More Investment Accounts

More Investment Accounts

As a reminder, you should only consider opening up additional investment accounts if you already have an IRA and/or a 401(k). If you have not set them up, it's highly recommended you do so before you continue reading.

Every investment accounts are separated into categories: Personal, self-employed or business owner, and others. Pick the account(s) you'd like, open each one on M1 Finance, and then head back to the guide page you were at to finish up.


Individual Brokerage Account (IBA): An IBA is the most basic and flexible type of investment account available to American's and "allows them to buy and sell [any] investments" [1 2].
Key Benefits:
  • No contribution limits unlike IRA and 401(k) accounts
  • No restrictions on withdrawing funds from this account
  • The money you put in is taxed both state and federally
  • And the money you take out is taxed state and federally

Flexible Spending Account (FSA): A FSA is "a pre-tax benefit account that's used to pay for eligible medical, dental, and vision care expenses... not covered by your health care" [1].
Key Benefits:
  • Can be used to cover medical bills not covered by your insurance
  • You can save on tax's through your payroll deductions
  • You can take money out of the account at any time
  • Many FSA's are connected to debit cards to use directly for medical expenses
  • You must be employed to open an FSA
  • You can only use the money in your FSA for a year (with some excpetions)
  • If you lose your job, you could lose your FSA
  • Your must sign up for a FSA during through your employers open enrollment period
  • No tax write-offs

Self-Employed or Business Owner:

Simple Employee Pension (SEP) IRA: A SEP IRA "provides business owners with a simplified method to contribute toward their employees’ retirement as well as their own retirement savings" [1].
Key Benefits:
  • Able to be done through your employer
  • High contribution limit ($56,000 in 2020)
  • Can be combined with a Traditional IRA or Roth IRA
  • Contributions are tax deductible
  • No catch up contribution option (if you couldn't contribute prior years)
  • No Roth version which means that you are taxed on the money you take out
  • If you have employees, you have to give them proportional contributions to them
  • Any money you take out before 59 1/2 years old are taxed as income and subject to a 10% penalty

Saving Incentive Match Plan for Employees (SIMPLE) IRA: A SIMPLE IRA plan "allows employees and employers to contribute to traditional IRAs set up for employees" for businesses with 100 or less employees [1].
Key Benefits:
  • Employees share responsibility for their retirement
  • No discrimination testing required
  • Less expensive and less complicated alternative to a 401(k) plan.
  • Inflexible contributions
  • Lower contribution limits than some other retirement plans


Health Savings Account (HSA): A HSA account "lets you set aside money on a pre-tax basis to pay for qualified medical expenses" [1].
Key Benefits:
  • Most medical expenses qualify
  • Contributions can come from you, your employer, a relative, or anyone else who wants to add to your HSA
  • Contributions from your payroll deductions are not federally taxed
  • Tax-free withdrawals
  • And profit you make on your earnings are tax-free
  • The money you have left in your HSA at the end of the year rolls over to the next year
  • Your HSA goes with you even if you change jobs, change health insurance plans, or retire
  • High deductible requirement
  • You are taxed on any funds used for non-qualified expenses before you turn 65
  • You must keep receipts to prove that your withdrawals were used for qualified health expenses

457(b) Plan: A 457(b) "plan is offered through your employer, and contributions are taken from your paycheck on a pre-tax basis, which lowers your taxable income" [1].
Key Benefits:
  • Not subject to any penalty's when taking out money before age 59 and a 1/2
  • Contributions (taken from your paycheck only) are not taxed.
  • Employer matches are rare
  • Fees may be higher
  • Hard to take out money in an emergency

529 College Savings Account (CSA): A CSA (529 Plan) is "a tax-advantaged savings plan designed to encourage saving for future education costs" [1].
Key Benefits:
  • The money you take out is not taxed
  • Can be used to pay for most schools nation wide
  • Some states offer matching programs!
  • Money you put into this account is taxed
  • Limited to only use on education expenses for a beneficiary (children)

403(b) Plan: "Also known as a tax-sheltered annuity plan, [a 403(b) plan] is a retirement plan for certain employees of public schools, employees of certain Code Section 501(c)" [1].
Key Benefits:
  • Contributions can lower your taxable income which can put you in a lower tax bracket
  • You may be able to leave your job earlier with 100% of your employer's contribution
  • Limitation's on where you can invest your money
  • Some 403(b)s are not protection by the ERISA

Employee Stock Purchase Plan (ESPP): An ESPP is "a program in which employees can purchase company stock at a discounted price" [1].
Key Benefits
  • Employees contribute through payroll deductions, which build until the purchase date
  • The discount can be as much as 15% in some cases
  • Tax advantaged (if utilized correctly)
  • Must be employed
  • Only allows you to purchase the company you work for stocks