[USER]

I’m exploring ways to invest and plan for the future, but I’m a bit confused about two terms I often hear: Roth IRA and Brokerage Account.

What are the key differences between these two, and how do I know which one might suit my financial goals better?

If you’ve used either (or both), I’d love to hear your experiences or tips for deciding which option works best in different situations.

Thank you!

[Drew]

A Roth IRA is a tax advantaged retirement account where, if income requirements are met (under $161k single, or $240k married), one can invest up to $7,000 in 2024 for under 50 year-olds or $8,000 if over 50.

This account can function like a brokerage account where you can make individual investment in stocks or index funds.

This money is invested after taxes and will grow tax free and when withdrawn after 59 1/2 years old, no taxes are paid on those withdrawals.

You can withdraw your contributions penalty free at any time but cannot withdraw the growth until 59 1/2.

A brokerage account has neither those rules or advantages. In a brokerage account you can make unlimited investments, with after tax money and buy or sell any time.

When you sell you will pay capital gains taxes on any gains and which can vary based on your income and how long you have held the security you sell.

Hope this helps.

[Ben]

Roth is a type of retirement account where income is contributed after you’ve paid taxes. You don’t pay taxes on any gains and there are contribution limits and withdrawal rules.

Brokerage account is also done with post tax money but is not considered a retirement account and you pay capital gains on profits. There are no contribution limits and few withdrawal rules.

[Ian]

A brokerage account is functionally a bank account with a financial institution that buys and sell stocks for you. Basically you open an accountant with a brokerage, you put your money into the account, and then you use that money to buy stocks.

The broker is the middle man, kind of like a car dealership, but for stocks.

A roth account is a type of account you open that has different tax rules. Think of it kind of like the difference between a checking and savings account.

Both accounts hold your money, but they have slightly different purposes/rules for getting money in and out.

[Crystal]

Read The Simple Path to Wealth by JL Collins.

[Author]

Posts