Millennials, it’s finally happening. Most of us are starting to (or have already) turned 30. And while we can’t avoid getting older, we can take control of our finances and our future. That starts by learning how to invest in ourselves, which means learning about the types of investment accounts available to invest in.
And sure, as an investment app, we definitely want to ensure that you’re investing in stocks in a way that can help you build long-term wealth. However, buying and selling stocks and cryptocurrency isn’t the only way to invest in your future. There are numerous types of investment accounts that you can open in your 30s that’ll help you set yourself up for a cushy financial future.
If you’ve been working for a larger company for a while, chances are that you already have a 401(k). If not, don’t worry! There are other options that don’t require you to work for “the man” (because we, like you, love our location-independent, sometimes digital nomad corporate lives).
Here are the three types of investment accounts we suggest opening in your 30s if you haven’t already.
Want to skip the tips and start investing in yourself right now? Download the Wealth Stack app for free to get started today.
1. Individual Retirement Accounts
Since we’ll be leaving 401(k)s out of this list (because a large portion of millennials work for themselves on a freelance basis anyway), let’s talk about individual retirement accounts for a second. With individual retirement accounts, you’ve got two basic options.
Roth IRAs are private retirement accounts that can be opened and financed by you (not your employer). Contributions to this type of account are made with money after paying taxes, which means that your money grows tax-free. This is different from a traditional IRA in that Roth IRAs allow you to make tax-free withdrawals after about 59½ (because you’ve already been taxed on the money that’s in the account).
Roth IRAs, in short, are best for people looking to enjoy tax-free withdrawals during retirement. They’re also a great option for those currently in a low-income tax bracket and aspire to be in a higher income tax bracket later. High-income earners won’t benefit much from a Roth IRA as the income limit to be able to make contributions is $140,000 in 2021.
Traditional IRAs come with a set of restrictions, including how much you can contribute and when you can start withdrawing without penalty. These accounts are basically a wager on the tax rate that you will cancel when you start making withdrawals after age 59½ since the accounts grow tax-deferred but are taxed on withdrawal.
With traditional IRAs, you’re depositing money into the account in a tax-deferred way. This means that you don’t have to pay taxes on any of the money in that account until you retire and begin to withdraw.
How Much Should You Be Investing in IRAs in Your 30s?
We’ll start off by saying that, if you do have a 401(k), maximizing your contributions to that in your 30s is a good idea. Why?
First and foremost, if your employer offers contribution matching then you absolutely need to take advantage of that. As well, 401(ks) have a high annual contribution limit of $19,500 for 2021 if you’re in your 30s. One look at a 401(k) calculator and you’ll see just how beneficial investing now (while you don’t have kids, for example) could be.
Nerdwallet has already done the calculations for you: “Let’s pretend you make $50,000 and begin saving at age 30. Assuming 2% annual salary increases and a 6% average annual return, saving 10% each year and collecting a 3% match will net you a little over $1 million by age 67.”
Now, back to IRAs. How much should you be putting into IRAs in your 30s? Basically, as much as they’ll allow you to. The current contribution limit is $6,000 in 2020-2021 for both Roth and traditional IRAs.
And, when you break it down monthly, that’s not that much money. If you’re aiming to contribute the maximum of $6,000, that’s only $500 per month. While that’s an expense for sure, it’s well worth what you can gain long-term.
2. 529 Plans
Seeing as you’re in your 30s now (or are planning ahead), there’s no time like the present to start setting your current or future kids up for success. When it comes to investment accounts for kids, there are two major types of 529 plans: prepaid tuition plans and savings plans.
A 529 plan, in general, is a flexible and tax-advantaged savings plan. They allow parents to slowly save money for their child’s education. Initially, a 529 plan covered only post-secondary schooling costs (i.e. college). Recently, it was expanded so that now you’re able to use it for K-12 education and apprenticeship programs, too.
Prepaid tuition 529 plans allow you to pay your child’s education costs in advance at designated universities and colleges while locking in the total cost at a specific rate. Basically, you’re purchasing credits or units at those universities.
529 savings plans, on the other hand, are tax-free when you make payments for qualified education costs. Plus, they are also tax-deferred. These are investment accounts, meaning that you’re putting money into the account and the cash gets invested for you so that you’re able to grow it more than you would in a savings account.
3. Standard Brokerage Account
What is a standard brokerage account? It's a non-managed investment account associated with a standard broker-dealer, which you can access via phone or online. This type of account allows you to buy and sell many different securities including stocks, bonds, mutual funds, exchange traded funds (ETFs), options and more.
Do you have to know how to invest in order to open a standard investment account? Not necessarily, but it’s definitely going to help. A standard brokerage account allows standard investors to decide what types of securities they want to buy and sell with minimum restrictions on activity. However, they sometimes come with minimum investment values and high fees.
What’s a good alternative to a standard brokerage account if you don’t know how to invest? We suggest downloading Wealth Stack. Not only will you be able to manage your investments (once you’re ready to make them), you’ll be able to learn how to invest for free.
When you download the Wealth Stack app, this is what you gain access to. You can access numerous free video courses that will help you learn how to invest. Then, you can browse through our list of professional Speakers to learn straight from the pros. Ready to get started? Download the app for free today.