Remember that an IRA itself is not an investment, but an account that stores the investments you choose. You can choose from a variety of investments, including stocks, bonds, mutual funds, ETFs, REITs, and even real estate (in a self-directed IRA). If you’re a day trader, you may want to enter and exit multiple stocks per day. If you have an IRA, you can use the IRA funds to buy, sell, and repurchase stocks in your retirement account as many times as you want in one day.
Using an IRA for trading can help you defer paying taxes on gains from selling stocks and makes a tax return unnecessary. When you open an IRA, you bring in funds that can then be invested in a wide variety of assets: CDs, stocks, bonds, and other investments. You’re not limited to a selection of investments, as you often do with 401 (k). This means that you have full control over how this account is created.
If you don’t feel well equipped to select investments for your IRA, it’s wise to search for robo-advisors or select a retirement fund with a target date. Both are cost-effective ways to achieve broad-based diversification that is tailored to your time horizon and risk tolerance. In most IRA accounts, you can select individual stocks or from a long list of mutual funds. Or you can leave those decisions to an expert by choosing a low-cost robo-advisor, a computer-based investment manager that does the job for you.
Take a look at our top tips for robo-advisors. This wide range makes the IRA both Roth and traditional IRAs an attractive option for your retirement savings, particularly if you’ve maxed out 401 (k) matching dollars. However, there are certain restrictions on IRA investments, such as using the IRA as collateral and buying collectibles such as art, stamps, coins, and rugs. The list of investment instruments that cannot be placed in an IRA or a qualified plan should not be confused with the list of prohibited transactions that cannot be made with these accounts, such as when you borrow money from an IRA.
You might be tempted to fill your IRA with individual stocks and bonds, but this is rarely the best approach for anyone other than a professional investor. An IRA owner who discovers a collectible or antique worth thousands of dollars at a flea market won’t be able to protect the tax on the profit from selling that asset under an IRA or other retirement plans. The IRS requires IRA owners to deposit their contributions and investment income with the IRA until they are 59½ years old. One of the best things about an IRA compared to, for example, a company retirement plan like a 401 (k) is the much wider range of investment options available in the account.
Before you compare and decide where to open an IRA, consider which type of IRA is best for your needs.
