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non-qualified account

Know Your Account Types – There is a Big Difference

jim 401k, 529 Plan, College Savings, family wealth management, Financial advisor, Investing, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, Saving for College, Traditional IRA, wealth management October 13, 2020October 13, 2020401K, College Savings, financial advisor, Investing, non-qualified account, retirement planning, Roth IRA, Saving for College, traditional IRA
Know your account type

There are two broad categories of plan types: qualified and non-qualified. Within these groups are a number of important accounts that can help you achieve your financial goals. If you know your account types, you can better understand the advantages and disadvantages. Let’s take a quick look at each one.


Qualified Accounts

Traditional Individual Retirement Account (“IRA”)

IRA accounts are often the core account for retirement savings. Contributions are typically tax-deductible, which means made with pre-tax assets. This provides a tax benefit in the current year by lowering taxable income. IRA’s are not taxed on investment growth annually. Taxation on this account occurs at the time of withdrawal. At which time in retirement, the individual will be at a lower marginal tax rate.

401k

401ks are offered through an employer. While there are important differences and similarities between IRAs and 401k accounts, the big benefit of a 401k is that your employer can also make contributions, helping you build up your retirement savings quicker.

Roth IRA

Contributions into a Roth IRA are made with after-tax dollars. Therefore, they are not tax-deductible like a Traditional IRA. Withdrawals, however, are tax-free after five years (and other important age conditions are met), which can potentially have a dramatically positive impact on the plan. As of 2020, individuals can contribute up to an annual maximum of $6,000 if you are age 49 and under, and $7,000 if you are age 50 and above.

529 Savings Plan

If saving for post-secondary education, a 529 Savings Plan is a popular option. 529 plans are sponsored by states, not the federal government. You do not have to live in the state that sponsors the plan you choose, nor does your child have to go to school in that state. What set 529 plans apart from others is that contributions grow tax-free if they are used for college.

Non-qualified accounts

Cash Account (for investments)

The most important non-qualified account type to know about is the cash account. Unlike qualified plans, a cash account does not have tax advantages, but there are also fewer restrictions. The big benefit to cash accounts is the liquidity. You can pull money out of your account at anytime without a tax penalty. However, there may be short-term and long-term capital gains taxes to consider.

A general rule of thumb is to maximize, if appropriate to your situation, qualified plans in order to take advantage of the tax benefits, before making significant investments into a cash account.

Do you think you can benefit from one of these account types? Contact me for a consultation!

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Mutual Fund Liquidity

jim Investing, Investing Strategy, Mutual Funds, qualified account February 24, 2018October 20, 2022Investing, Investing Strategy, Mutual Funds, non-qualified account

Received a great question last night from the website form, worthy of a quick post.

Question:  Would a mutual fund give access to cash and what would the penalties be to pull money out?

mutual fund pic erie co

Answer:  First of all, thanks for sending this question our way.  Let’s breakdown this question.  Mutual funds are a type of investment.  Mutual funds are an option of where you can put your cash.  Similar to a bank account, individual stock, exchange traded fund (ETF), index fund, and so on.  Where the mutual funds are held determine a penalty when withdrawing money in the event you need cash.

You have two options; you can open a non-qualified investment account or a qualified investment account.  The difference being a qualified account is a retirement account.  If you pull money out of a retirement account, without a qualifying event, you will receive a penalty tax.  Therefore, if you are looking for an account to invest in mutual funds (or stocks, ETF’s, index funds, etc.) and want to have access to the money without penalty taxes, you can find these advantages in a non-qualified investment account.  Accounts you withdraw money without penalty tax are referred to as “liquid” accounts.  We find these accounts to be beneficial to our clients who are looking for additional growth of their money (compared to a savings or checking account) and also have the quick access to cash if needed.  

Click here if you would like to learn more about your options and if we can assist you with your investment planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

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    • About: Rocky Mountain Financial Solutions
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  • FAQ
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Blog

  • Love & Money – Long-term & Patient
  • From Halloween to Fall Back – Market Brief Nov 1, 2022
  • Market Brief – October 18, 2022
  • Game-Changing 4th Quarter
  • Inflation Still Running Hot – Market Brief Sept 19, 2022

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All stock data displayed is for informational and educational purposes only and should not be considered as investment advice or investment recommendation.

Author of this website does not accept liability or responsibility for your investment decisions, including but not limited to trading and investment results.  We are Investment Adviser Representatives of Rocky Mountain Financial Solutions. Rocky Mountain Financial Solutions is a Colorado state Registered Investment Adviser. Our current Form ADV Part 2 disclosure is available for your review upon request.

This website is for informational purposes only and is not intended to be specific advice or recommendations. This is not a solicitation or offer of service in states we are not licensed in. For specific advice or recommendations you would need to meet directly with one of our advisers.

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