Choosing an investing account
Many people take their first step into the world of investing when they get a 401(k) with their first job. While a 401(k) is a great way to start investing (especially if your company matches some or all of your contributions), you might be wondering if a 401(k) alone is enough or if you should also explore other investment accounts.
As you think about investing and which account would be right for you, keep these questions in mind:
Which E*TRADE IRA could be right for me?
Breaking down your choices
Let's take a look at some of the most common types of retirement accounts (along with a brokerage account) and their key features and rules.* No account minimums required when you open an account.2
401(k)** | Roth IRA | Traditional IRA | Rollover IRA | Brokerage Account | |
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What is it? | A retirement account that is sponsored by an employer |
An Individual Retirement Account funded with after-tax contributions |
An Individual Retirement Account funded with pre-tax income or after-tax contributions*** |
An Individual Retirement Account established with assets transferred from either an old employer's plan, such as a 401(k), or another IRA |
A non-retirement investment account |
The idea in a nutshell |
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Eligibility requirements | Must be offered by an employer |
Income must be below certain limit |
No restrictions on eligibility |
Must have a 401(k) or another eligible plan from a previous employer or another IRA |
$0 minimum to open an account at E*TRADE |
Fees |
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Investment choices | Depends on the plan; plan sponsor or delegated investment manager chooses investment options |
E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures |
E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures |
E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures |
E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures |
How to fund |
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Contributions |
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Access to cash |
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Required withdrawals | Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949) |
No requirement to withdraw funds during the lifetime of the original account holder |
Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949) |
Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949) |
No requirement to withdraw funds |
Tax benefits |
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* The table above is for informational purposes only and does not constitute a full list of available accounts.
** Many companies also sponsor Roth 401(k) accounts. Unlike the Traditional 401(k), a Roth 401(k) account is funded with after-tax income. Qualified withdrawals of contributions and earnings in this account are tax-free.
*** A pre-tax contribution is not taxed when it’s put into the account, so it's not counted as part of your taxable income for the year. Uncle Sam allows a certain amount of income to be contributed pre-taxed to qualified retirement plans. This lowers your taxable income and may get you a tax break. After-tax contributions are taxed when they are received, so you will pay additional taxes on your take-home pay when it is contributed.
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Questions to consider when choosing an account
Remember that no matter what accounts you end up choosing, the most important thing is to make a solid retirement and investing plan, stick to it, and save as much as you can as early as you can. Here are some questions investors may consider when choosing an account.
IRA or 401(k)?
You may be able to have both an IRA and 401(k). If you are deciding between the two, consider the following:
- Does your employer offer a 401(k) or employer match?
- Which account type offers lower administrative, service, and investment fees?
- What investment options are offered?
Brokerage or Retirement Account?
You may be able to have both a brokerage and retirement account. If you are deciding between the two, consider the following:
- When will you need access to cash?
- How much money are you looking to invest?
- Are you looking to diversify your investments across different account types?
Traditional or Roth IRA?
You may be able to have both a Traditional and Roth IRA. If you are deciding between the two, consider the following:
- Does your income level exceed the eligibility requirements to open a Roth IRA?
- Do you think your tax rate will be lower or higher in the future?
- Use the IRA Selector tool to see if you qualify for a Traditional or Roth IRA.
Explore retirement accounts
Roth IRA3
Tax-free growth potential retirement investing
Pay no income taxes or tax penalties on qualified distributions if you meet certain requirements.
Traditional IRA
You may be eligible to make income tax deductible contributions
Earnings potentially grow tax-deferred until you withdraw them in retirement.
Rollover IRA
Consider rolling over your old 401(k) plan assets to an E*TRADE from Morgan Stanley IRA
Consolidate assets from a former employer’s retirement plan.