An Individual Retirement Account, or IRA, can be opened at various financial institutions – banks, brokerage firms and robo-advisors all allow opening an IRA account. Before opening one you will need to provide identity documentation as well as answer financial questions before opening one.
If you prefer active investing, search online broker platforms and select from their offerings. Or try an automated robo-advisor with algorithms designed to manage your portfolio based on your goals and risk tolerance.
How do I open an IRA?
Saving in an Individual Retirement Account (IRA) can bolster your retirement income, providing tax-deferred or even tax-free growth potential. Depending on your tax bracket now and during retirement, traditional or Roth IRA may be more suitable.
Small-business owners and freelancers can take advantage of SEP or SIMPLE IRAs, which allow employers to contribute without incurring tax liabilities. These accounts allow these employees to contribute and deduct them from the business’s taxes.
To open an IRA, there are a range of providers including brokerage firms, mutual fund companies and banks. Compare management fees, commissions and minimum opening requirements before selecting the ideal provider for you. Also search out educational resources that can help you better understand the market and make wise investing choices. Alternatively consider engaging the services of a robo-advisor who can select low-cost investments based on your risk tolerance and retirement goals.
What are the requirements?
No matter your investing style – from accounts with low flat fees and useful features such as tax loss harvesting or automatic rebalancing to making decisions yourself and investing without advice – there is an IRA provider out there to meet all of your needs. A top robo-advisor like Betterment, for example, can manage your portfolio and offer professional investment advice all for one low monthly fee.
As with other investments, when signing up for an IRA online you must complete a signup process on its provider’s website. This typically entails providing personal and financial details like legal name, address, Social Security Number and employer details.
Some providers also provide more specialized accounts, including SEP IRAs for self-employed individuals and SIMPLE IRAs for small-business owners. These may have higher contribution limits than traditional IRAs and require working with a custodian or trustee in order to complete due diligence on investments and complete any required paperwork.
How much can I contribute?
IRAs allow you to save tax-deferred, but there are certain limits and if you fail to meet them you could incur penalties on your taxes. Speak with a financial professional today about optimizing the contribution amounts.
Consider Your Investment Options (or Work With an Advisor to Do so). A portfolio may consist of mutual funds that invest in numerous different companies to spread out risk; that’s called Diversification in investing terms.
Another strategy for increasing contributions is dollar-cost averaging. Instead of funding your IRA all at once, invest a small amount each month until you meet either your annual savings goal or reach its contribution limit. Payroll deductions or bank withdrawals make this easier to fit into your budget.
Where can I invest?
IRAs are designed to hold stocks, bonds and mutual funds. Investors can choose from various online brokers or robo-advisors when it comes to investing IRA funds – just make sure your fees remain reasonable to maximize returns!
To aid this goal, seek low commissions and investments with minimal costs – like mutual funds or exchange-traded funds (ETFs) which track market sectors or individual securities; or choose Vanguard target retirement funds which provide a tailored, professionally managed investment mix based on age or years until retirement.
Based on your income, you may also qualify for a Roth IRA – perfect for people facing higher taxes in retirement and without contribution limits like traditional IRAs – as long as they meet certain income criteria.