Basics Terms in Retirement Investment Planning

If you have spent any time thinking about investing or building a retirement savings, you've probably heard a lot of different terms related to the subjects. I notice that people often confuse the investment options with tax options involved with retirement investment.

This is a huge topic, and I'm not going to be able to describe it all in one posting. Instead, today I will explain the difference between an investment vehicle and a tax shelter (in relation to retirement planning). I plan to explain more details later; let me know if you want me to cover certain things sooner than others.

An investment vehicle or asset is an item you pay for with the hopes of getting more money later. Examples include stocks, bonds, CDs, options, futures, mutual funds, etc. If you don't know what those are, we'll talk about that later. In fact, I think we'll get into what stocks are soon.

A tax shelter is an account that is given specific tax breaks by the government. Retirment examples include IRA, Roth IRA, 401k, and 403b. Any number of investments can be inside one of these tax shelters.

The big take away here is that a tax shelter is NOT an investment. Just putting money into your IRA isn't enough. You also have to invest it in something, like a mutual fund or a CD.