What Is An IRA?

I think that many people are confused about exactly what an IRA is. It appears that many think that there is only one IRA and the IRA is the investment. They are under the impression that an IRA is a savings type of investment that gives interest similar to a regular savings account or certificate of deposit with tax and retirement implications and restrictions.

The truth is that IRA’s are much more than this.

The IRA moniker does nothing more than state what the tax implications are for that investment. An IRA is not an investment in and of itself. You cannot just put money into an IRA, the money has to be put into and investment such as in a stock, bond, mutual fund or cash investment.

Any stock, bond, mutual fund or cash investment can be held as an IRA. Collectibles may also be invested in under an IRA as well but I definitely do not have much knowledge in this area.

All of the major mutual fund companies have investments that you can put money in under an IRA status.

You can go to the Government IRA website to learn more about both Traditional and Roth IRA’s.

One other thing of note is that according to the Government IRS website, an “IRA” is actually an individual retirement arrangement not an individual retirement account. I’m sorry but I’m going to stick with the latter, but if you see it referred to as an arrangement do not be alarmed they are one in the same.

What is an IRA? It is the designation given to those investments that are treated differently tax-wise. Depending on the type of IRA you choose, traditional or Roth, it determines how and when taxes will be taken from your investment. You are not putting your money into an IRA, you are putting your money into a stock, bond, mutual fund or cash investment under the tax implications of the IRA laws.


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