Quiz: What Does the “A” in IRA Stand For?

This is always a fun one for me to ask.

What did you answer?

“Account!”

I will give you half credit for that answer because its only sort of correct. The financial world calls these Individual Retirement Accounts because that is how they function. It is a retirement account.

But… that’s not all.

Do you know what the IRS calls these?

Individual Retirement ARRANGEMENTS.

https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras

I don’t know about you, but I like the idea of an account way better than the idea of making an arrangement with the IRS. Technically, that is what you are doing when you place money within a Traditional IRA or a Roth IRA. You are making an arrangement with the IRS about the rules, uses and taxes the money in the account will be subject to.

This is often an overlooked aspect to how and where we save money because we seldom consider when it is time to use this money is the IRS the first person standing there waiting to collect their portion. Income, cash, savings, investments, property, 401(k), life insurance, Roth’s, all of these have IRS rules for uses and taxes and we all have way more “arrangements” with the IRS than we realize!