Consolidating accounts might help make it easier to manage your portfolio.

How Many Investment Accounts? Let Your Plan Be Your Guide

A paper bag by itself doesn’t have much value. But fill it with groceries, and you now have dinner.

So it is with investment accounts, such as a Roth IRA or a Coverdell education savings account. The accounts themselves have virtually no value until you fill them with securities like stocks or bonds.

And that leads us to an essential question: How many investment accounts do you need?

“That depends on your financial goals and plans,” said Joe Correnti, senior vice president of brokerage product at Scottrade. “Depending on your situation, you might need a variety of investment accounts. And in some cases, you might have too many accounts, so account consolidation might make sense.”

We’ll outline a few account types to help you decide how each might fit into your plans.

The Workplace Account: Yes, a 401(k)

A 401(k) is an account type offered through an employer that comes with built-in tax advantages. They’re relatively easy to manage and most employers will match your contributions up to a certain level. Usually, there are a limited number of investment selections.

The Individual Retirement Account (IRA)

As the name implies, you open an IRA on your own through brokerages like Scottrade. There are several varieties of IRAs offered at Scottrade, with many having tax advantages similar to those offered in 401(k)s. But unlike 401(k)s, you can buy and sell just about any mutual fund, stock, bond or exchange-traded fund in most IRA accounts.

Because IRAs have similar tax advantages to 401(k)s, in most cases you can transfer funds from a 401(k) from a previous employer into an IRA you open at a brokerage, like Scottrade.

Education Accounts: Coverdells and 529s

If you are looking to invest in education, one starting point would be accounts with potential tax advantages if you use the funds for education-related costs. Two popular education account types are Coverdell education savings accounts, which are available at Scottrade, and 529 plans.

Standard Brokerage Account

A standard brokerage account doesn’t offer special tax advantages. However, these accounts typically offer more flexibility than IRAs if you use advanced trading techniques, or if you need access to funds from investing or trading. Although proceeds and capital gains from investing are taxed, they’re also free of the penalties that can come with early withdrawals of IRA and 401(k) funds.

Checking or Savings Account

Bank checking and savings accounts, like those available at Scottrade Bank, are not investment accounts per se. But for short-term and emergency needs, these accounts come in handy because funds can be withdrawn immediately and typically without any penalties or fees. A checking or savings account with six to eight months of expenses available can help you avoid dipping into your long-term investments when times get tough.

Gather It All Together

As you move to the next step of allocating assets for your various accounts, it may be easier to track and manage your investments if you can look at everything together. You might want to consider consolidating accounts where possible.

How many different accounts do you and your family have?

Next Steps: Scottrade clients can log in and conduct a Portfolio Review to help evaluate all of their accounts. Not client? Check out the various account types offered at Scottrade.

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

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