Keeping your money in investment accounts is a smart way to have it grow, but the choices can be overwhelming. Retirement accounts, such as a Roth individual retirement account (IRA), offer tax benefits. But regular investment accounts can offer more flexibility. Look at your options to determine the best investment methods for your personal needs.
Account Opening Procedures
Many brokerages offer both Roth accounts and regular investment accounts. However, the company will have a minimum required deposit in order to open the account. In many cases, the minimum is lower for opening a Roth than it is for opening a regular investment account. Once you've opened the account by making your initial deposit, you are free to choose your investments for both types of accounts. A regular investment account offers more flexibility in investment choices than a Roth IRA.
The government limits how much money you can contribute to a Roth account each year. As of 2011, the limit is $5,000 for those under 50 years of age and $6,000 for those 50 and older. With a regular investment account, there is no limit -- you can deposit as much as you can afford.
When you own a Roth account for your retirement, your money can grow tax free. When you withdraw earnings, you'll have to pay taxes on them only if your account is less than five years old. With a regular investment account, however, you will have to pay capital gains taxes on any profits you've made in your investments when you sell them.
Since the Roth IRA is meant for your retirement, there are restrictions on withdrawing your money. You are allowed to withdraw your contributions at any time, but will incur a 10 percent penalty on earnings if you do so before age 59 1/2. However, there are exceptions, such as if you are purchasing a first home, paying college expenses, or paying for certain medical expenses. On the other hand, with a regular investment account, you are free to withdraw any amount at any time for any reason. You simply have to pay any brokerage fees for the transaction and taxes on the money.