How Does an IRA Differ From a Mutual Fund?

Video Transcript

"Okay, this is John Pinelli, financial representative. Gonna' be talking to you today about the differences between IRA's and mutual funds. Let's start with mutual finds. Mutual funds are a pool of investments that are put together by mutual fund companies such as American Funds, such as Oppenheimer, Fidelity, and these mutual fund companies essentially take your money, pool it with other investors, and invest it in a number of different securities that they deem are are profitable in the long run. Now, with these mutual funds come a ton of different options within each company. Each company will offer different, a whole array of funds that to suit your individual needs. Now, something that's nice about mutual funds is that you are investing in this fund you can invest as much money as you want. There's no regulations or limitations in terms of what you can contribute to the mutual fund. The only disadvantages are there's no there's no tax advantages to doing a mutual fund, and the person or the company that you're investing with in the mutual funds is going to take a portion of what you're investing with them as in the form of commissions to that company, so they're getting a fee for what they're they're providing you with. But on the flip side, there's no reg regulations in terms of what you can contribute. In the Roth IRA the money that you contribute is post-tax, which means that you contribute the money after you've already been taxed on it, and the money that you receive during distributions, which occur at age fifty nine and a half, that money is not taxed either as long as the distributions occur normally, and you're not taking more than the specified amount. Now, under the traditional IRA the money that you make is contributed post-tax; however, an advantage to the the traditional IRA is that the money that you can contribute can be deducted from your overall taxable income, which is nice. You can set aside that portion of your income, and it will be not considered taxable income for you. However, with the traditional IRA you are taxed at the distributions, which can begin to occur at age fifty nine and a half. This has been John Pinelli, talking to you today about mutual funds and IRA's."