Before you move forward with opening an investment account, it's important to understand the different types available. Knowing your options can help you choose the right account to support your financial goals.
A financial professional can show you how to set up an investment account and, in most cases, open one for you. But if you're interested in learning how to open an investment account, here's what to consider.
Investment Accounts & Taxes
When you open an investment account, it’s important to consider whether your investments receive special tax treatment. This benefit applies only to specific types of accounts and usually comes with restrictions on how the money can be used.
Certain retirement, health and education accounts are tax-deferred, meaning the funds invested are not taxed - and earnings on investments aren't taxed until the funds are withdrawn. Contributions to a tax-deferred account are subject to normal income tax upon distribution.
In other instances, the initial investment amount is taxed, but the earnings are not. Additionally, retirement distributions taken before the age of 59½ will incur a 10% early withdrawal penalty.
Some investments, such as brokerage accounts, are made using after-tax funds, or funds on which taxes have already been paid. Earnings on these accounts are taxed annually, regardless of whether they are withdrawn.
Types of Investment Accounts
Before opening an investment account, it's a good idea to know the properties of the different options. Here are the types of investment accounts to consider.
Education Accounts
A common type of education account is a 529 savings plan, which receives special treatment for after-tax contributions. These accounts allow funds to be used for education-related purposes. They can be opened through a brokerage firm.
Tax-Deferred Retirement Accounts
There are a few different types of retirement accounts that receive special tax treatment:1
| Account Type | Contribution Limits (2026) | Tax Treatment | Withdrawal Rules |
|---|---|---|---|
| 401(k) accounts | Under age 50: $25,500 Age 50 or older: $32,500 |
Contributions are typically pre-tax. | Distributions are taxed as regular income after age 59½; early withdrawals may incur penalties. |
| Traditional IRAs | Under age 50: $7,700 Age 50 or older: $8,600 |
Uses pre-tax funds. | Withdrawals after age 59½ are taxed as regular income; withdrawals before age 59½ incur a 10% penalty. |
| Roth accounts | Under age 50: $7,700 Age 50 or older: $8,600 |
Uses after-tax contributions. | Qualified withdrawals are tax-free; withdrawals before age 59½ or within 5 years of opening the account incur a 10% penalty and possible taxes. |
Brokerage Accounts
These are also known as taxable brokerage accounts or non-retirement accounts. They can be used for retirement but do not receive special tax treatment like other retirement accounts. They can be opened through various investment firms or banks. In general, they may be worth considering as a way to diversify your portfolio of investments.
Health Savings Accounts
These accounts - also called HSAs - receive special tax treatment and can be opened only by people who have eligible health insurance plans with high deductibles. They can be opened through banks and through employers that administer them. In general, the funds can be used only for qualified medical expenses.
Annuities
While annuities aren't actually investment accounts, they do have some of the same properties, depending on the type of annuity you consider. Annuities are contracts with insurance companies, wherein you make one or more premium payments, and the money has the potential to grow over a specified period of time. The growth can be determined by a fixed percentage in the contract or by the performance of investments in an underlying portfolio. The amount of any gains or losses could also be tied to the performance of an index, such as the S&P 500® or a proprietary index.
In general, annuity growth is not taxed until the funds are withdrawn. Withdrawals from annuities before the age of 59½ are generally subject to an additional 10% tax penalty. Withdrawals from annuities before the age of 59½ are generally subject to an additional 10% tax penalty.
Ready to Open an Account? Here's What to Do Next
Generally, the best way to open an investment account is to decide on your goals and then consider what type of account best supports them.
Before opening an account, it helps to review and compare different investment and brokerage firms based on:
- Fees and incentives
- Services offered
- Convenience and accessibility
You may also consider a robo-advisor, which typically offers:
- Lower fees and costs
- A lower level of personalized service compared to traditional firms
You can talk to representatives at traditional firms about their offerings before opening an account to determine your comfort level and whether they meet your needs. Once you settle on a firm, you'll typically fill out an account application first, after which you would provide the funds for the account. You may want to research the investments in the account and make sure your funds are distributed according to your preferences.
Conclusion
In general, it's a good idea to monitor your account over time and make changes to your investments as needed.
When you're ready to start investing, reach out to a financial professional who can talk about your individual options and help you manage your personal finances. These professionals can provide valuable insight and walk you through how to set up an investment account, including a 529, an IRA or a brokerage account.
Access financial growth through a personalized investment account. Invest In My Future
Sources
- 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500. https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500.
