Question: Kathy, who is single and 25, inherited $5,500 from her grandmother. A coworker has suggested that Kathy open an individual retirement account with the $5,500.

Kathy, who is single and 25, inherited $5,500 from her grandmother. A coworker has suggested that Kathy open an individual retirement account with the $5,500. Her friend says that an IRA is a great way to save because you don’t have to pay tax on the income from the investment and you get a tax deduction for your contribution. Write a letter to Kathy explaining whether her friend’s advice is correct. To the extent her friend’s information is inaccurate, provide Kathy with the correct tax treatment and explain how different facts may lead to different tax treatments.

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