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| Individual Retirement Accounts: The ABCs of IRAs |
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While the letters "IRA" look similar to "IRS," don't worry—an IRA (Individual Retirement Account) actually helps keep your money away from the IRS, and it's a good way to invest money for retirement.
There are many types of IRAs, but the two main ones are Traditional IRAs and Roth IRAs. You can open IRAs with just about anyone you choose to invest with, including mutual fund companies, insurance companies, and online brokers. And you can invest in stocks, mutual funds, ETFs, and other types of investments. When you open your account, simply specify that it's an IRA. An IRA lets you enjoy either tax-deferred or tax-free growth of your investments. Tax deferral can lead to significant savings over time. Let's assume two investors each start with $10,000 and earn a 10% annual return for 30 years. One has 100% of her gains tax-deferred, while the other realizes the full amount of his capital gains each year and pays a 20% tax on those gains. Under this scenario, the tax-deferred investor ends up with almost $75,000 more at the end than the investor with the taxable gains. The contribution limit for both Traditional and Roth IRAs is $ (or $ if you are 50 or older). One last thing: Before you even think of putting money into an IRA, make sure you've maxed out any matching contribution provided by your employer. Otherwise, you're turning down free money. |
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Questions & Answers | |
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| If you want to look smart, which IRA fact do you want to drop at your next party? | |||
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