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I'm a European citizen who needs, for professional reasons, to understand in broad terms how the IRA works.

I read the wikipedia page, and there is written that "all transactions and earnings within the IRA have no tax impact".

What is a "transaction within IRA"? It's like when the IRA buys government bonds? And what does it mean "have no tax impact"? Does it mean that the coupon payouts are tax-exempt?

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  • I can move investments around within an IRA with no taxable consequences. For example, open a position in a new fund, move money from stock to bond funds, etc. All things that will show up as 'transactions' on the IRA statement, but if they are all in my IRA they are all fine. If you hold individual bonds in an IRA, then yes, any income they generate that stays within the IRA would remain tax exempt until withdrawn from the IRA.
    – Jon Custer
    Commented Jan 5 at 18:26

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Think of IRA as a brokerage account with tax events only happening when money flows into the account or out of the account, bu nothing within the account triggers any tax events.

This is similar to retirement/pension vehicles you surely have in your own country.

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  • So I decide which investments to pursue? And if I invest all my money in the shares of a company that goes bankrupt the day before I retire, I'm left with no pension? Commented Jan 5 at 23:24
  • @robertspierre yes, IRAs are self-directed. Pensions are becoming very rare in the US, most retirement plans are defined contributions with varying levels of flexibility for participants to decide on their own investment mix.
    – littleadv
    Commented Jan 5 at 23:41
  • @robertspierre+ although if you work (legally) in the US, you will also pay into the government-run retirement program Social Security, with very few exceptions (mostly if you work for a state or local government agency that has a defined-benefit pension at least as good actuarially as SS), and assuming you work at least 10 years, at age 62 or higher you get 'guaranteed' SS benefits based on your earnings history plus inflation. SS (OASI) benefits may be partly or wholly tax-free depending on how much other income you have. Commented Jan 7 at 2:32
  • @dave_thompson_085 that's on top of the IRA? Your point is that if I get an IRA ,invest all my money in company's A shares, and company A goes bankrupt the day before I retire, I would still get social security the day after? Commented Jan 7 at 7:58
  • Yes, social security is a government funded safety net. It's not exactly a pension, but there is some correlation between contributions and the resulting defined benefit. But it's funded through taxes, not the contributions per se (in a sense that there's an actuary deficit built into the system).
    – littleadv
    Commented Jan 7 at 8:28

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