The Difference Between Tax Classifications & Financial Vehicles

One of the things that I hear people get confused about all the time is the difference between a tax classification & a financial vehicle.

I’ll hear people all the time say, “Oh Rob, I know that’s an IRA because it’s a mutual fund.”

Well that’s not necessarily true. Let me explain the difference.

Tax Classifications- As a CPA, the first thing I want to know is what the tax classification is for what we’re dealing with, because they can all be treated differently.

Some very common tax classifications are: 401(k)’s, Traditional IRAs, and Roth IRAs.

One other tax classifications is “non-qualified.” That’s typically going to be associated with money you have over in your bank account, or money that you earn from your employer, that has already been taxed.

Financial Vehicles- Many common financial vehicles that most people are familiar with are: stocks, bonds, mutual funds, Exchange-Traded Funds (or ETFs) and bank accounts.

 Understanding which tax classification & financial vehicle pairing best aligns with your short & long-term financial goals can make a big difference in building your wealth.

401(k)

IRA

Roth

Non-Qualified

Stocks

Bonds

Funds

Mutual Funds

ETFs

Bank Accounts

If you’d like to understand which tax classification and financial vehicle pairings you should consider for your specific goals, schedule a complimentary consultation.

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