Your Questions About Purpose Of Investing In Mutual Funds

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Paul asks…

Do you have to contribute to an IRA in order to invest in mutual funds?

How does it work? What if I wanted to invest in a mutual fund separate from an IRA? Is there a maximum contribution for investing in mutual funds like there is when you invest in an IRA?

Justin answers:

An IRA is just a designation for any type of account. You can invest in almost any type of instrument and call it an “IRA” (for example, you can invest in real estate and call it an IRA–as long as it complies with the rules for contributions and distributions that come with an IRA).

IRAs have tax deferment as their advantage. Theoretically you will be in a lower tax bracket when you begin to withdraw the funds, thus the tax on the income will be less than if you had them in a “regular” investment account..

So… Mutual funds are just a type of investment instruments available for IRA purchases, but you can invest in them for other purposes and without limit.

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