Individual Retirement Arrangements (IRAs) are fabulous retirement strategies. But they are fabulous estate planning devices as well. This is the beginning of a series of blog posts regarding the benefits of having an IRA.
Perhaps the greatest benefit of having an IRA is the preferable tax treatment the IRA receives.
There are basically two types of IRAs: traditional and Roth. If it is a traditional IRA, then the money placed into the account is tax deferred. That means you don't pay taxes on such money until you take the money out. If you have a Roth IRA, you pay taxes on the money you place into the account, but the money grows "tax free"--you don't pay taxes when the money is taken out!
Because the stock market historically rises over time, when you allow your money to grow "tax deferred" or "tax free" in a traditional IRA or a Roth IRA for a substantial period of time, you are choosing a path that is quite likely to result in more money after Uncle Sam is "all said and done" with his slice of the pie.
This is primarily a retirement reason for investing with an IRA. But the estate planning strategies enter into the picture when you fill out your beneficiary designation form.
More on that in the next post.