributions on your own behalf as the employee from your pre-tax compensation—plus, you can contribute as the employer. Those contributions can be invested and potentially grow tax-deferred until withdrawn in retirement, when they’ll be taxed as ordinary income.
What are the advantages of a solo 401(k)?
- Employee and employer contributions: Not only can you contribute up to the employee 401(k) contribution limit, but you’re also allowed to contribute as the employer up to 25% of your compensation (with some IRS limits).
- Tax benefits: Contributions to a solo 401(k) are tax-deductible—from your personal income if your business is not incorporated or as a business expense if it is. Also, your investments can potentially grow tax-deferred while you save.
- Investment options: Unlike some traditional 401(k) plans, solo 401(k)s generally offer a wide range of investment options, giving you more control over your portfolio.
What are the disadvantages of a solo 401(k)?
- Limited eligibility: Only self-employed individuals with no employees (besides a spouse if they receive compensation from the business) qualify for a solo 401(k). If you add employees at a later date, you’ll either have to convert to a standard 401(k) or else terminate the plan.
- Can only withdraw money when a triggering event occurs: To take money out, you need to reach a triggering event, which could be reaching age 59½.
- Must make recurring contributions: The IRS requires regular and substantial contributions for the plan to remain active.
What is a SIMPLE IRA?
A SIMPLE—Savings Incentive Match Plan for Employees—IRA is a retirement savings account that’s designed for self-employed individuals or small business owners with fewer than 100 employees. With a SIMPLE IRA, an employee can defer a portion of their salary into the account, while their employer can match that contribution up to 3% (4% in some cases) of the employee’s salary or contribute a fixed percentage. The account offers employees the tax benefits of a 401(k) with the convenience of a personal IRA: Contributions are made pre-tax and money invested in the account can potentially grow tax-deferred until withdrawn.
What are the advantages of a SIMPLE IRA?
- Tax benefits: Employee contributions to a SIMPLE IRA are made pre-tax to reduce your taxable federal income. For employers, contributions could be a tax-deductible business expense. Any investments within the account can also potentially grow tax-deferred until retirement.
- Easy setup: Compared to 401(k) plans, SIMPLE IRAs are generally lower cost and require less administrative work to establish and maintain.
- Investment options: Unlike some workplace plans that may have limited investment options, SIMPLE IRAs generally have access to a wide range of different investments, including individual stocks and bonds.
What are the disadvantages of a SIMPLE IRA?
- Early withdrawal penalties: Similar to other retirement accounts, you may have to pay a 10% penalty on top of federal income taxes if you withdraw from a SIMPLE IRA before age 59½.6 If you withdraw within the first 2 years of establishing the account, that penalty could be 25%.
- Creditor protection: SIMPLE IRAs do not have the same level of creditor protection as some other popular retirement savings plans.
Health care accounts
Health care accounts can help you save for current and future medical expenses, with some offering valuable tax benefits. But only a health savings account (HSA) allows you to invest dollars intended for covering health expenses.
What is an HSA?
An HSA (health savings account) is a tax-advantaged savings account designed to help you save for eligible medical expenses. To contribute to an HSA, you must have an HSA-eligible health plan, which falls under the category of high-deductible health plans (HDHPs). Typically, most HDHPs are HSA-eligible. Because of their 3 tax advantages,7 HSAs can be a great place to grow your medical savings for the near term and later in retirement.
What are the advantages of an HSA?
- Triple tax benefits: First, contributions are tax-deductible; second, withdrawals for qualified medical expenses are tax-free; and third, any investment growth is tax-free if used for qualified medical expenses.
- Flexibility after age 65: After age 65, money in your HSA can be withdrawn and used for non-medical expenses, penalty-free. You will have to pay income tax on those withdrawals, though.
- Portability: HSAs are completely yours. Even if you change jobs or health care plans, you keep the account and the money you saved, plus you have the option to transfer it into a new employer-sponsored HSA at your next job.
