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How to Open an IRA

Veneta Lusk is a family finance expert and journalist. After becoming debt free, she made it her mission to empower people to get smart about their finances. Her writing and financial expertise have been featured in MSN Money,, Yahoo! Finance, Go Banking Rates and The Penny Hoarder. She holds a degree in journalism from the University of North Carolina - Chapel Hill.

When it comes to saving for retirement, one good option is using an IRA to stash your cash. An IRA (short for individual retirement account) offers tax advantages over a regular savings account, but it is just as easy to open. There are a few simple steps in the process that will have you on your way to saving more for your golden years.

Ready to start saving? Below are details on how to open an IRA.

How to open an IRA

The process for opening an IRA is straightforward. Here's what you need to do to get started:

  1. Make sure you are eligible to open an IRA

  2. Decide where to open your IRA

  3. Fill out the account paperwork

  4. Decide how to invest your money

  5. Set up a regular contribution schedule

1. Check your eligibility to open an IRA

If you are looking to open a traditional IRA, you need to be 70.5 years of age or younger. There are no income limitations for opening a traditional IRA; however, Roth IRAs are different.

Once you earn more than a certain amount, you can’t take advantage of a Roth IRA without doing a conversion. However, you may be eligible for a reduced contribution. The IRS__ website has the formula for figuring out how much you can contribute.

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2. Decide where to open an IRA

Once you've decided to open either a traditional or a Roth IRA, the next step is choosing where to open the account. You have a few options for getting started. Many banks and credit unions offer IRAs, although you may be limited to investing in savings accounts or certificates of deposit (CD).

Another option is to go with an online investment platform - most don’t have minimum balance requirements. They allow you to invest in a portfolio of stocks, bonds, mutual funds or ETFs and diversify your investments across many industries and countries. They generally charge a fee based on a small percentage of your total investment portfolio.

Some mutual fund providers also offer the option to open an IRA. This can work well for those who know they want to invest in mutual funds and want to save money on trade commissions. The downsides of this approach include large minimum opening deposits and limits on investing in that company’s mutual funds.

3. Paperwork needed to open an IRA

Most institutions have a website where you can get the process for opening an IRA started. Some will even allow you to complete the entire process online. If you have questions at any point, you should be able to talk to a customer service representative.

Here is what you need to open an IRA:

  • Your driver’s license or another acceptable form of photo identification

  • Your social security number

  • The routing and account numbers for your checking and savings accounts so you can fund your new account

  • Your employer’s name and address

  • The name, address, and social security number of your plan beneficiary (the person who will inherit the money in your account in the event of your death)

While you do not need the beneficiary information when setting up the account, it is important to add it. Without a beneficiary named on the account, this asset may end up going to probate.

4. Figure out how to invest the money inside the IRA

Once you put the money inside your IRA account, you will need to invest it. This means buying individual stocks, bonds, mutual funds or ETFs. You can pick the stocks yourself, invest in a target-date or life cycle fund or let us build you a smart, personalized portfolio that fits your goals.

Keep in mind that there are fees associated with buying and selling stocks. Make sure you know all the fees upfront and understand how they will affect your portfolio. There are fees when working with a financial advisor, with standard fees hovering around 1 percent.

One option is to choose a self-directed IRA and make your own decisions about investing your money. By skipping the advisor, you can avoid the advisory fees, which are added on top of any fund fees and commissions.

Another approach is to go with a robo-advisory service that uses computer models to allocate assets as you approach retirement age. Using this service can often cut the advisory fee in half or more.

5. Set your contribution schedule

If your bank gives you the option to set up monthly transfers from your bank account, this can be a good way to fund your IRA. You can also choose to make a one-time contribution every year.

You can also roll over funds from a 401(k) account and use the money to fund your IRA. Set your contribution schedule based on what works best for you and your finances.

Best Place to Open an IRA Account

There are many options for opening an IRA account, and it can seem overwhelming when you do the research. They all offer different incentives, positives, and negatives.

Finding the perfect fit for you doesn’t have to be complicated. First, decide if you want a place that has a physical location or if an online-only option works for you. You may feel more comfortable with a fund management option where you can visit a brick-and-mortar location.

Next, check out how much it will cost to open an account. Some companies charge fees or require minimums while others don’t. Also, look at the cost to make trades inside your account. Try to minimize the fees because they can impact your long-term returns.

Look at the investments they offer and ask yourself if they fit your investment risk profile. Finally, do first-hand research on their customer service. Call them up and ask them all of your questions about opening an account and the services they offer.

Should You Open an IRA?

If you don’t have a work-sponsored retirement plan, opening an IRA is a great way to stash money away for retirement. An IRA helps you save with your future in mind and gives you tax benefits.

Opening an account is quick and easy, and you can contribute right away. Depending on your income, you may be eligible to contribute to a traditional IRA only or have the option to fund a Roth.

How Much Does it Cost to Open an IRA?

There is no cost to open an IRA but you will need to deposit enough funds to at least cover the investment you are purchasing. For example, if you want to buy 10 shares of an index fund, you will need to put enough money in the account to cover the cost of the shares plus any commissions.

Traditional banks and credit unions tend to offer limited investment options for IRAs such as savings accounts and CDs. Many have minimums set for the amount you need to deposit, depending on how you want to invest it.

For online brokerages, each one has its own minimum for opening an IRA. You may be able to set up an automatic withdrawal from a checking or savings account instead of an upfront lump sum. Check with the company you are considering using for your IRA on their limits and fees.

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Last Updated April 29, 2019

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