3 Ways Your IRA is Not Like a Casino

By Jeffrey Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott

As this article is being posted, there’s a good chance I’ll be about 35,000 feet somewhere over the middle of the country on my way to Las Vegas for one of our 2-Day Instant IRA Success workshop. Of course, the mere mention of Las Vegas conjures images of big, lavish casinos, so that got me thinking. Are there parallels between your IRA and a casino? Sure there are some, but the reality is (as you might expect), there are some pretty big differences. Here are just three of them.

Putting More Money in For Longer Periods is Actually Better – When it comes to casinos, you’ve probably heard the expression “the house always wins.” I understand the meaning, but that’s certainly not an accurate statement. The house doesn’t always win, at least not when you look at it on a person-by-person basis. There are plenty of losers at the end of the day, but a few people are lucky enough to walk away winners … if they walk away that is. Statistically speaking, the longer you gamble and the more money you “put through the system,” the greater the chance that you will walk away a loser. It’s just simple math and the long-term odds are not in your favor.

When it comes to your IRA, however, the exact opposite is true. The more money you put into your IRA (within the established limits) the more money you’re likely to “walk away with” in retirement. The same holds true with regard to time as well. The earlier you start saving and the longer you have your IRA, the better off you’ll become retirement because of the compounding of investment gains inside your IRA, the better off you’ll be in retirement because of the compounding of investment gains inside your IRA.

You Can’t Get Any Freebies For Your IRA – If you gamble at a casino long enough, they’ll start throwing freebies at you to encourage you to gamble some more. It might be something as small as a free meal, but if you’re a high roller, there’s virtually no limit to what they’ll throw at you to keep you coming back. You name it – private jets, fancy suites, tickets to the hottest show, there’s no end.

You can’t do the same with your IRA, though. For example, many institutions offer special perks for investing with them, such as frequent flier miles. If you look at the fine print though, these offers often exclude IRA investments to avoid running afoul of the prohibited transactions rules. In short, you’re not supposed to benefit personally from your IRA. If you do, it can be considered a prohibited transaction and can lead to your entire account becoming taxable in one fell swoop.

There’s No “Eye In The Sky” For Your IRA – When you’re in a casino, you’re being watched closely, very closely! Everything you do is being monitored and recorded. If you try to pull a fast one, chances are you’ll have casino security on you before you can say “Blackjack!”

When it comes to your IRA though, the same is not true. There’s no IRA police watching you constantly to make sure that you don’t run afoul of the rules. About to commit a prohibited transaction? Don’t expect someone to show up at your door unannounced and prevent you from doing so. When it comes to your IRA you’re largely on your own, which means you have to live with the consequences of your mistakes.