Ally brokerage account types offered and differences: individual, joint, retirement (Roth IRA, Traditional, Simple, SEP, Custodial), Education/College-Saving Plans, 529, HSA.

Ally Invest Accounts Types Overview

An individual taxable account is probably the most popular and common type of brokerage account that people open, however there are a number of different account types that you could choose from to better fit your needs and investing goals. Different account types often come with unique legal and tax structures that make them advantageous over a standard taxable account when used in the right manner. Ally Invest, for example, offers 17 different account types to choose from, and this article will cover the basic options and why you might choose one over another.

Ally Invest Standard Accounts Types

Ally’s standard taxable account is the most popular and can be opened as an individual or joint account depending on whether or not you want to share control of the account with a significant other. With a joint account, both account owners have equal ownership of and ability to make trades with the account’s assets as it’s assumed the wealth was the result of both of their efforts. These accounts are funded with money that you’ve already been taxed on and do not offer any tax advantages like some of the other accounts we’ll discuss later.

Ally Brokerage Account Types

Retirement Accounts

Ally also boasts an impressive variety of retirement accounts to choose from, with the two most common being the traditional and Roth IRAs.


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Traditional IRA

The traditional IRA is the more common investment vehicle, especially among the self-employed, as it provides the same tax advantages that one would receive with an employer-sponsored 401k plan. You fund a traditional IRA with pre-tax earnings (up to $6,000 per individual in 2020 or $7,000 for those over 50 years of age) and can use the funds in the account to buy and sell securities just like with an individual taxable account. Because it’s funded with pre-tax dollars, this lowers your current taxable income and also allows the assets in your IRA account to grow tax-free. On the flip side, once you retire and start withdrawing funds from your IRA you will pay taxes on the full amount (both your contributions and capital gains), but this will likely be at a lower tax rate given that you won’t be earning a salary anymore. It’s possible to withdraw funds from your IRA before retirement age, but this is not recommended as it would incur a hefty penalty tax.

Roth IRA

The Roth IRA is the traditional IRA’s cooler younger sibling and it functions in much the same way with the same annual contribution limits. The big difference with the Roth IRA is that your contributions come from income that has already been taxed. This means that there is no tax advantage in the years where you make contributions, however on the flip side, once you reach retirement and start withdrawing money you won’t owe any taxes – not on the contributions nor the capital gains. Another perk of the Roth IRA is that you are allowed to withdraw funds earlier than retirement if you choose without any penalty (although any realized gains that are withdrawn before your account has been open for five years will be taxed). Ally also offers a variety of IRA accounts that can be used for specific scenarios, such as the SEP IRA, which is designed for self-employed persons or those who work for small companies, and a Beneficiary IRA, which is an IRA account where you name a beneficiary to receive the assets upon your death.

Education/College-Saving Plans

Most brokers offer a few different account types that make saving for a child’s education easier to do from a tax perspective, and Ally Invest is no exception. Two of the most popular accounts Ally offers in this area are the Coverdell Education and Custodial accounts.

Coverdell Education Savings Account

A Coverdell Education Savings account is funded with earnings that you’ve already been taxed on so there is no immediate tax advantage, however distributions from this account are tax-free. The account’s assets can only be used to pay for qualified educational expenses (tuition, textbooks, etc.) and there is a $2,000 annual contribution limit.

Custodial Account

A Custodial Account is another option that makes saving for a child’s education easier to do by offering some financial perks. A custodial account is generally funded by a parent (the custodian) and it then becomes the legal property of the child it was setup for once they become an adult. The benefactor has the sole right to all assets in the account and to use them however they like so it’s important to be sure you are ready to part with the funds before depositing them in the account. You could withdraw some of the funds prior to the child becoming an adult, but the funds can only be used for the child’s educational expenses. There are tax benefits that come with a custodial account – namely that the first $1,000 of annual investment income is not taxed, and the next $1,000 is taxed at the child’s tax rate (which is probably the lowest bracket). Annual income over $2,000 is taxed at the custodian’s tax rate until the child takes legal ownership of the account, after which all income is taxed at the child’s tax rate. There are no contribution limits; however amounts over $14,000 will be subject to the gift tax.

Other Specialty Investment Accounts

In addition to the above mentioned, most common account types, Ally Invest also offers accounts that are designed for different legal entities, such as Trusts, Partnerships, and LLCs. Trusts are commonly used by wealthy individuals to manage funds for a specific purpose or for a beneficiary. Partnerships or LLCs may use a brokerage account if they are an organization that invests on behalf of many individuals (i.e. an investment club) or if they are a business that is involved in the markets.

Ally Invest Account Types Summary

Whether you’re setting up an account for yourself, for you and a partner, for a child or relative, or for a business group or entity, Ally Invest has the right account type for you. It’s important to consider whether your investing goal qualifies you for one of these specific accounts so that you can benefit from the tax advantages and legal structure that they offer.

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