One of the most common misunderstood financial planning concepts that we come across when meeting with new clients is the Individual Retirement Account also more commonly known as an IRA. The most common misconceptions we find with respect to IRAs typically are:
1.) That an IRA is a type of investment which earns a certain rate of return and
2.) That one can contribute any lump sum they receive into an IRA.
An IRA is a type of investment account. It is a form of retirement plan provided by many financial institutions that offers tax advantages for retirement savings in the United States as described in IRS Publication 590, Individual Retirement Arrangement (IRAs). Within this type of account one may invest in many different types of investments or simply hold the contributions in cash. Second, depending on the type of IRA, as described below, one is limited to a certain amount which they can contribute to an IRA in a year and which must come from EARNED INCOME and not anot…