re: Help me with my IRA understanding

I remember being confused about this also back when teachers recommended this to us. Think of it like a special label that you apply normal financial things.You can have an IRA savings account, that increases a very small percentage in value each year like a regular savings account. You can have an IRA Certificate of Deposit, that increases a slightly bigger but still tiny amount. You can open an IRA investment account to hold shares of stocks, bonds or mutual funds that can increase or decrease dramatically in value over time. You can only give the IRA label to a certain amount of your money each year, and there are special rules that make you pay a big penalty if you take that money out of the IRA before you're 59.5 years old.

Your teacher was probably basing this amount on something he or she read somewhere, which would've assumed that your IRA money would increase by an average value over time. For example, the stocks/bonds/mutual funds you hold might increase in value dramatically one year and decrease dramatically the next, but if the increases and decreases average out to x% over time then you'd have a million dollars by age y.