What The Heck Is an IRA?

What if there were a way to dodge taxes on a chunk of your paycheck? Or how about an investment opportunity that will never pay a penny of taxes on the growth no matter how big it gets? Sound too good to be true? This is the amazing tax shelter of the IRA.

Two Cents on Twitter: @twocentspbs

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Two Cents was created by Katie Graham, Andrew Matthews, Philip Olson CFP® and Julia Lorenz-Olson and is brought to you by PBS Digital Studios. We love dropping some knowledge on all things personal finance and helping you make better money decisions.

Two Cents is hosted by Philip Olson, CFP® and Julia Lorenz-Olson
Directors: Katie Graham & Andrew Matthews
Written by: Andrew Matthews
Executive Producer: Amanda Fox
Produced by: Katie Graham
Edited & Animated by: Sara Roma
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Music by: APM

SOURCES:

[TwoCentsPBS]

Lots of you have asked "Can I fund a 401k AND an IRA?"

Yes, you certainly can, and many people do. By potentially maxing out an IRA and/or a 401(k) (or any other work-sponsored retirement plan) you can sock even more money away for retirement. Roth IRA's are subject to an income-limit phase out and Traditional IRA's can lose their deduction if you have a 401(k) and earn over a certain amount. But the short answer is -- if you CAN fund a Roth IRA and a 401k, go for it, you awesome save, you!

[NancyBetty-x]

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

[NicholasBall]

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money. I retired with 5 million dollars

[sherryie]

Investing in Roth IRA can be a good choice since they are funded with after tax dollars, your contributions can grow tax-free over time. When you withdraw money from your Roth IRA in retirement, you won’t have to pay tax on it, which will help you keep more of your hard-earned money. Compounding is the process of earning interest on your initial investment, as well as on the interest that investment earns. This means that over time, your investment can grow exponentially. So the earlier you start investing, the more time your investment has to grow through compounding

[barttfisher]

I am currently running through my 40s and This is no time to taper retirement savings. I want to max out my retirement funding and I also have another $200k in a savings account that i want to invest in a non-retirement account.Would it be better going to housing? Maybe own property and let it till im ready to move in at 65.

[ARcreationsTV]

Being from the UK but living in Ireland, an ‘IRA’ is something different this side of the world

[bugcam]

Can you guys do a video on “how to survive through the next financial crisis” or something along those lines?

[seanhines]

"What is an IRA?"

Me: pulls out ski mask, AK and a car bomb

[noesph]

The IRA is something very different where I'm

[tqnation]

Can you make a “financial things to do when turning 18” ?

[ThisisBarris]

A video next on offshore accounts in the cayman islands would be great though... for a friend of course.

[QuesttoFIRE]

Starting now at age 33, but better late than never!🔥🔥🔥🔥

[davideguerra]

You've done an absolute top notch job on this. Very informative! I’m a dividend investor, my wife and I have invested in the s&p500, both through my TSP with the government and through fidelity in her 401-k. Cashed out 370k from the S&P and invested with a full service broker.. Until about 3years ago we were 100% in the s&p after over 30 years. I’m retiring at the end of the month at 59, while my wife will retire next year at 54. We currently have 5.7 million in out tex deferred savings.

[jpe]

Here’s a real-world example of the power of compound tax free interest: in 1986-1989 when I was in high school then starting college I was working minimum wage jobs (back then, $3.35/hr) and working part-time I earned about $2000/year, so each year my parents gave me a gift equal to the maximum IRA contribution I was allowed to make, as long as I deposited it into an IRA (Not surprisingly I spent most of my paychecks, so didn’t have much left over to invest myself, needed the gift from them).
So over those 4 years I deposited a little over $6800, but starting in 1992 I had a job with a 403(b) retirement plan, so I have made no further contributions to the IRA account since 1989. Today it’s worth almost $100, 000, and I’m only 50, there is another 21 years of compound interest to accumulate. Thanks mom and dad!
I advise all my friends with kids who are working part time jobs, that assuming they don’t have other higher priorities (such as paying off credit card debt) that they gift their kids the maximum amount that can be put into an IRA and get that investment started as early as possible.

[cancel.lgbtq.]

They should be teaching this in high school instead of nonsense subjects.

[NormanGhali]

Because ROTH IRAs are tax-free, you'll be able to keep more of the money you've worked so hard to earn.I want to invest more than $300k, but I'm not sure how to go.

[VentiVonOsterreich]

Discussion unclear, ended up planting a fertilizer bomb in my neighbor's car

[andycrabbe]

As an Irish person this video title made me burst out laughing

[mktemple]

I had an IRA, but cloded it early with no penalty when I got sick enough to need a kidney transplant.

[blitcut]

This video becomes a lot funnier if you imagine they're talking about the other IRA.