Account Types - Where Do I Put These Investments?

Where Do I Put These Investments?

Not all closets are created equal.  There are walk-in closets, dreaded small closets, rooms converted into closets, etc.  Closets are a place where you can store anything:  shoes (of course), sweaters, dresses, purses, skirts, jeans …… you get the idea.  Think of accounts the same way.  An investment account can hold many different types of investments like stocks, mutual funds, bonds, ETFs, or CDs.  Different types of accounts serve different purposes.  Let’s review a few and how they’re taxed (this is really why you have different types of accounts).

Bank Savings Account:     This is a very limited account where you only earn interest on cash and you are taxed every year on the interest you received during the year.  You can not buy any other type of investment in this account.

General Investing Account:     This is like a huge walk-in closet.  You can open these accounts (sometimes called brokerage accounts) at an investment firm, like Fidelity Investments – not that I’m bias, or sometimes banks offer investment accounts as well.  You are taxed on everything that happens in this account during the year. If your stock, mutual fund, or ETF pays a dividend, you’ll be taxed on it like its income for that year.  If you sell a stock, mutual fund, or ETF and you have a gain (congratulations!),
you’ll be taxed on it for that year’s taxes. NOTHING is deferred until you retire. You can use this account for any type of savings – it’s NOT specifically a retirement account.

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