Should an Investment Club Open an Individual Retirement Account or Joint Account?

When formed properly, investment clubs can be fun and profitable.

Individual Retirement Account Decreases Taxes

Deferring taxes leverages the growth of an investment and allows for increased value over time. The Internal Revenue Service allows tax deductions for contributions made to an Individual Retirement Account. This helps build a larger portfolio for future retirement needs, which means greater retirement income. However, these accounts are usually held individually, not as a group or club, because of IRS regulations.

Joint Account Allows for More Flexibility

Opening a joint account is easier and requires less paperwork than an IRA. Joint accounts also commonly allow for more investment options, and they are much more liquid and can be converted to cash quickly. This type of account could be held in the name of the club or in the joint names of all the club's members.

Bottom Line

Both IRAs and joint accounts are considered to be appropriate for saving money and building wealth. Although IRAs contain tax advantages, they also have limitations such as contribution limits, account owner laws regulated by the IRS, and age-based exit rules. Joint accounts are a more practical solution for investment clubs.

References

• IRS: IRA Online Resource Guide - Information About Traditional IRAs