The Best Way to Use Your IRA

An IRA can be a powerful way to save for retirement. But you should invest in such a way that takes maximum advantage of the tax benefits IRAs give you. What's the best way to do that?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at IRAs and the best way to use them to invest. Dan notes that the key to IRAs is tax deferral, so it makes sense to put your highest-tax investments in an IRA. Dan talks about mortgage real-estate investment trust Annaly Capital (NYSE: NLY  ) as an example of an investment that usually pays income that's taxed at your highest ordinary income rate and is therefore appropriate for IRAs, as well as business development corporation Prospect Capital (NASDAQ: PSEC  ) that often distributes a large percentage of income that's taxed at ordinary rates. On the other hand, Dan notes that traditional IRA distributions are always taxed in retirement at your prevailing tax rate, and therefore you won't get the benefit of lower capital gains or dividend rates on stocks. You also won't get the full tax benefits that master limited partnership Kinder Morgan Energy Partners (NYSE: KMP  ) and its peers offer. Dan concludes that being smart about your IRA can save you a lot in taxes in the long run.

How to get more income during retirement
Your IRA can help you boost your retirement income, but it's not your only tool. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Have general questions about Social Security? Email them to, and they might be the subject of a future video!

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2942260, ~/Articles/ArticleHandler.aspx, 9/5/2015 4:04:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
KMP $0.00 Down +0.00 +0.00%
Kinder Morgan Ener… CAPS Rating: *****
NLY $10.10 Down -0.12 -1.17%
Annaly Capital Man… CAPS Rating: ****
PSEC $7.84 Up +0.15 +1.95%
Prospect Capital C… CAPS Rating: ****