What are the disadvantages of an HSA?
- HSA-eligible health plan requirement: To be eligible to contribute to an HSA, you must have an HSA-eligible HDHP. HDHPs may not be suitable for everyone, especially those with high health care needs, or they may not be offered by your employer.
- Contribution limit: The annual HSA contribution limit caps the amount you can contribute to the account each year.
- Nonqualified withdrawal penalties: Before age 65, money in your HSA must be used for qualified medical expenses or you’ll be on the hook for both income taxes and penalties on withdrawals.
Education accounts
Education-focused accounts can help you save for future school expenses for yourself or a loved one, and some, like the 529 plan, offer tax advantages.
What is a 529 plan?
A 529 plan is a flexible and tax-advantaged investment plan designed to help you save and invest for future education expenses. And it’s for more than just college—money in a 529 can also help pay up to $10,000 of tuition per beneficiary each year for K to 12 education (up to $20,000 a year starting in 2026).8 Although 529 plans have only one beneficiary, you can change the beneficiary at any time to an eligible family member.9 If certain criteria are met, 529 funds can be transferred into the beneficiary’s Roth IRA.10
What are the advantages of a 529 plan?
- Tax-free withdrawals for qualified education expenses: You contribute already-taxed dollars to a 529, but invested funds in the account can grow tax-deferred while you save. You won’t have to pay federal income taxes on investment growth if withdrawals are used for qualified education expenses.11
- Broad range of qualified expenses: Funds within a 529 can be used to pay for more than just tuition; they also can go toward room and board, books, and even certain technology expenses. Funds can even be used to pay up to $10,000 for student loan expenses.
- State benefits: Many states offer tax incentives, such as tax deductions for residents for contributing to their specific 529 plans.12
- Grant programs: Some states offer matching contribution programs for eligible families, providing additional funds that can help boost college savings. Availability, match amounts, and income requirements vary by state.
What are the disadvantages of a 529 plan?
- Penalties for nonqualified withdrawals: For nonqualified withdrawals, the portion attributed to investment earnings is subject to federal and state income taxes plus a 10% penalty.
Saving accounts for children
These accounts can help children and teens build savings, learn investing skills, or get an early start on long-term goals.
What is a UGMA/UTMA account?
UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) brokerage accounts are custodial accounts that help adults save money for minors. With these accounts, the adult adds money and chooses investment options, and when the child reaches a certain age—generally between 18 and 25, varying by state—assets and control of the account must be transferred to the minor. Once the minor gets control of the money, there are no restrictions on how the money can be used or invested.
What are the advantages of a UGMA/UTMA account?
- No contribution limit: UGMA/UTMA accounts have no contribution limit, but big contributors should be aware of the gift tax. As of January 1, 2026, you can contribute up to $19,000 per year per beneficiary ($38,000 for married couples who elect to gift-split) without using any of your lifetime gift and estate tax exemption or incurring gift tax.
- Asset contributions: Adults can contribute more than just cash to UGMA/UTMA accounts: They can transfer stocks, bonds, mutual funds, and other securities to the account.
- Ability to maintain control: UGMA/UTMA accounts are a way for adults to transfer assets to minors while still controlling the investing decisions of those dollars until the child is an adult and reaches the transfer age.
What are the disadvantages of a UGMA/UTMA account?
- Irrevocable gift: Once assets are transferred to a UGMA/UTMA account, the money belongs to the child. The money must be used for the child’s benefit.
- Tax considerations: While minors may score potentially lower tax rates, certain types of income and any earnings generated from investments within UGMA/UTMA accounts may be subject to taxes. It may be smart to consult a tax advisor.
- Impact on financial aid: Assets that are held in UGMA/UTMA accounts are considered assets owned by the child, which can impact financial aid when applying for college potentially more significantly than assets held in a 529.
What is a Fidelity Youth® Account?
