Start with the account, then the investment
The account decides how your money is taxed. The investment decides how it grows. Tax-advantaged accounts usually come first.
| Account | 2026 contribution limit | Tax treatment |
|---|---|---|
| 401(k), 403(b), 457, TSP | $24,500; +$8,000 at 50+; +$11,250 at ages 60–63 instead | Traditional: deduct now, taxed later. Roth: taxed now, qualified withdrawals tax-free |
| Traditional IRA | $7,500; +$1,100 at 50+ | May be deductible; withdrawals taxed; RMDs from 73 |
| Roth IRA | Same combined IRA limit; phases out at $153,000–$168,000 (single) | No deduction; qualified withdrawals tax-free; no lifetime RMDs |
| Taxable brokerage | No limit | Long-term gains taxed at 0%, 15% or 20%; short-term gains as ordinary income |
Source: IRS IR-2025-111; Capital Group IRA comparison; IRS capital gains guidance.
If your employer matches 401(k) contributions, contributing enough to get the full match is free money. In 2025, Vanguard plan participants deferred 7.6% of pay on average, or 12.1% including employer money. Choosing between traditional and Roth depends mostly on whether you expect a higher tax rate now or in retirement. Our Roth vs. traditional IRA guide works through examples.
What to hold: why costs and diversification matter
Broad index funds own hundreds or thousands of companies for a small annual fee. Large S&P 500 funds charged 0.015% (Fidelity 500 Index) to 0.03% (VOO, IVV) in 2026, or $15 to $30 a year per $100,000. Active managers have struggled to beat them. S&P Dow Jones Indices found that 79% of U.S. large-cap funds trailed the S&P 500 in 2025, and 91.8% trailed it over 20 years.
Small fee differences compound. The Department of Labor's example: a $25,000 balance growing at 7% for 35 years ends near $227,000 with 0.5% in fees but $163,000 with 1.5% fees. That is a 28% smaller balance. Consistency matters too. Investing $500 a month for 30 years at a hypothetical 7% return would grow to about $610,000 from $180,000 in contributions.
Markets do fall. From 1928 through 2024, the S&P 500 including dividends returned about 10% a year on average, but it lost money in 20 of those years, including a 43.8% drop in 1931. Money you need within a few years generally belongs in savings or bonds, not stocks. Also note that the index is concentrated: in mid-2026 its 10 largest companies made up roughly 38%–40% of its value.
Beyond index funds
- Individual stocks. Many brokers charge $0 commissions on online stock and ETF trades, and Fidelity and Schwab sell fractional shares from $1. Stock picking adds company-specific risk. See how to invest in stocks.
- Real estate. REITs must pay out at least 90% of taxable income, and REIT index ETFs charge as little as 0.07%. Rental property needs more cash: investment property loans typically require 15%–25% down and rates 0.5 to 1.5 points above a primary home loan.
- Crypto. The IRS treats crypto as property, so sales are taxable. Crypto on exchanges is generally not FDIC-insured or SIPC-protected. The FBI recorded $11.4 billion in crypto-related fraud losses in 2025. Compare platforms in our crypto exchange guide.
- Gold IRAs. These self-directed IRAs hold IRS-approved bullion at a third-party depository. The CFTC warns dealer spreads can run 30% to 300% or more, and annual custody and storage fees are often around $200–$285.
Common mistakes
- Skipping the employer match or cashing out a 401(k) when changing jobs. Early withdrawals are usually taxed plus a 10% penalty.
- Paying high fees without noticing. Check each fund's expense ratio and any advisory fees.
- Selling after a drop. Losses are only locked in when you sell.
- Over-contributing to an IRA. Excess contributions face a 6% tax each year until fixed.
- Trusting promises of guaranteed high returns. The FTC says investment scams cost consumers $7.9 billion in 2025, the largest category of reported fraud losses.
Free official help
Look up any broker or adviser for free on FINRA BrokerCheck, which shows licenses and disciplinary history. SIPC protects up to $500,000 per customer, including $250,000 in cash, if a member brokerage fails. It does not cover market losses. The SEC's Investor.gov publishes free investor bulletins and alerts, and the Department of Labor publishes a plain-language guide to 401(k) fees. Our 401(k) guide covers matching, vesting and rollovers.
Guides in this section
Frequently asked questions
How much money do I need to start investing?
Very little. Many brokers charge $0 commissions on online stock and ETF trades, and Fidelity and Schwab offer fractional shares from $1. Some mutual funds have minimums, such as $3,000 for Vanguard's 500 Index Admiral shares, while the ETF version has none.
Should I invest in a 401(k) or an IRA first?
Many people contribute to a 401(k) first if their employer matches, at least enough to get the full match, then consider an IRA. In 2026 you can put up to $24,500 in a 401(k) and $7,500 in an IRA. The right order depends on your plan's fees and investment choices.
Are index funds safe?
Index funds are diversified, but they are not safe from market losses. The S&P 500 including dividends lost money in 20 years between 1928 and 2024. Index funds are not FDIC-insured. SIPC protects you if a brokerage fails, not against falling prices.
How are investment gains taxed?
In a taxable account, gains on investments held more than one year are taxed at 0%, 15% or 20% depending on income. For 2026 the 0% rate applies up to $49,450 of taxable income for single filers. Gains on investments held one year or less are taxed as ordinary income. Gains inside a 401(k) or IRA are not taxed until withdrawal, and qualified Roth withdrawals are tax-free.
Are gold IRAs and crypto good investments?
They are higher-risk, higher-cost options. The CFTC warns gold IRA dealer markups can range from 30% to 300% or more, and crypto held on exchanges generally lacks FDIC or SIPC protection. If you consider them, read official warnings and get all fees in writing first.
Sources
- IRS – 401(k) limit increases to $24,500 for 2026, IRA limit to $7,500
- Capital Group – IRA comparison table
- U.S. Department of Labor – A Look at 401(k) Plan Fees
- S&P Dow Jones Indices – SPIVA U.S. Year-End 2025
- NYU Stern (Damodaran) – Historical returns on stocks, bonds and bills
- iShares – Core S&P 500 ETF (IVV)
- Kiplinger – IRS updates capital gains tax thresholds
- SIPC – What SIPC protects
- SEC Investor.gov – Publicly traded REITs
- IRS – Digital assets
- CFTC – The truth behind gold and silver IRA scams
- FINRA – About BrokerCheck
Rates, fees and terms change often. Figures were checked in October 2026; confirm current details with the provider before you apply.