Three of the Most Common Investment Account Types

A general investing account offers access to a wide range of potential investment choices, including stocks and bonds. Keep in mind, these accounts are taxable, so any interest or dividends you earn on investments, as well as any gains on investments after you sell, are subject to taxes.

Unlike a general investing account, a retirement account gives participants the flexibility to make contributions either pre-tax or post-tax, depending on what type of account they choose. In addition, there are distinct differences between the two main types of retirement accounts: individual retirement accounts (IRAs) and employer-sponsored plans.

If you are looking to save for a child’s education, 529 Savings Plans and Coverdell Education Savings Accounts (ESAs) tend to be two of the more popular education savings options, partly due to the flexibility to change beneficiaries to another member of the family. For example, if your first child only uses 50% of the amount you saved for them, the remainder could be passed to your next child or a cousin. However, it can only be used for education.

Another option is custodial accounts, such as Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts, to provide funds directly to your child. Although parents often use UGMA or UTMA accounts to save for college, they aren’t technically education savings plans or accounts. In other words, the money doesn’t have to be spent on college; it can be spent on any day-to-day expenses that benefit the child. However, gifts to these accounts are irrevocable, so you can’t pass the money to another child or family member.

Ultimately, your decision on how to save for your child’s education will likely come down to several factors. The factors could include how your child will use the money, your income level, and contribution and tax considerations.