The Fidelity Youth® Account is a teen-owned brokerage account that gives teens ages 13 to 17 the ability to save and invest their own money—while letting parents stay connected. Giving your teens access to a brokerage account can help empower them to prepare for their financial future and safely build strong money skills for adulthood.
What are the advantages of a Fidelity Youth® Account?
- Free to open: The Fidelity Youth® Account has no subscription fees, no account fees, and no minimum balances to open.13 Teens can optionally request a debit card.
- Can invest with as little as $1: Teens can invest in fractional shares—or slices of investments—allowing them to invest with a small amount.
- Parental supervision: Parents can view their teen’s investments and transactions, and get notified of account activity, to provide guidance and oversight.
- Learning content: Teens have access to videos, tools, lessons, and articles to learn financial skills in the app.
What are the disadvantages of a Fidelity Youth® Account?
- No tax advantages: The Fidelity Youth® Account is not designed for storing retirement or education savings. There are no special tax benefits with this account.
- No custodial control: Unlike UGMA/UTMA accounts, you as the parent do not have custodial control of the Fidelity Youth® Account. Your teen has access to that money and can make investment decisions, though you will see all the activity.
- Parents must have an account: In order to open the Fidelity Youth® Account and monitor activity, parents must have their own account at Fidelity.
What is a Roth IRA for Kids?
A Roth IRA for Kids is a tax-advantaged retirement account opened for a child under 18. The account is managed by an adult (aka the custodian of the account) and then transferred to the child at the age of majority, which can differ from state to state, but is usually 18 to 25 years old. Money in the account can be invested, and potential investment growth is tax-free in both the Roth IRA for Kids account as well as once it’s transitioned to your child’s own IRA at the age of majority.14
What are the advantages of a Roth IRA for Kids?
- A savings head start: Time is on your child’s side. The longer money is invested, the more potential it has to benefit from compound growth. A little saved today has a lifetime to potentially grow.
- Emergency access: Just like a regular Roth IRA, contributions to a Roth IRA for Kids can be withdrawn without taxes or penalties at any time.
- Custodianship: As the custodian of the account, you’ll get to manage and invest the IRA money until the child becomes an adult.
What are the disadvantages of a Roth IRA for Kids?
- Child must have earned income: To be eligible to contribute, your child needs to earn income to qualify for contributions—whether it’s as a babysitter, lifeguard, dog walker, or something else.
- Contribution limit capped at earned income amount: Similar to adults, a Roth IRA for Kids has an annual contribution limit. Regardless of that limit, you can’t contribute more than the amount of income your child earned over the year. So, if your child earns $1,000 mowing lawns in a year, you could only contribute $1,000 that year.
- Early withdrawal penalties for earnings: Although contributions can be withdrawn at any time, the investment earnings from those contributions can only be withdrawn penalty-free after age 59½, unless your child meets certain criteria.
What is a Trump Account?
A Trump Account, also known as a 530A account, is a custodial-style traditional IRA opened for a child and designated as a Trump Account under IRS rules. The child is the account beneficiary and legal owner, while a parent or guardian manages the account until the child reaches age 18. Trump Accounts are designed to help families begin saving and investing for a child’s future early through a retirement-account structure created specifically for minors.
What are the advantages of a Trump Account?
- Seed funding potential: Eligible children (those born between January 1, 2025, and December 31, 2028) may receive a one-time $1,000 government contribution, and no earned income is required for additional contributions.
- Tax-deferred growth: Investments can potentially grow without annual taxes on earnings while funds remain in the account.
- Flexible funding options: Contributions can come from family members, employers, payroll deductions, and certain charitable organizations.
- Low-cost, long-term investing: Assets are invested in broadly diversified index funds or exchange-traded funds (ETFs), and withdrawal restrictions before age 18 encourage long-term saving.
What are the disadvantages of a Trump Account?
- Limited access to the money: Withdrawals generally aren’t allowed before age 18, and traditional IRA-style rules apply afterward.
