The Difference In IRAs and RIAs Is More Than Just The Letters

The article explains the different kinds of IRAs.

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Three letters arranged in different order have entirely different meanings. IRA or RIA? The two abbreviations are very similar; they are the same letters in a separate order.  They often are confused when considering an actual definition.

An IRA is short for Individual Retirement Account.  An IRA is designed for individuals to help them build a personal retirement fund.  The IRS allows, under most situations, a tax-deductible deduction, and a tax-deferred growth.  When funds are removed, tax liability comes into play.

There are several types of IRA:

  • Traditional IRA, where contributions are usually tax-deductible, all transactions and earnings within the IRA are tax-deferred. Withdrawals at retirement are considered ordinary income and taxed as such. Not all traditional IRAs are tax-deductible; rules apply.
  • A Roth IRA has different rules for contributions and withdrawals. Contributions are made with after-tax funds, all transactions within the IRA have no tax liability,  and in most situations, withdrawals are usually tax-free
  • A SEP IRA has a provision that allows an employer to make retirement plan contributions into a Traditional IRA established in the employee’s name. Usually, a SEP IRA is used instead of a company pension plan.
  • Coverdell Education IRA allows for contributions and encourages saving for college expenses. The funds grow tax-deferred, and withdrawals have no tax liability when used for college-associated expenses.

If an IRA is for saving money, what is an RIA?

Income, safe, secure, and stable lifetime income, tax-free income.

An RIA is a “Roth Income Account.”  By using a “special” annuity feature available for income, a Roth Income Account can provide tax-free income for as long as the annuitant lives and both spouses can be included.

The unique feature is available now, spouses can share in the income, and both will receive the payment for life.  What happens if death occurs prematurely?  Simple, unused funds in the account are then inherited by their beneficiaries!

Oh, I forgot the most critical part of the plan, the income received from a Roth Income Account is paid TAX-FREE.

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