Is an IRA a Mutual Fund?

Is an IRA considered a mutual fund

IRAs provide several advantages, including tax advantages. They’re an ideal solution for people who have exhausted their workplace-based plan and seek new avenues of savings.

Asset allocation is vital to your IRA portfolio’s long-term performance. Select stocks and bonds accordingly based on your investing style, goals, and risk tolerance.

MassMutual financial professionals can assist in evaluating all available strategies and identifying those most suited to you.

What is a mutual fund?

Mutual funds pool the money of investors to create a diversified portfolio. When the stocks or bonds held within the fund earn income, its income distributions can be split amongst shareholders as distributions or used to purchase more shares of that fund.

Mutual funds tend to be less risky for smaller investors due to being more diversified; however, like any investment they do carry some risk and can potentially experience capital loss.

Many employer-sponsored retirement plans offer mutual fund options, while individual Retirement Account (IRA) investors may invest in mutual funds alongside stocks, bonds, exchange-traded funds (ETFs), commodities or certificates of deposit. No matter where your funds reside, all investors should know some basic facts, as ICI’s Morris Mitler demonstrates in this video.

What is an IRA?

Individual Retirement Accounts, or IRAs, provide tax-advantaged investment accounts that enable individuals to save for retirement tax-deferred. They’re especially useful for the 33% of employees without access to workplace-based retirement plans such as 401(k).

Contrasting with the limited array of investments typically provided by 401(k) plans, an IRA allows investors to hold various mutual and exchange-traded funds as well as target date funds that aim toward reaching retirement dates.

These funds, known by their year of origin, provide investors with all-in-one investing solutions, rebalancing as necessary and taking less risk as their lives change. Investors in IRAs tend to put most of their assets into cheaper mutual funds for maximum efficiency and returns.

What is a Roth IRA?

Roth IRAs provide tax-free investing. You can open one at any brokerage firm; filling out an application online or offline initiates it, with them opening your account and then you adding assets such as mutual funds, stocks, ETFs, bonds certificates of deposit or money market accounts – or investing in target-date funds which automatically rebalance over time to reach retirement age.

IRA investors typically choose lower-cost funds. This is likely because of their financial professionals charging them an annual “12b-1 fee”, and those costs being included into fund expense ratios. When using Schwab Intelligent Portfolios as your robo-advisor however, no management fees will apply – saving both time and money!

What is a Traditional IRA?

Traditional IRAs allow you to save tax-deferred and can be opened through brokers (including online and robo-advisor platforms), financial advisors or employer sponsored plans like 401(k).

Contributors who meet certain qualifications may be eligible to claim tax deductions on their contributions, depending on income and filing status. Meanwhile, investments grow tax-deferred until withdrawn when income taxes will apply.

IRA investors also have the option of selecting funds (or fund share classes) without 12b-1 fees to cover compensation for financial professionals, which can help lower expense ratios. An IRA can hold almost any investment including those held in your 401(k) or brokerage account; just keep track of annual contribution limits and when your required minimum distributions (RMDs based on average life expectancy and starting at age 72) are due.

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