Top 3 Investment Accounts to Make You a Million While You Sleep

3 min read

Anthony O'neal
Top 3 Investment Accounts to Make You a Million While You Sleep

Investments are a way to make your hard earned money work for you, which is the ultimate goal when you’re trying to become financially free. Investing though, can feel daunting and intimidating - there’s a lot that isn’t explained or common knowledge making it feel like you’re out of the loop when it comes to investing. 

Well, that’s why I’m here y’all - I’m going to tell you the top 3 investment accounts that you can use to make you a million while you sleep, because you work hard for your money and in turn, your money should be working hard for you. 

What are investment accounts? 

Investment accounts hold stocks, bonds, mutual funds and other securities in addition to cash. The biggest difference between a standard savings account and an investment account is the value of what’s in your savings account stays the same, it doesn’t provide any added value to you other than what you contribute. An investment account, however, fluctuates and while it can decrease in value, it can also substantially increase in value - making your money work for you. 

Types of investment options

There are quite a few different investment options out there, but here are a few to pay attention to and certain one’s  we will go over in more detail: 

  • Stocks
    • Pros: potential for high returns over the long term
    • Cons: higher risk due to market volatility
  • Bonds
    • Pros: regular interest payments provide steady income
    • Cons: lower potential returns compared to stocks, especially in a low-interest rate environment
  • Mutual Funds
    • Pros: instant diversification across a range of assets
    • Cons: management fees can eat into returns over time
  • Real Estate
    • Pros: potential for rental income and property appreciations
    • Cons: requires significant capital investment, liquidity, and ongoing maintenance costs
  • Retirement accounts (401k or IRAs)
  • HSA

Roth IRAs 

Roth IRA stands for Individual Retirement Account, and it lets you contribute and withdraw tax free. It's great to have both a 401k and a Roth IRA in order to truly maximize your contributions and your retirement accounts. This IRA is separate from your 401k that your employer offers, so it's another retirement account for you to contribute to. 

Once you reach 59 ½ , and your IRA account has been open for at least five years, you can withdraw your IRA funds tax-free and penalty free. So the money your Roth IRA makes, you will not be taxed on. It’s a great option for those who may end up in a higher tax bracket once they reach retirement age, but there are income limitations for opening a Roth IRA. 

Breaking down the details

Let’s take a deeper look at Roth IRAs and how they can be a great investment account to help your money work for you. 

Monthly investment: $541

Max contribution: $6,500 / year

Biggest benefit: money you contribute is taxed upfront and grows tax-free

The contribution limit for 2023 and 2024 to your Roth IRA, is $6,500 for individuals under 50, but an additional $1,000 catch up contribution for people 50 and older. In 2024, the contribution limit increases to $7,000 for those under 50, but an additional $1,000 catch up contribution for people 50 and older.

For a Roth IRA, however, your tax filing status can impact what you can contribute. For example, married couples filing jointly making more than $228,000 are not eligible to contribute to a Roth IRA at all; but those making more than $218,000 but less than $228,000 can contribute a partial percentage of their income. Finally, those that are making less than $218,000 combined, can contribute the full amount of $6,500 for 2023, and $7,000 for 2024.

401(k) or Roth 401(k)

Simply put, a 401k is your retirement fund - it's the money you get to pull from and live on once you're no longer working. When you work for an employer and sign up for a 401k plan, you agree to have the company take a percentage of your paycheck, pre-tax, and put it into your 401k. Some employers will match what you contribute out of your paycheck and also put that amount into your plan.

There are two types of 401k plans, a traditional and Roth, they are similar but the main difference is how they are taxed. 401k plan contributions are pre-tax, so these contributions reduce your taxable income, but when you withdraw this money, it's taxed. In comparison, a Roth 401k contribution is after tax, so it doesn't reduce your taxable income for the year but you also aren't taxed on withdrawals.

The goal of 401k plans is to encourage you to save for retirement. You don't want to work forever, but you want to make sure that your finances are in a place that allows you to enjoy it once you reach full retirement age, or before!

Breaking down the details

Monthly investment: $400

Max contributions: $22,500 / year OR $1,875 / month

Biggest benefit: leverage your employer match - what you contribute, often your employer will match and contribute that amount – a.k.a. free money! 

In 2024, this contribution limit will increase to $23,000 for employee contributions in addition to the $7,500 catch up contributions if you're 50 or older.

This is why it's so imperative to create and contribute to your 401k retirement plans, your earned income has the potential to turn into tax free growth - depending on how you invest and the type of account you chose. Your ordinary income can only do so much, but 401 k plans give you the ability to reach your retirement goals.

In 2024, the 401k contribution limit is at $69,000 for employee and employer, combined, contributions plus the $7,500 catch up contributions.

You want to take full advantage if your company offers 401 k matches or contributions, this will only increase your total contribution and leave you sitting pretty for retirement. Different employers have different match amounts or percentages, but whatever that percentage or amount is, it's important to take advantage of it.

HSA Account

HSA stands for health savings account, and you contribute to it pre-tax in order to help pay for medical expenses. HSA’s are specifically for high-deductible health plans, because the purpose is to help you cover expenses that your high-deductible plan doesn’t cover. 

With high-deductible plans, the monthly premium you pay is lower, but the out-of-pocket costs are typically higher, hence the benefit of an HSA to help cover that added out-of-pocket cost. Some of the typical expenses you can use an HSA for include: 

  • Acupuncture
  • Ambulance costs
  • Doctor visits
  • Hearing aids
  • Prescriptions
  • Psychological therapy / psychiatric case
  • Qualified long-term care services 

Money that you don’t use in your HSA from that year, will carry over to the next year - so you can continue to contribute and build-up your HSA. 

Breaking down the details 

Monthly investment: $150

Max contributions: $4150 / year OR $346 / month

Biggest benefit: it’s tax free money for medical expenses. Plus, you can invest what you don’t use. 

Another benefit of an HSA is that anyone can contribute to it. If you have a spouse or a family member, employers, friends, they can help you build your HSA. Contribution limits also hinge on whether you have a self-only or family coverage with your high-deductible plan. Self-only in 2024 is an annual contribution limit of $4,150 whereas the family coverage is $8,300.

If you’re 55 or older, you can contribute an extra $1,000 to your HSA annually, which is considered a “catch-up” contribution. An HSA is a type of investment that you’ll want to take advantage of, because it is essentially an emergency fund that you’re building specifically for medical expenses - which add up a lot quicker than you may want. 

Breaking down the investment returns

So, these investment accounts are incredible for helping you make money while you sleep, but why? Let’s look at a breakdown of the returns on investing in these accounts based on the annual and monthly contribution limits. 

Roth IRA: $1,222,924

401(k): $877,000

HSA: $339,073.19

Total = $2,438,997 in 30 years

By taking advantage of investing in these accounts, you could literally have over $2 million in 30 years from the time you start investing - which is why starting early is paramount! If you started investing in these accounts at 20, by 50 you could have $2 million sitting in your investment accounts ready for your retirement. If you start at 17, by 47 you’d have that same $2 million, so think about what that would look like by the time you hit retirement age. 

Let’s Recap 

You work hard for your money, and your money should work hard for you. In addition to making sure you’re paying off your debt and creating a budget, you should also be investing in these types of accounts in order to maximize the return your money can make for you. These accounts you contribute to and they do the rest of the work, they are passively making you millions while you sleep. 

Investment can seem daunting and intimidating, but when you increase your financial literacy and start to understand the in’s and out’s of basic financial principles, it becomes way easier to implement them in your daily life and become financially stable.

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