- Taxes may apply at withdrawal: Investment earnings and certain contributions are generally taxable when withdrawn. In some cases, withdrawals may be subject to the kiddie tax, which can cause part of a child’s unearned income to be taxed at a parent’s rate.
- Restricted contributions and investments: Most contributions count toward a $5,000 annual limit, and investment choices are limited. The money generally stays invested in stocks until age 18, which can make it harder to reduce risk as the child gets older.
- Rules and availability may vary: Some details are still being clarified, and employer contributions are only available if an employer offers the feature.
General investing and spending accounts
If you’re saving for goals that don’t fit neatly into retirement, education, or health care, these accounts offer flexibility and broad access to your money.
What is a brokerage account?
A brokerage account is an investment account that allows you to buy investments like stocks, bonds, mutual funds, and ETFs. Brokerage accounts do not have some of the restrictions that other tax-sheltered accounts have, such as IRAs, 401(k)s, or HSAs. You can withdraw funds penalty-free at any time in a brokerage account.
What are the advantages of a brokerage account?
- Access to your money when you want: Funds in a brokerage account are accessible without any tax penalties or restrictions, allowing you to access your investments and money when needed.
- No contribution or income limits: Unlike some other investing accounts, such as IRAs, HSAs, or 529s, there’s no limit to the amount you can put into your brokerage account annually. Plus, anyone can open an account regardless of their income.
- Investment options: With a brokerage account, you have the freedom to invest in a wide range of assets, like options and derivatives if your financial institution allows.
What are the disadvantages of a brokerage account?
- No tax advantages: Unlike some goal-based accounts, brokerage accounts don’t come with any tax-deferred growth or tax-deductible contributions. There are no tax savings today or tomorrow with a brokerage account, meaning any gains or losses in the account will factor into your tax bill each year.
- No employer benefits: You won’t receive any employer perks in a brokerage account, such as matching contributions, that you might be eligible for if you save in a workplace retirement plan or HSA.
- Trading fees: Some financial institutions charge fees or commissions for buying and selling investments in a brokerage account, like stocks, bonds, ETFs, and mutual funds. (The Fidelity brokerage account doesn’t charge commission fees for online US stock, ETF, and option trades.)15
What is a cash management account?
A cash management account is an account at a financial institution that generally combines most features of a bank checking or savings account with the flexibility of a brokerage account. Fidelity’s cash management account offers check writing, bill pay, a debit card, and a choice of a money market mutual fund16 or an FDIC-insured deposit sweep option for uninvested cash.
What are the advantages of a cash management account?
- All-in-one account: A cash management account gives you the ability to save, spend, and manage your cash, possibly all from one account. This might make sense for people who want to streamline their cash management.
- Competitive rate of return, low fees: Cash management accounts can sometimes offer a competitive rate of return when compared with the national average rate on savings and checking accounts at traditional banks. Plus, depending on the provider, they can come with low or no fees. Fidelity’s version offers no account minimums17, plus reimbursed ATM fees globally.18
- Higher FDIC protection limits: At a traditional bank, deposits are generally FDIC-insured up to $250,000 per depositor, per ownership category, at each insured bank. Fidelity’s Cash Management Account uses an FDIC-Insured Deposit Sweep Program that allocates cash across multiple participating banks, which can provide up to $5,000,000 in FDIC insurance coverage, subject to program limits and eligibility.19
What are the disadvantages of a cash management account?
- No tax advantages: Like an ordinary brokerage account, a cash management account does not come with tax benefits. Any income you generate in the account, such as dividends or interest, will be factored into your annual tax bill.
- Primarily digital account: Unlike a traditional brick and mortar bank, most cash management accounts are managed digitally. This means you’ll probably need to deposit cash online rather than in person and you may not be able to get something like a cashier’s check, which would come from a physical bank. Withdrawals can typically be made at any ATM but would be subject to daily ATM withdrawal limits.
How to open an investment account
If you are interested in any of these, you can open an account through Fidelity. Learn more about the details of each account type to compare features, benefits, and considerations, and decide which options may best support your financial goals.