Choosing an investing account

Many people take their first step into the world of investing when they get a 401(k) with their first job. While a 401(k) is a great way to start investing (especially if your company matches some or all of your contributions), you might be wondering if a 401(k) alone is enough or if you should also explore other investment accounts.

As you think about investing and which account would be right for you, keep these questions in mind:
Are you looking for a broad range of investment choices - image

Are you looking for a broad range of investment choices?

 Are you planning to contribute pre-tax or after-tax income - image

Are you planning to contribute pre-tax or after-tax income?

 Are you trying to build wealth for a goal other than retirement - image

Are you trying to build wealth for a goal other than retirement?

 Will you need the money in the next few years - image

Will you need the money in the next few years?

Which E*TRADE IRA could be right for me?

Breaking down your choices

Let's take a look at some of the most common types of retirement accounts (along with a brokerage account) and their key features and rules.* No account minimums required when you open an account.2
  401(k)** Roth IRA Traditional IRA Rollover IRA Brokerage Account
What is it?

A retirement account that is sponsored by an employer

An Individual Retirement Account funded with after-tax contributions

An Individual Retirement Account funded with pre-tax income or after-tax contributions***

An Individual Retirement Account established with assets transferred from either an old employer's plan, such as a 401(k), or another IRA

A non-retirement investment account
The idea in a nutshell
  • Contributions made pre or post-tax, and investments have potential to grow tax-free or tax-deferred
  • Unlike brokerage accounts, restricted access to cash before you retire
  • Withdrawals taxed as regular income in retirement
  • Contributions made with after-tax money and investment earnings have potential to grow tax-free
  • Unlike brokerage accounts, restricted access to cash before you retire
  • Qualified withdrawals in retirement also tax-free
  • Similar to a 401(k), contributions typically made pre-tax, and investments have the potential to grow on a tax-deferred basis
  • Unlike brokerage accounts, restricted access to cash before you retire
  • Withdrawals in retirement taxed as regular income
  • Permits movement of assets from an old 401(k) or existing IRA into a new Roth or Traditional IRA without incurring penalties or losing tax advantages
  • Unlike brokerage accounts, restricted access to cash before you retire
  • A general-purpose account with wide degree of flexibility and no special restrictions or tax advantages
Eligibility requirements

Must be offered by an employer

Income must be below certain limit

No restrictions on eligibility

Must have a 401(k) or another eligible plan from a previous employer or another IRA

$0 minimum to open an account at E*TRADE
Fees
  • Administrative, maintenance, and investment fees may apply
  • $0 administrative & maintenance fees at E*TRADE
  • Transaction fees, fund expenses, brokerage commissions, and service fees may apply
  • $0 administrative & maintenance fees at E*TRADE
  • Transaction fees, fund expenses, brokerage commissions, and service fees may apply
  • $0 administrative & maintenance fees at E*TRADE
  • Transaction fees, fund expenses, brokerage commissions, and service fees may apply
  • $0 administrative & maintenance fees at E*TRADE
  • Transaction fees, fund expenses, brokerage commissions, and service fees may apply
Investment choices

Depends on the plan; plan sponsor or delegated investment manager chooses investment options

E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures

E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures

E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures

E*TRADE offers a broad range of choices, including stocks, exchange-traded funds (ETFs), mutual funds, bonds, options, and futures
How to fund
  • Pre or post-tax contributions are taken out of paycheck
  • Many employers match contributions up to a specified amount
  • Deposit money from a bank account or brokerage account
  • Convert an existing IRA or retirement plan
  • Deposit money from a bank account or brokerage account
  • Convert an existing IRA or retirement plan
  • Roll over an old employer-sponsored plan or IRA
  • Deposit money from a bank account or brokerage account
Contributions
 
  • Employee salary deferrals vary by age
  • Employer can make matching and/or non-elective contributions
 
