Investment Vehicles

In order to buy investments, you'll need to open an investment account. There are different types of accounts with different tax advantages. Understanding these is crucial for maximizing your wealth.

Regular Brokerage Account

A taxable brokerage account is the simplest type of investment account.

You fill it with money from your checking or savings account
Using this money, you can invest in stocks, bonds, mutual funds, ETFs, etc.
No contribution limits
No tax advantages — you pay taxes on dividends and capital gains

Best for: Money beyond your retirement account limits, or money you might need before retirement.

401(k)

A 401(k) is a type of retirement account offered by most employers. This is often the first place you should invest.

Traditional 401(k)

Your employer takes pre-tax money from your paycheck and puts it into this investment account.

Contributions reduce your taxable income now
You pay taxes when you withdraw in retirement
Best if you're in a high tax bracket now and expect to be in a lower one in retirement

Roth 401(k)

Your employer takes after-tax money from your paycheck.

No tax benefit now
Withdrawals in retirement are completely tax-free
Best if you're in a low tax bracket now and expect to be in a higher one in retirement

The employer match: If your employer matches 401(k) contributions (e.g., 50% match up to 6% of salary), always contribute enough to get the full match. It's free money—a 50% instant return on your investment.

401(k) Limits (2026)

Personal contribution limit: $23,500 ($31,000 if over 50)
Combined with employer match: up to $70,000

IRA (Individual Retirement Account)

The main difference between an IRA and a 401(k) is that an IRA is established by you, not your employer.

Traditional IRA

Contributions may be tax-deductible (depending on income)
Money grows tax-deferred
You pay taxes when you withdraw in retirement

Roth IRA

Contributions are made with after-tax money
Money grows tax-free
Withdrawals in retirement are tax-free
Has income limits for contributions

IRA Limits (2026)

Contribution limit: $7,000 ($8,000 if over 50)
Roth IRA income limits: Reduced contributions above ~$150k single / ~$236k married

Compare how the same contributions grow differently in Traditional vs. Roth accounts based on tax rates.

Which Account Should You Use?

Here's a simple priority order:

401(k) up to employer match — Always get the free money first
Pay off high-interest debt — Anything over 7-8%
Roth IRA — Tax-free growth is powerful
Max out 401(k) — The rest of your $23,500 limit
Taxable brokerage — After maxing tax-advantaged accounts

Pre-tax vs. Roth decision: If you're early in your career and in a low tax bracket, Roth accounts are often better. You pay low taxes now and never pay taxes on the growth. If you're in a high tax bracket, traditional/pre-tax accounts might make more sense.

Summary Table

Account Type	Tax Now	Tax Later	Contribution Limit
Traditional 401(k)	Deductible	Taxed	$23,500
Roth 401(k)	Taxed	Tax-free	$23,500
Traditional IRA	Deductible*	Taxed	$7,000
Roth IRA	Taxed	Tax-free	$7,000
Taxable Brokerage	Taxed	Taxed	Unlimited

*Deductibility depends on income and whether you have a workplace retirement plan.