The most common confusion I see in investing is around the names of accounts. Roth IRA, 401(k), brokerage accounts, etc. They all sound so confusing! But here’s the thing. They’re all just weird names for plain old bank accounts. Just like checking and savings. They’re just empty buckets that hold stuff. But each one has a slightly different purpose or special rules. Let’s look at a few:
• Checking: You hold cash here. You can write checks from this type of account.
• Savings: You hold cash here. Generally provides interest on cash stored here. Historically more interest than a checking account.
• Brokerage account: You can hold cash here, but also stocks, bonds, mutual funds, index funds, etc. Instead of opening this type of account with a bank, you usually open it with a brokerage like Vanguard, Fidelity, Schwab or Betterment.
• Roth IRA: A special type of brokerage account. The same as above, but it also offers a tax break. Investments that grow in this type of account are never taxed again, but can’t be withdrawn until 59.5.
• 401(k), 403(b), TSP, 457: Special types of brokerage accounts. Can only be opened if your empl