3 bank accounts rich people use to build wealth that are available to anyone

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  • Wealthy people use many accounts to build wealth, and three are widely available.
  • They use retirement accounts like IRAs and 401(k)s for tax benefits and free money. 
  • And they love to buy low-cost index funds in brokerage accounts to build accessible wealth.
  • Read more Personal Finance Insider coverage »

High earners and wealthy people generally tend to have quite a few habits in common. Many are frugal, look for ways to make the most of their money, and want to minimize the amount they’ll owe in taxes later.

Wealthy people are constantly using three types of accounts to get more from their money, and they’re hidden in plain sight. 

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Rich people use Roth IRAs for tax advantages 

Rich people are always looking to minimize the impact of taxes, and Roth IRAs are designed to do just that. Recently, PayPal founder Peter Thiel’s Roth IRA account  garnered attention for the strategy he used to grow the account from $1,700 to $5 billion, which he will eventually be able to be withdraw completely tax-free. 

Roth IRAs minimize your tax bill later by only allowing deposits of money that have been made after taxes. While a Roth IRA won’t lower your tax bill now like a traditional IRA does, a Roth IRA will allow the money to come out tax-free after it grows. 

Roth IRAs do have income limits, but that doesn’t mean wealthy people and high earners don’t use them. A backdoor Roth IRA can turn a traditional IRA into an account with the tax benefits of a Roth IRA, transferring the funds from one type of account to another. While there may be taxes involved on any growth as you transfer the accounts, this method offers the opportunity for those earning above the income limit to contribute to a Roth IRA.

Wealthy people take advantage of their employers’ 401(k) plans

A survey of 10,000 millionaires showed that there was one account type most had in common: A 401(k). According to the survey by Ramsey Solutions, eight in 10 millionaires had this common account in their portfolios. 

A workplace’s 401(k) plan might not seem like a likely place to amass wealth, but these accounts offer powerful perks. Not only do they offer the advantage of an employer match for essentially free money, but they also have tax benefits, like lowering your taxable income. 

To see if you employer offers a 401(k) program and find out about any matches available, check with your HR department. 

They take advantage of brokerage accounts 

While retirement accounts are an excellent place to save and build wealth, there’s one big problem: Money is only available penalty-free under certain circumstances, like reaching a certain age. For those who want to retire early or save for a nearer goal than retirement, a brokerage account is the right move.

Brokerage accounts also allow people to save and invest in a wide variety of funds. According to Insider’s Hillary Hoffower, index funds are a favorite of millionaires and high-net-worth individuals for their low cost, and are even favored by investors like Warren Buffett.

By buying and holding index funds in a brokerage account, it’s possible to keep and grow wealth over the long term.

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