Which investment account should I use?

Investing is one of the best ways to build long-term wealth, but picking the right type of account can feel confusing. You want to save for retirement, for example, but do you go with a Roth IRA, a 401(k), an SEP IRA or something else?

The good news: There’s an investment account for nearly every type of financial goal, and the right one for you depends on your specific situation and priorities. 

To help you navigate your options, we asked financial advisors for their insights. We also break down the pros and cons of each option, along with how to open your account. 

Whether you’re a gig worker, a high earner or looking for the best place to save for your child’s college tuition, here’s how to choose the right investment account for you.

Which investment account should I use if…?

The best investment account depends on what you’re saving for. Here are the best ways to invest for different financial goals and situations, according to financial experts. 

I want to lower my yearly tax bill as I save for retirement

Best option: Traditional IRA or traditional 401(k)

If lowering your tax bill now is a priority, you can reduce your taxable income by contributing to certain types of retirement plans. You’ll also delay paying taxes until you withdraw funds later. 

Advantages

• Contributions lower your yearly tax bill. 
• Earnings growth is tax-deferred, letting investments compound over time without the tax drag. 
• Some employers offer contribution matching for 401(k)s.

Disadvantages

• You’ll owe taxes when you make a withdrawal. 
• Withdrawals before age 59 ½ come with a 10 percent penalty from the IRS.
• Required minimum distributions (RMDs) start at age 73. That’s the time when the IRS requires you to take money from your retirement accounts and start paying taxes on it — whether you want to or not. 

It might be right for you if:

You want to reduce your tax bill now, possibly because you believe you’ll be in a lower tax bracket in retirement. 

Expert take

“Traditional retirement accounts can be good for income-producing assets like bonds because taxes will be deferred until you take the money out, allowing the funds to compound,” says Mike Hunsberger, a certified financial planner and owner of Next Mission Financial Planning.

I don’t want to pay taxes on my investments in retirement

Best option: Roth IRA or Roth 401(k)

If you’re looking to keep Uncle Sam’s hands off your investment profits, Roth accounts allow your money to grow tax-free and stay tax-free when you withdraw it in retirement.

Advantages

• Withdrawals are tax-free in retirement.
• No RMDs for Roth IRAs or Roth 401(k) plans.
• Roth contributions can be withdrawn at any time without penalty, but any earnings may be subject to tax and penalty if withdrawn before age 59 ½.

Disadvantages

• No upfront tax break for the year. 
• Roth IRAs have income limits, meaning high earners may need to use a “backdoor Roth IRA” strategy. (More on that later.)
• Not all employers offer a Roth 401(k) option. 

It might be right for you if:

You want to lock in tax-free growth and avoid taxes in retirement. 

Expert take

“Either is fine — a Roth 401(k) or a Roth IRA,” says Justin Pritchard, a certified financial planner and founder of Approach Financial. “But the Roth IRA is the most flexible. It’s a good idea to at least open a Roth IRA to start the five-year clock ticking, even if you can’t make meaningful contributions to the account at first.”

I want to save for my child’s education

Best option: 529 plan

College is expensive, and an investment account helps your money grow faster than a regular savings account ever could. A 529 plan is a state-sponsored account that allows tax-free withdrawals for qualified education expenses. Lifetime contribution limits are quite high, and parents retain more control over the funds after the beneficiary turns 18. 

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Advantages

• Tax-free growth and tax-free withdrawals for education expenses. Some states also offer tax deductions on contributions. 
• You can transfer the account to another child or roll a portion of the funds into a Roth IRA. 
• Less impact on student aid eligibility compared to custodial accounts, a different type of investment account for education costs.  
• Can be converted to a Roth IRA, with some limits.

Disadvantages

• Investment options depend on the state and plan provider, but you can choose from among the best 529 plans.
• Using the money on non-educational expenses results in a 10 percent penalty, as well as taxes on the earnings.

It might be right for you if:

You want to save for your child’s future education while taking advantage of tax benefits and still have the option of converting some contributions to your child’s Roth IRA.

Expert take

“The 529 has an advantage with tax efficiency, and in recent years, it’s closed the gap on flexibility compared to custodial accounts,” says Joe Conroy, a certified financial planner and owner of Harford Retirement Planners. “More often than not, I’m recommending 529 plans to my clients over custodial accounts.”

I’m saving up for a home

Best option: Taxable brokerage account

A taxable brokerage account is the MVP if you’re saving for a home. Unlike retirement accounts, there are no withdrawal penalties or yearly contribution limits. You’ll pay taxes on gains only when you sell, making it a flexible option to invest for medium- and long-term goals.

