17 Ins-and-Outs to Be Clear on Some IRA Basics

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By Dana Anspach via Iris.xyz

Some financial terms have become so ingrained in the vernacular that people are embarrassed to ask about them. 

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It’s as if everyone else is speaking a language you feel you should know, but don’t really. Such is the case with IRAs. When clients come to us to discuss their finances, they often reveal they aren’t clear on some of the IRA basics. Below I address some basic terms and concepts about IRAs.

  1. What is an IRA? An IRA is an Individual Retirement Account. When you contribute to an IRA, you are putting money aside for your future so you will have some money when you retire. Think of an IRA as a type of savings account where you can invest in many different types of things but you will not withdraw from it until later. You can use the money you deposit into your IRA to invest in CDs, government bonds, mutual funds, stocks, and almost any other type of financial investment you can think of.
  2. What is the benefit of an IRA? Funds that you deposit inside of an IRA have tax advantages over funds that you deposit in a regular bank or investment account.
  3. Where does one open an IRA account? You can open an IRA account at a bank, brokerage firm, mutual fund company, insurance company and various other types of financial institutions.
  4. What are the different types of IRA accounts? The two main types of IRAs are Traditional IRAs and Roth IRAs. The tax rules associated with each type are the key distinctions to these two categories of IRAs. Then there are subcategories within both Traditional IRAs and Roth IRAs. Within Traditional IRAs, there are non-deductibles, spousal IRA contributions, SEP IRAs and SIMPLE IRAs. Within Roth IRAs, there are Roth spousal IRA contributions, and a Roth 401(k) option called a Designated Roth account.

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