It's a dog-eat-dog investment world out there today. Figuring out what's the best investment vehicle in any given situation can be a challenge. One of the areas where people seem to have a really tough time of it is in IRA investing.

IRA accounts are different. They have a special tax status; and that tends to throw people off when it comes to how to invest those funds.

First a quick review... The traditional IRA is a tax deferral vehicle. Money deposited into a traditional IRA is deductible, and is allowed to appreciate tax deferred. Taxes on capital gains, interest and dividends in a traditional IRA are due as withdrawals occur. And of course the expectation is your tax rate will be lower in retirement when you start taking those withdrawals. With a Roth IRA taxes are already paid on the funds you deposit, contributions are not tax deductible. But from that point forward the account is exempt from taxes.

It is because of these tax advantages that funds inside an IRA account are particularly well suited for certain types of investments.

1. Aggressive stock funds If you're young and willing to take on more risk your IRA is a great place to roll the dice with aggressive growth funds. The logic in this thinking is that these kinds of funds typically have a high turnover in pursuit of market-beating returns. Turnover means lots of capital gains (that's the plan, anyway). Inside an IRA account these capital gains are not immediately taxable.
2. High yield bond funds For the investor a little closer to retirement, or one less willing to take on the risks inherent in aggressive growth stock funds, high yield bonds make good sense. Interest can be reinvested, creating that magical compounding effect, and it's all free of taxes, or tax deferred.
3. Real Estate Invest in a Real Estate Investment Trust. REITs can generate loads of taxable income and appreciation. They're just the perfect thing for a tax-advantaged account such as an IRA.

Get the idea for how the IRA investing picture works? You have to set aside all thoughts about taxes. The best investments for your IRA are those which generate lots of gains. Short-term, long-term, interest, dividends... whichever it is. The more the better. One thing is certain, you do not want any municipal bonds in the mix. Tax-free interest paid into a tax free or tax deferred account... not a good use of capital.