What Is a Bank Money Market IRA?
Money market accounts offered by banks are investment options for money put into an IRA. An IRA is an individual retirement account given tax advantages by the Internal Revenue Service (IRS).
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Types
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Money market deposit accounts pay a set rate of interest, which usually exceeds the interest rate of savings accounts because of higher account minimums. Money market mutual funds are investment accounts that invest in short-term debt securities.
Rate of Return
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The rate of return on money market mutual funds usually outperforms money market deposit accounts. However, there is a slim possibility for money market mutual funds to lose money if the investments decline in value.
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Safety
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The first $250,000 you have in a money market deposit account at a bank is protected by FDIC insurance in case the bank fails. Though money market mutual funds do not share this protection, the debts they can invest in are strictly regulated by the government, so the accounts rarely lose value.
Advantages
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By having money in an IRA, you do not have to pay taxes on the interest or dividends that are paid on the money market accounts. In addition, if you have a traditional IRA you can deduct the contributions you make to the IRA. If you have Roth IRA you do not have to pay income taxes on the withdrawals.
Considerations
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Though money market accounts are very safe, the rates of return are often little more than inflation and generally pale in comparison to the potential rates of return offered by moderately more risky investments like stocks and mutual funds.
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