How To Use An IRA To Buy Stocks

My first experience with stock market investing in IRA's was when I worked at a bank where people bought certificates of deposit to fund their IRA's. Because of that, it was a while before I realized that you can also learn how to use an IRA to buy stocks. An IRA is just a creation of the tax code. Inside an IRA, you can own any type of investment really, and funding an IRA with a brokerage account is as simple as opening an account with them.

If you use an online broker, what you'll want to do is select the option to open an account. Inside that option, you'll find a menu of the different types of accounts you can set up. You can set up things like an individual account, a joint account and even an IRA. Once you complete the account setup and fund your account either with a 401k rollover or with a contribution, you are ready to go. The account will work like any other brokerage account you set up and will allow you to invest in stocks, bonds, mutual funds and even options if you have been approved for it.

The main thing is that the account's tax status is different from an standard investing account. Any contribution you make to the account may or may not be tax deductible, the earnings will grow tax free and if you take it out before a certain age, you may have to pay a penalty. At the current time, that age is 59 1/2. The key is that the tax treatment is different and you do not want to mix types of money that are tax differently. You'll want to keep your IRA money, or qualified money, separate from non qualified. Qualified money is money that hasn't been taxed yet either on the contributions or earnings. Don't mix them or it will complicate your tax returns.

Buying stocks in an IRA does make a lot of sense because you can defer taxes to a later time. If you have any questions, your broker and tax representatives can help you more.