The Power Behind Using IRAs For Investing

Many Financial professionals will tell you that the most powerful feature of an IRA is the compounding effect that the tax advantages create. Practically speaking, this means that if you are saving money for your retirement (or for later in life), and you are investing those savings using an IRA, you will likely create more money for your retirement than you would have if you saved and earned outside of an IRA.???

Let’s?take a look at the tax advantage. For both the traditional IRA and the Roth IRA, earnings from investments in these accounts are tax-deferred. That means that every time your investment does well and creates earnings, instead of those earnings being taxed—which leaves you less to reinvest—earnings within an IRA are not taxed. This means you can reinvest the entire amount. Not having your earnings taxed can make a tremendous difference to savings growth.?

For example, say your $10,000 investment creates a 10% return—in other words, $10,000 earned $1,000 outside of your IRA—the $1,000 would be taxed. Thus, you would not have the entire $11,000 to invest in your next opportunity—you might only have $10,800 after taxes. However, if you invested the $10,000 within your IRA, the full $1,000 in earnings would be available to be invested. While this $200 deficit may seem small, it can make a huge difference over time because?the cycle will repeat each time your investment creates a gain.?

Remember that the tax advantage for a traditional IRA is different from that of a Roth IRA, though both are powerful tax tools that create the compounding effect detailed above.?If?you view the investment sequence?as a tree that grows from a seed?and bears fruit, then with the traditional IRA, the tax is placed on the fruit, and with a Roth IRA, the tax is placed on the seed.?

If you would like more information about how you can use your IRA to invest with Gibby's Capital Investments visit Advanta IRA today:https://www.advantaira.com/partners/gibbys-capital-investments/