Types of Accounts Flashcards
Non-Qualified Accounts
These are accounts you fund/invest in with money you have already paid income taxes on (Post Tax).
The initial investment is not taxed when you withdraw BUT any gains or interest is taxable.
Examples: Checking Account, Savings Account, Investment Post Tax Investment Accounts.
Qualified Accounts
These are accounts you fund/invest in with money you have not already paid income taxed on (Pre Tax). The initial investment will be taxed when you withdraw as well as any gains or interest.
Examples: Individual Retirement Accounts (IRA) with banks or investment firms. 401(k) Savings Plans through employers.
IRA vs 401(k)
You have more choices with an IRA as towards how you invest
Investment choices are more limited through a 401(k) but usually an employer matches your contribution with a 50 =% or 100% match on the first 6% you contribute. The employer will typically vest on a 3-5 year period. Meaning if you leave you may lose.
If you withdraw either and do not roll it over in 60 days that puppy is taxable bb. 10%. OOF. Exceptions include medical and buying a home.
Roth IRA
Like a 401(k) (Non-Qualified) except you fund the account with post tax money. So you have already paid taxes on the initial investment. That initial investment will not be taxed when you withdraw it but gains and interest are taxable
Taxes- Short Term Capital Gains
Gains you make from selling assets you’ve held for a year or less are called short-term capital gains and they are generally taxed at the same rate as your ordinary income, This is typically 10% to 37% depending on your tax bracket.
Taxes- Long Term Capital Gains
Gains from the sale of an asset you’ve held for longer than a year are known as long term capital gains. They are typically taxed at lower rated than short term or ordinary income. 0% to 20% depending on your taxable income.
When will Gains be taxed?
Only when you sell and withdraw from any account, especially pre-tax (Qualified) accounts
