The 3 Best Investment Accounts for College Grads

Daniel Penzing
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401(k) or Similar

You should consider saving for retirement before saving for college. And if there is room in your budget, your best option will usually be to cover both, which can offer some great tax benefits.

If you are in your twenties and saving for your college education, you may want to focus on establishing an emergency fund. If you have to take out loans, you will have to take out federal student loans. These loans offer consumer protections that other types of loans do not, according to the U.S. Department of Education.

There Are Few Options With Your 401(k)

Most students are often advised to start a retirement account while they’re still in school. While this is sound advice, there’s one slight problem. Most employers don’t offer student investment accounts. Plus, even if they do, students are often offered little to no investment choices.

Roth IRA

If you’re too young to remember the housing crisis, you’re very lucky. It led to a lot of people learning about real estate investing, whether they prepared for it or not. It was a great opportunity to get a head start investing and learn market conditions that other people were too afraid to face. Now that younger people are getting out of school, they should be doing the same. If you’re planning to invest, here’s the difference between the three accounts and why a Roth IRA should always be your retirement account of choice.

Taxable Investment Brokerage Account

The first place to think about depositing your bonuses is a taxable brokerage account. This requires that you have earned income during the year (you often get a W-2 from the company for freelance work for the first year), which usually means you’ll be able to deduct the contribution if you’re able to itemize your deductions.

Investment brokerage accounts are not free … you do have to pay the brokerage firm a small fee for every trade you make. You can also expect to pay a mutual fund company or ETF fund (Exchange Traded Fund) a small fee for holding a mutual fund or ETF in your account.

If you’re not sure how to manage your taxable investments, ask your financial advisor or use an online broker. If you’re not sure whether you should manage them yourself, you should almost certainly manage them yourself. You can talk to your advisor about paying much more for a managed taxable account or just about getting a mutual fund or ETF.

Here are some tax-saving products that would make good choices for college grads using their new money:

Conclusion: Your Money Is Just Warming Up

After college, you have the potential for plenty of time, a great job and a great salary. But before you can enjoy the fruits of your next paycheck, you’ve got to win a few battles with your budget and investing goals. The 3 best investment accounts for college grads are a great way to make the most of your money.