Advantages

• Offers flexibility with no penalties on withdrawals.
• Potential for higher returns compared to a savings account.

Disadvantages

• Investments in a brokerage account are subject to capital gains tax when you sell for a profit, though there are a few ways you can avoid these taxes.
• Market volatility could reduce available funds when you need them.

It might be right for you if:

You’re planning to buy a home in the next three to seven years and want higher returns than a savings account provides — and don’t mind stomaching volatility along the way. 

Expert take

“I think using a brokerage account for medium-term goals is a solid option,” says Conroy. “But like a target-date fund, the closer you get to needing the funds, you need to get more conservative, and start moving to cash.”

I run my own business

Best option: Solo 401(k), SEP IRA or SIMPLE IRA

If you own a business, you have access to specific retirement accounts to help you save more than traditional workplace plans. The best account depends on whether you have employees, how much you want to contribute and how much administrative work you’re willing to handle.

Advantages

• High contribution limits, especially for solo 401(k)s and SEP IRAs. 
• Provides tax advantages (either tax-deferred or Roth options).
• With a solo 401(k), you have flexibility in deciding how much and when to contribute each year, based on your business’s profitability.

Disadvantages

• Requires paperwork and administrative work, especially with a solo 401(k). This can include choosing a provider, understanding contribution rules and keeping track of account balances.
• Accounts come with early withdrawal penalties.
• Not all brokerages offer these accounts, though they’re becoming more commonplace and are available at some of the best online brokers, including Charles Schwab and Fidelity. 

It might be right for you if:

You own a business and want to maximize your retirement savings while lowering your taxable income.

Expert take

“A solo 401(k) has the most flexibility,” says Pritchard. “Essentially, it’s like a SEP IRA with the ability to make additional contributions.”

I’m a gig worker

Best option: Roth IRA or traditional IRA

Gig workers don’t have access to employer-sponsored retirement plans, but they can still take advantage of IRAs. If you’re self-employed, your income can be unpredictable, so choosing an investment account with flexibility is key.

A Roth IRA is ideal for younger gig workers or those who expect to be in a higher tax bracket later, while a traditional IRA can be beneficial if your work as a contractor is raising your tax bill.

Advantages

• Roth IRAs allow tax-free withdrawals in retirement. Contributions to a traditional IRA can lower taxable income.
• You can save for retirement without an employer plan. 
• Access to a wide range of investment options. 

Disadvantages

• Contribution limits for IRAs are lower than employer-sponsored plans, like 401(k)s.
• You’ll need to pick your own investments (which can feel overwhelming if you’ve never done it before), unless you open an IRA with a robo-advisor. (More on that shortly.) 
• Ten percent IRS penalty for withdrawals made before age 59 ½ and taxes on earnings. 

It might be right for you if:

You have 1099 income and want a flexible way to save for retirement.

Expert take

“Another option is a SEP IRA,” says Conroy. “With Secure Act 2.0, you can now do Roth SEP contributions. I like SEP accounts vs. IRAs because you generally can contribute much more to SEPs.”

I don’t want to manage investments myself

Best option: Robo-advisor 

Not everyone wants to pick stocks or analyze market trends. If you prefer a hands-off approach, a robo-advisor can do the work for you. These automated platforms use algorithms to build and manage your portfolio based on your risk tolerance and financial goals. Robo-advisors offer taxable accounts in addition to retirement accounts.

Advantages

• Low fees and automatic portfolio rebalancing.
• Diversifies your portfolio on your behalf. 
• Two of the largest robo-advisors, Wealthfront and Betterment, offer a range of account options, including brokerage accounts, Roth IRAs, traditional IRAs and SEP IRAs. Other financial services, such as high-yield cash accounts, are also available at no additional cost.  

Disadvantages

• In most cases, robo-advisors don’t let you invest in individual stocks, bonds or other less common assets. 
• Limited flexibility for experienced investors who want to use advanced trading strategies, such as margin or options. 
• Access to a human financial advisor can be limited or non-existent with some services.

It might be right for you if:

You want a simple, inexpensive way to invest without constant decision-making.

Expert take

“Robo-advisors are a good option, but don’t expect much in the way of planning and service,” says Conroy. “They’re a low-cost and generally effective investment option, but most people want help figuring out their whole financial picture.”

I have a disability

Best option: ABLE Account

An ABLE account allows people with disabilities and their families to save and invest up to $100,000 without jeopardizing certain assistance program benefits, such as Supplemental Security Income (SSI) or Medicaid. However, even if you aren’t enrolled in those programs, an ABLE account offers tremendous tax benefits on par with a Roth IRA — and with more flexibility, too. 

