Can I invest in mutual funds with my individual retirement account (IRA)?
Curious about mutual funds
Yes, you can invest in mutual funds with your Individual Retirement Account (IRA). An IRA is a taxadvantaged retirement account that allows you to save and invest for retirement. There are two main types of IRAs:
1. Traditional IRA: Contributions to a traditional IRA may be taxdeductible, and your investments grow taxdeferred until you withdraw the money in retirement. When you make withdrawals in retirement, they are taxed as ordinary income.
2. Roth IRA: Contributions to a Roth IRA are made with aftertax money, meaning you don't get an immediate tax deduction. However, your investments grow taxfree, and qualified withdrawals in retirement are also taxfree.
Both traditional and Roth IRAs can be used to invest in mutual funds, as well as other types of investments such as stocks, bonds, and exchangetraded funds (ETFs). To invest in mutual funds through an IRA, you would need to open an IRA account with a financial institution, such as a brokerage or mutual fund company, that offers IRA services.
Once your IRA account is set up, you can contribute money to it within the annual contribution limits set by the IRS. For 2023, the annual contribution limit for both traditional and Roth IRAs is $6,000 for individuals under 50 years old and $7,000 for individuals aged 50 and older (catchup contribution).
Once the money is in your IRA, you can choose to invest it in mutual funds that align with your investment goals, risk tolerance, and time horizon for retirement. It's essential to research and select mutual funds that fit your investment strategy and consider factors like the fund's historical performance, expense ratio, and investment objective.
Keep in mind that there are some rules and restrictions regarding IRA contributions, withdrawals, and penalties, so it's advisable to consult with a financial advisor or tax professional to ensure you are making the most of your IRA and staying within the IRS guidelines.