  • Eligibility is based on your income and other factors
  • Maximum contribution limits vary by age
  • No restrictions on eligibility, but contributions may or may not be tax deductible
  • Maximum contribution limits vary by age
  • Maximum contribution limits vary by age
  • No restrictions on the amount in the old 401(k) or IRA that is rolled over
  • No contribution or maximum age limits—unlimited investment amount
Access to cash
  • Subject to penalties and taxes if funds are withdrawn before age 59½, certain exceptions apply
  • Penalty free withdrawals may be available at age 55 in some circumstances
  • No age restrictions to withdraw money contributed, but penalties and taxes apply to any investment earnings withdrawn within 5 years of account opening or age 59½, whichever is longer
  • Subject to penalties and taxes if funds are withdrawn before age 59½
  • Certain exceptions may apply such as using the money to buy a first home or for secondary education
  • Subject to penalties and taxes if funds are withdrawn before age 59½
  • Certain exceptions may apply such as using the money to buy a first home or for secondary education
  • No tax-related restrictions
Required withdrawals

Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949)

No requirement to withdraw funds during the lifetime of the original account holder

Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949)

Withdrawals must begin after reaching age 72 (70½ for investors born before 7/1/1949)

No requirement to withdraw funds
Tax benefits
  • Tax-advantaged, meaning no taxes paid on earnings in the account until withdrawn in retirement
  • Potential current income tax break because pre-tax contributions lower annual taxable income
  • Contributions come out of income after it is taxed
  • Tax-advantaged, meaning no taxes paid on earnings and withdrawals on qualified distributions
  • Tax-advantaged, meaning no taxes paid on earnings in the account until withdrawn in retirement
  • Potential tax break, because pre-tax contributions lower annual taxable income
  • Tax-advantaged, meaning no taxes paid on earnings in the account until withdrawn in retirement
  • Can avoid paying current taxes or early withdrawal penalties if directly transferring 401(k) assets into a Rollover IRA
  • No tax benefits or deferrals
  • Taxes paid annually on applicable gains from dividends, interest earned, and investments sold
  • Cash withdrawals are not taxed

* The table above is for informational purposes only and does not constitute a full list of available accounts.

** Many companies also sponsor Roth 401(k) accounts. Unlike the Traditional 401(k), a Roth 401(k) account is funded with after-tax income. Qualified withdrawals of contributions and earnings in this account are tax-free.

*** A pre-tax contribution is not taxed when it’s put into the account, so it's not counted as part of your taxable income for the year. Uncle Sam allows a certain amount of income to be contributed pre-taxed to qualified retirement plans. This lowers your taxable income and may get you a tax break. After-tax contributions are taxed when they are received, so you will pay additional taxes on your take-home pay when it is contributed.

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Questions to consider when choosing an account

Remember that no matter what accounts you end up choosing, the most important thing is to make a solid retirement and investing plan, stick to it, and save as much as you can as early as you can. Here are some questions investors may consider when choosing an account.

IRA or 401(k)?

You may be able to have both an IRA and 401(k). If you are deciding between the two, consider the following:

  • Does your employer offer a 401(k) or employer match?
  • Which account type offers lower administrative, service, and investment fees?
  • What investment options are offered?

Brokerage or Retirement Account?

You may be able to have both a brokerage and retirement account. If you are deciding between the two, consider the following:

  • When will you need access to cash?
  • How much money are you looking to invest?
  • Are you looking to diversify your investments across different account types?

Traditional or Roth IRA?

You may be able to have both a Traditional and Roth IRA. If you are deciding between the two, consider the following:

  • Does your income level exceed the eligibility requirements to open a Roth IRA?
  • Do you think your tax rate will be lower or higher in the future?
  • Use the IRA Selector tool to see if you qualify for a Traditional or Roth IRA.

Explore retirement accounts

Roth IRA3

Tax-free growth potential retirement investing

Pay no income taxes or tax penalties on qualified distributions if you meet certain requirements.

Traditional IRA

You may be eligible to make income tax deductible contributions

Earnings potentially grow tax-deferred until you withdraw them in retirement.

Rollover IRA

Consider rolling over your old 401(k) plan assets to an E*TRADE from Morgan Stanley IRA

Consolidate assets from a former employer’s retirement plan.