Expert: Paul Henneman - 1/9/2009

Question
Dear Sir,

Can you please tell me the real difference between the investment and Retirement.

If i am right
Investment consist of
Stocks, Bonds, Mutual Funds, Saving Accounts, Annuities, CDs. etc

Retirment consist of
IRA, Roth IRA, 401K , etc.

Please tell that how should i plan for both of them.

Regards.
Mansoor

Answer
Mansoor,
    Yes, you are correct that investments typically consist of Stocks, bonds, mutual funds, savings accounts, money market accounts, annuities, CD's, and other things.
    However, Retirement accounts are types of accounts, not actual investments. For example, an IRA account is an account, and by itself has no value. You must buy and sell investments within the retirement account. You can buy or sell most of the things you list as investments within the retirement account, instead of setting up a normal investment account to do it. There are very significant tax savings if you buy and sell stocks for example in an IRA or ROTH IRA account instead of doing it in a normal individual investment account.
   Most online trading services offer the ability to set up a trading account as a normal individual trading account, or as a retirement account. You buy and sell investments the same way in both, the only difference is that the retirement accounts have significant tax advantages. There are also limits to how much you can invest through retirement accounts. If you want to invest more than the allowable limit in a retirement account, then you can also set up an individual trading account that will be taxed at a higher rate.

I hope that this helps!

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com