What is an IRA?

What is an IRA?

Male: An IRA account is an individual retirement account and it is an account where you can put the money into it before paying taxes on it. So if you’re in a marginal tax rate of 35%, you could put $65.00 into a taxable account or you could put a $100.00 into an IRA account. And so what you’re betting is when you put the money into the account, you’re in a higher tax bracket and later on when you retire you’re betting you’re in a lower tax bracket.

Now it turns out that that’s not true for everyone, so if you’re very young and you’re not making very much money. You could be putting the money in a very low tax bracket and later on when you’re rich and you’re tired you could be taking the money out in a very high tax bracket. Studies have shown that the Federal Government is going to collect a huge amount of money from IRA accounts when the day it booms. And the reason is a lot of them put money in when they weren’t working and weren’t earning that much and now they’re rich and when they take the money out there in a much higher tax bracket.

They’ve actually lost money by using IRA account, and so IRA accounts need to be very careful the way you invest in them. The other thing they found is the money that’s sitting in IRA accounts that’s going out from the baby boomer generation is actually going to end up paying off about a third of our Federal deficits, so that’s the good news. The four savings by differing when you pay taxes has altered defer the tax income from the Federal Government and so you need to be very careful to tax manage. Tax management is almost more important than your investment returns.


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