Updated for the 2023 tax year.

For a lot of people, setting aside money for retirement is their first investing experience. Makes sense — employer-sponsored retirement plans like 401(k)s are common, and often, they either sign you up automatically or walk you through the sign-up process step by step.

But retirement isn’t the only financial goal you can invest for, and if you’re on track for retirement already and / or have some higher-priority goals, opening up a non-retirement account (aka a “taxable investment account”) can be super useful. If your 401(k) is your only investment account, though, it’s easy to feel a little lost about how to start doing that.

Good news: It’s actually pretty easy.

How it’s the same and how it’s different

Under the hood, investing for non-retirement goals works the same way as investing for retirement: You deposit money into your investment account, that money is used to buy investments, those investments go up and down in value, and that makes the balance in your investment account go up and down.

There are a few logistical differences — one big one is that a 401(k) is set up through your employer, but you have to open a taxable investment account on your own. And while 401(k) contributions are taken out of your paycheck automatically, deposits you make into a taxable investment account don’t (unless you set up a direct deposit).

But the biggest difference between investing for retirement vs other goals has to do with the type of account you use. Specifically, retirement accounts like 401(k)s or IRAs have tax benefits. There are two flavors: traditional or Roth. With a traditional account, you make pre-tax contributions today, and then you pay income taxes later when you withdraw the money, and the money gets to grow tax-deferred. With a Roth, you make after-tax contributions today, but then you don’t owe taxes on it later, and the money gets to grow tax-free.

Typical non-retirement accounts don’t have tax benefits. You make after-tax contributions today, and you pay taxes on its growth later. Hence why they’re commonly (and not-so-creatively) called taxable investment accounts.

So why use a taxable investment account if you have to pay taxes?

Good question. There are a couple of big reasons.

You can invest for goals with a shorter timeline

Most retirement accounts don’t let you withdraw your money until you reach age 59½ (yeah, we know, kind of random). That might work just fine for retirement, but we’re guessing you probably have some other big money goals coming up before that — goals like putting a down payment on a house, starting a business, raising kids (they’re cute but expensive), or a 30th / 40th / 50th birthday in Sicily / the Swiss Alps / a cozy cabin in Oregon. Or maybe you just want to build wealth for the sake of building wealth (hell, yes).

Historically, investing has been a lot more powerful than saving when it comes to hitting goals like these — basically, anything with a timeline of more than 2–3 years. That’s thanks to the long-term positive returns of the stock market, plus the power of compound returns.

You can invest more

Retirement accounts come with all sorts of limits. For example, with a 401(k), you can’t invest more than $22,500 a year ($30,000 if you’re over 50). With an IRA, the limit is even lower at $6,500 ($7,500 if you’re over 50). And if you make over a certain amount in income, you can’t even use a Roth IRA at all.

Those limits might seem pretty high, especially if you’re just getting started. But there’s a chance you might need to invest more than that someday if you have big goals. (You might eventually need to use a taxable investment account for retirement contributions, too, especially if the only retirement account you have access to is an IRA. Here’s how to know whether you’re investing enough.)

You often have more flexibility

When you use an employer-sponsored retirement plan, the actual investments you can choose to buy will be limited to a certain set that your employer chooses.

That often includes things called target-date funds, which are basically cookie-cutter sets of investments created for anyone who expects to retire in a certain number of years (aka the target date). Those can make it easier to choose what you want to invest in, but they also don’t give you much flexibility.

When you open a taxable investment account with a separate investment advisor, though, that’s not the case. You might be able to choose investments that have lower fees, or even investments that support your values (aka impact investing).

You could DIY it and open a straight-up brokerage account, where you choose every investment you want to buy or sell. If that sounds fun, then you do you — but for the rest of us, that’s where digital investment advisors like Ellevest come in.

How intentional investing can help

Ellevest is built to help you invest your money intentionally for each of your goals. All you have to do is tell us about (age, salary, gender, etc) and your goals (mostly just when you expect to need the money), and we’ll recommend an entire investing plan to help you with each one.

Each of your goals will have its own plan, so it’s easy to understand whether you’re on track to have enough by the end of your timeline. And you don’t have to worry about choosing what to invest in, because the plan will include a personalized investment portfolio, too. Once you make a deposit (no minimum, btw), we’ll invest that money on your behalf and keep everything running smoothly.

See? No sweat. And it only takes a couple of minutes to set everything up — do it do it do it.

Disclosures