if I use IRA to buy ETF, then my money cannot be used for many year. If I use a taxable brokerage account, I can get cash today.

However, why do so many people like IRA?



Gains and dividends in an individual investment account are taxable; additionally the money you use to invest is taxed. IRA and Roth IRA receive preferred taxation of gains dividends, and in the case of a Traditional IRA your contributions are tax deductible, and in exchange for the preferred taxation the money is in jail until your retirement age. However, you can get your Roth IRA contributions back whenever you want penalty free.

  • It is not only gain. IIRC the money you send to the IRA is also pre-tax money, which means that you already have a boog gain there, depending on tax rate. – TomTom Aug 14 '18 at 14:09
  • @TomTom, I was going for broad strokes but that's a good addition, edited. – quid Aug 14 '18 at 16:55
  • It acutally can be brutal if you pay i.e. 30% tax. I think you also have the matching contribution. Together this means that depending on your contribution and tax you may essentially start with more than 250% book gain in year one. HARD to beat this. Brutally hard. – TomTom Aug 14 '18 at 17:59
  • I mean, initally my answer was "Taxation." but I had to include more words. – quid Aug 14 '18 at 18:09
  1. In a Traditional IRA or 401k, the money that you put in is tax deductible[1], ie, you do not pay taxes on it now, you pay taxes on it when you withdraw it in retirement. If your marginal tax rate in retirement is lower than it is now (due to making less per year), then you end up paying less taxes overall.

  2. In a Roth IRA or 401k, any earnings that you gain from those investments are not taxed at all.

  3. Not specific for an IRA, but contributions to a 401k are often "matched" by some amount by the employer, effectively being free money.

So in essence, in exchange for locking up your money until retirement[2], you get tax benefits and probably (Traditional) or definitely (Roth) end up paying less in taxes than if you just held it in a brokerage account.

[1] There are processes by which you would put post-tax money into a Traditional IRA for conversion into a Roth IRA, but we're sticking to the broad guidelines here.

[2] The money you contribute to a Roth IRA may be withdrawn whenever you want; it is only the tax-free gains that are effectively locked in until retirement.


In addition to the taxation reasons, many people like IRAs specifically because they can't touch the money easily. Many people are terrible at saving money, and an IRA is a way to force yourself to put some money away so you're not working until you're 80 and/or living on only governmental assistance when you retire.


Earnings/gains in a Roth IRA are not taxed so long as you have had your account open for a minimum of 5 years and you are age 59 1/2 before withdrawing those earnings/gains.

This wouldn’t be the right type of account to use if you want immediate access to your money, but rather as a tool to grow your funds for your future retirement

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