Advantages

• Funds can be withdrawn tax-free and penalty-free at any time to pay for “qualified disability expenses,” which applies to almost anything benefiting the account holder, including utilities, groceries, transportation, medical care, education — even a down payment on a home. 
• Can save $100,000 without impacting SSI or Medicaid eligibility. 
• Up to $19,000 per year can be contributed from various sources. The maximum account balance ranges from $235,000 to $595,000 or more, depending on the state.
• Anyone can contribute to the account, including the beneficiary, family, friends and employers. You can also roll a 529 plan into an ABLE account. 

Disadvantages

• To qualify, your disability must have been diagnosed prior to age 26 (age 46 starting in 2026). However, if you qualify, you can open an ABLE account at any age.
• To qualify, your disability must be considered “marked and severe” by a licensed physician, or you must already be approved for SSI or SSDI. So not all disabilities qualify. 
• Limited investment options, depending on the state program.

It might be right for you if:

You or a family member has a disability and want access to the most tax- efficient and flexible way to save and invest. 

Expert take

“I’ve been so inspired to see how the disability community is using ABLE accounts to help level the playing field,” says Matt Stagner, a certified financial planner and a lead advisor at Foster Group. “ABLE accounts are relatively easy, low-cost and flexible, and you can get started with as little as $25 depending on the state.”

I earn a high income

Best option: Backdoor Roth IRA or brokerage account

If you’re a high earner, a backdoor Roth IRA and a taxable brokerage account are your best bets for growing wealth beyond 401(k) limits. A backdoor Roth lets you sidestep income restrictions on a Roth IRA while a brokerage account offers unlimited contributions and flexible withdrawals — which is especially beneficial if you’re trying to retire early. 

Advantages

• Backdoor Roth IRAs allow high earners to access tax-free Roth benefits.
• Converting to a Roth IRA brings estate planning perks, since beneficiaries can inherit the account tax-free.
• A backdoor Roth IRA lets you avoid RMDs down the road. 

Disadvantages

• Backdoor Roth conversions can trigger taxes if not done correctly.
• Brokerage accounts are subject to capital gains tax.
• No immediate tax deductions for either.

It might be right for you if:

You’ve maxed out your 401(k) and want to continue investing.

Expert take

“A backdoor Roth IRA and a taxable brokerage account are good options,” says Prichard. “If you’re not going to get a tax deduction anyway, the backdoor Roth strategy is worth pursuing. But the maximum contribution is limited, and with a high income, you probably have more cash flow that needs to go somewhere.”

He adds, “The taxable brokerage account is a good candidate. Those accounts can be surprisingly tax-friendly, even though they’re called taxable.”

I want to earn a little interest on money I’m saving for an emergency

Best option: High-yield savings account

Not all investing is about growth — sometimes, you just need a safe place to park your cash. Whether you’re building an emergency fund or saving for a short-term goal, a high-yield savings account offers security and easy access to your money. 

Advantages

• Safe, FDIC-insured.
• Easy access to your money. 
• Higher interest rates than regular savings accounts.

Disadvantages

• Interest rates fluctuate and may not keep up with inflation.
• Returns are lower than stocks or bonds over time.

It might be right for you if:

You need a secure place for short-term savings with no investment risk.

Expert take

“Many of the online savings account options are paying much better interest than the large national banks,” says Conroy. “You can connect the account to your checking account and the money is only a click and three business days away. That’s plenty liquid enough.”

How do I open an investment account?

Opening an investment account is easier than ever, thanks to online brokers that streamline the process.

First, decide which type of investment account best suits your financial goals. Some accounts, like 401(k)s, are set up through employers, while others, like IRAs and brokerage accounts, are opened independently, usually online. 

Once you’ve chosen the right account type, select a financial institution to open your account. Many brokerage firms and robo-advisors offer a range of investment options and different fee structures.

To open your investment account, you’ll typically need:

1. A government-issued ID
2. Social Security number
3. Banking information to fund the account

After your account is set up and funded, it’s time to choose your investments. Depending on your experience level, you may opt for individual stocks, mutual funds, ETFs or a managed portfolio. Many online brokers offer educational resources and tools to help you build a diversified investment strategy.

Bottom line

Choosing the right investment account is just as important as choosing the right investments. The key is to start investing as soon as possible to take advantage of compound growth. No matter which account you choose, getting started today puts you one step ahead of the game. 

If you’re still not sure which account is right for you, consider speaking with a financial advisor who can help you create a strategy that aligns with your goals. 

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.