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IRAs are individual retirement accounts that people can set up to help them save for retirement. To encourage retirement savings, the Internal Revenue Service offers special tax benefits on IRAs.
Misconceptions
An IRA is not an investment itself. Instead, you must decide how you want to invest the money you put into the IRA.
Options
The IRS permits the money in an IRA to be put into a wide assortment of investments such as money-market accounts, certificates of deposit, stocks, bonds and mutual funds.
Warning
You cannot invest the money in an IRA in collectible items such as paintings, sculptures or gems.
Considerations
You should consider how much risk you want to take with your retirement fund. Some options, such as stocks and mutual funds, carry a higher risk but also have the possibility of earning a higher return.
Tax Benefits
All types of IRAs are tax-sheltered accounts, which means you do not pay taxes on the earnings while the money is in the IRA. Traditional IRAs offer a tax deduction for contributions. Roth IRAs allow you to withdraw the money tax-free at retirement.
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