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The Real Benefit
Of An IRA;
The Tax Reform Act of 1986 made some unpopular changes in the rules governing IRA contributions. One thing it didn't change, however, is the long-term advantage of tax-deferred earnings. Investment flexibility is an oftenoverlooked benefit to your IRA. Within the IRA, you're free to exchange assets among investments or among mutual funds with various investment objectives. None of these exchanges are taxed. Outside your IRA, each exchange constitutes a sale and repurchase, and any gain must be reported and taxed that year.
Outside an IRA, you also pay taxes each year on any income and gains your investments earn whether you take or reinvest them. Inside your IRA, all earnings and income are allowed to grow and compound tax deferred. No taxes are due until you begin withdrawal. Then, you pay taxes only ort the amount you withdraw. If you're in a lower tax bracket at retirement, that could mean additional tax savings.
Eventually, you will owe taxes on your IRA. But the benefits you've gained by deferring those taxes are clearly demonstrated in the investment results on the chart below. The
93.7%