Account Types with Schwab Intelligent Portfolios

If you're interested in investing with Schwab Intelligent Portfolios^®, you may be wondering what type of account you should open. With all the possibilities out there, the decision can seem daunting—but it doesn't have to be. Start by asking yourself a few questions:

If your goal is to invest for growth over a long time horizon, and you don't expect to need the money before age 59½, consider an individual retirement account (IRA). Schwab Intelligent Portfolios offers three types of IRAs: traditional, Roth and rollover. Here's how they differ:

• Traditional: With a traditional IRA, you won't pay taxes on investment earnings until you make withdrawals, and you may get immediate tax benefits if your income is below a certain level.¹ Someone who anticipates being in a lower tax bracket after retirement might want to consider a traditional IRA.
• Roth: With a Roth IRA, contributions are made in after-tax dollars and qualified distributions can be withdrawn tax-free after age 59½. For someone who believes she is in a lower tax bracket now than she will be later on, doesn't mind deferring the tax benefit and qualifies to contribute,² a Roth IRA can be a good choice to consider.

• Rollover: With a rollover IRA, you can transfer money from a workplace retirement plan sponsored by a former employer into an IRA without paying withdrawal penalties at the time of transfer. You can roll over your money into a Roth IRA or a traditional IRA. There are a number of important considerations when evaluating whether a rollover is appropriate for you. You might consider a rollover IRA if you want to consolidate your retirement savings into one plan or are looking for investment choices that aren't available in either your old or new employer's plans. However, you have alternatives: You may be able to leave your money in your former employer's plan; you can roll it into your new employer's plan; or you can withdraw the money entirely. Be aware that if you withdraw the money, it will be taxable and subject to a mandatory 20% federal withholding rate. You may also face early withdrawal penalties if you're younger than 59½.

If you are self-employed or own a small business as a sole proprietor, a compelling retirement option for yourself and your spouse might be a Simplified Employee Pension plan (SEP-IRA). With this account you can make retirement contributions for yourself or your spouse (based on eligibility, see below). Your contributions are tax-deductible, and the earnings are not taxed until they are withdrawn. One advantage is that SEP-IRAs are easy to set up and maintain. To be eligible for a SEP-IRA account that invests in Schwab Intelligent Portfolios, you must meet one of the requirements:³

• You must be a sole proprietor (a person who, individually or with a spouse, owns 100% of an unincorporated business), who has no employees other than a spouse, who is included in the SEP-IRA.
• You must be a partner in a partnership, and the SEP-IRA plan includes only partners or their spouses.
• You must be the sole shareholder of a corporation (a person who, individually or with a spouse, owns 100% of the corporation), who has no employees other than a spouse, who is included in the SEP-IRA.
• You must be the spouse of a person described in the above scenarios.

If you are self-employed or own a business with 100 or fewer employees, you are eligible to establish a SIMPLE IRA plan, as long as it is the only retirement plan you fund. Companies maintaining another employer-sponsored retirement plan in the same year are not eligible. You must generally include all employees aged 21 and over if they received at least $5,000 in compensation during any two prior years and if you reasonably expect that they will receive at least $5,000 in the current year.

Employer contributions are tax-deductible. Earnings grow tax-deferred, and you pay no taxes on assets until you withdraw them in retirement.

First, establish your SIMPLE IRA plan with Schwab. As employees open their accounts, they can choose to enroll in Schwab Intelligent Portfolios.

If you're creating an account that you want to pass on to someone after you die, consider a revocable living trust. This is a private legal arrangement that places your assets in trust for your benefit during your lifetime, and specifies where you'd like them to go after your death. Generally, the money bypasses probate court, saving time and cost (however, it won't shield your heirs from any applicable estate taxes). You can name yourself as the single trustee or include your heir as a second trustee, which would allow him or her to manage the account if necessary. It can be helpful to reach out to an estate planning attorney or a tax professional to discuss the finer details of your estate plan.

Just want to invest? A taxable account comes with no particular tax advantages or estate-planning details to consider. However, when you open a brokerage account with Schwab Intelligent Portfolios, you will be able to choose one of five types:

• Individual: You are the sole owner, and upon your death the account will become part of your estate.
• Joint Tenant with Rights of Survivorship: This is account is co-owned with another person (or people). If you die, your interest in the account automatically transfers to the surviving owners.
• Tenants in Common: Under this arrangement, two or more people share ownership of the account. However, if an owner dies, his share isn't automatically transferred to the surviving owners, but to the heirs named in his will.
• Community Property: A community property account is owned by two married people and contains assets acquired during the marriage. Each spouse has equal ownership in the assets, and in the event of death or divorce the account would be split between the two owners. Community property accounts are only allowed in certain states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
• Custodial: A custodial account is managed by an adult (not necessarily the child's parent) for the benefit of a minor child. As soon as the child reaches age 18 (or, in certain states, 21), she can take full control of it.