Starting Your IRA With ETFs
Our third article for young ETF investors highlights the benefits of using an IRA.
Exchange-traded funds are excellent tools for young investors, a group that has unique investment needs and circumstances. The under-30 crowd's investable capital is relatively small, necessitating cost minimization at every opportunity. The investment goals for responsible young people are both short- and long-term: They must begin to save for retirement, even as major expenses like graduate school and home ownership lurk around the corner. Although investing within an individual retirement account may seem incompatible with these near-term needs, an IRA is in fact a logical and straightforward place for young investors to park an ETF portfolio.
IRAs allow investors to grow their assets tax-deferred or tax-free. There are two structures to choose from: a traditional IRA or a Roth IRA. Contributions to a traditional IRA may be tax-deductible and grow from year to year without accruing taxes. Investors covered by an employer-sponsored retirement plan lose the ability to deduct contributions from their taxes at certain income levels, but the real benefit to an IRA is the ability for investments to grow within the account without paying taxes on gains from year to year. Withdrawals from the IRA account during retirement are taxed at the investor's ordinary income rate. Roth IRAs flip the tax schedule: Contributions are made after income tax has been paid, but withdrawals during retirement are not taxed and the account grows tax-free. An investor can contribute up to $5,500 to a Roth IRA every year, as long as his or her modified adjusted gross income does not exceed $125,000. Investors can buy and sell a variety of investments, including ETFs, within either type of IRA without realizing capital gains or paying tax on distributions.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.