The term IRA gets tossed around when talking about investments, but have you every wondered what exactly an IRA is?
The letters in IRA stand for Individual Retirement Account.
An IRA is not actually an investment, such as a stock or a bond is an investment. Instead an IRA is an account where you hold your investments.
Why the special account? IRA’s were designed to be used as a retirement savings tool that protects your investments from taxes and you getting at the money before it is retirement time.
The best way that I have heard to describe it is that it is a coat that you wrap around your investments. Why would your investments need a coat?
Just like a real coat protects you from the cold, an IRA is protecting your money from taxes. The less you pay in taxes the more your money will grow due to compounding.
Hope that helps a bit!
You can use this as a spousal IRA also – for more information on that: Spousal IRA