What is an IRA investment?


Quick Answer

An IRA investment involves putting investments such as mutual funds, stocks, cash and bonds in a person’s IRA, states Bankrate. Diversifying assets between cash and bonds can offer protection against market setbacks, while stocks can provide long-term growth potential, notes CNNMoney.

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Full Answer

An IRA, or Individual Retirement Account, is a savings plan that allows an individual to defer paying taxes on the growth of his savings and earnings until he withdraws the money, according to About.com. People should contribute as much to their IRAs as the government allows them, as tax-protection gains depend on the amount a person saves in a tax-favored account. Ways that a person cannot use the money in his IRA include buying real estate for personal use, lending money to oneself or using the money as collateral, according to CNNMoney.

IRAs come in different types. Traditional IRAs are tax-deductible for the savings contributed to the account, explains About.com. The savings grow tax-deferred, meaning that a person does not have to include dividends, capital gains, or interest from the IRA in his annual income. The savings for nondeductible IRAs also grow tax-deferred, but unlike in traditional IRAs, the contributions are not tax-deductible. Roth IRAs have no income limitations, a person does not get a deduction for his contributions, and the distributions are tax-free if the person meets the required conditions.

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