How to Set Up an IRA

October 3rd, 2018

Advertiser Disclosure

 
An IRA, or Individual Retirement Account, is a type of investment account specifically designed for retirement savings. Unlike a 401(k), which would be offered through your employer, an IRA is something you open on your own, outside of work.
 
If you aren’t sure if you’re ready to invest yet or want a big picture investing overview, you can start with our investing cheat sheet.
 
If you are interested in opening an IRA, here’s what you’ll do.
 

Decide between a traditional IRA and a Roth IRA

You’ll first need to decide what type of IRA you want to open – traditional vs Roth.
 
With a traditional IRA, your money is tax-deferred, meaning you contribute money before it’s been taxed, your investments are allowed to grow tax-free, and then when you take the money out in retirement you’ll pay taxes.
 
With a Roth IRA, you contribute money that has already been taxed. But then your investments are allowed to grow tax-free, and you won’t be taxed again when you take it out in retirement.
 
So essentially the difference comes down to getting a tax break now (traditional) or getting a tax break later (Roth). If you’re not sure which is right for you, we can help you decide in our post: Traditional IRA vs Roth IRA. In that post, we also cover IRA eligibility, so be sure you’re able to contribute to an IRA before you set one up. And if you’re rolling over from a 401(k), we can help you with that too.
 

Choose a place to open it

There are a number of competing IRA providers to choose from. First off, you’ll want to decide whether you’re a hands-on or hands-off investor.
 

Do it yourself

If you’re hands on and want to select your own investments and manage your portfolio, then you’ll want to open your IRA with an online brokerage. When you’re comparing brokers, look for ones that charge no/low account fees and commissions. Also make sure your broker offers a wide range of investment choices and an appropriate level of customer service based on your needs. And pay attention to account minimums, which can vary from one broker to the next.
 
Here are a few popular IRA providers to choose from. Keep in mind, these numbers are subject to change, so be sure to check their websites before opening an account.
 

BrokerCommissions Account MinimumStart Investing
$0 per trade$0Open Account
$0 per trade$0Open Account
$0 per trade$0Open Account
$0 per trade$0Open Account
$0 per trade$0Open Account
 

Get some help

If you’re hands off and would prefer to have someone else manage your investments for you, then you have a few choices.
 
1) You could work with a financial professional, like a financial advisor, who will help you manage you manage your portfolio for a fee. This can get expensive over time, so you’ll want to make sure you aren’t overpaying.
 
2) As an alternative, you could go with a robo-advisor, which automatically manages your portfolio for you for a relatively small fee.
 
While the number of robo-advisors grows every year, two popular choices that charge low fees and and have low/no minimum account requirements are Betterment and Wealthfront. Both charge an annual management fee of 0.25%, which is pretty low, and Betterment has no minimum account balance while Wealthfront has a minimum account balance of only $500. And although they are relative newcomers to the investing world, they both manage billions of dollars of customer money.

 

Apply to open an account

When you’re ready to open an account, the provider will give step-by-step instructions on their website. You can do it all online and the entire process should only take a few minutes.
 
They’ll ask you to fill out some personal information, like your name, address, and social security number and some information about your employer, along with what type of account you want to open (traditional vs Roth vs 401(k) rollover). If you’re going to be linking your account to a bank account, they may also ask for your bank account number and routing number.
 

Fund it and choose investments

You may be required to make an initial deposit when you open your fund, otherwise you can make deposits into your IRA over time or even set up automatic transfers so you’ll be making regular contributions each month.
 
There are annual contributions limits on IRAs. As of 2019, you can contribute a maximum of $6,000 if you’re younger than 50 and $7,000 if you’re 50 or older. And this amount is across all of your IRAs, so if you have multiple accounts, for instance a traditional IRA and a Roth IRA, you’ll have to spread it across both.
 
If you choose a brokerage account, you’ll be in charge of choosing your own investments for your IRA. We can help you understand investing basics, like how to build a portfolio and determine an appropriate asset allocation (mix of investments) in our core articles on investing, starting with the basics.
 

Summary

Whatever you choose, traditional vs Roth, brokerage account vs robo-advisor, opening an IRA can be a great way to start saving and investing for retirement. The sooner you get started, the faster your money will grow, making it easier to reach your goals. Even if you start small and build up over time, the key is to get started early.

 

Anything else we can help you with?

Open a Savings Account

Start Investing with a Brokerage Account or Robo-advisor

Automate My Finances
 

Don't Miss Out!

Get weekly financial tips and commentary on the latest news affecting your wallet.

 

Was this helpful?
Yes
No

Ready for your own personalized plan?

Generate tailored financial feedback designed for your specific needs and goals.
Mastering the Basics

Master the Basics

Setting Goals

Set Your Goals

Saving Money

Save More Money

Managing Credit

Manage Your Credit

Choosing Investments

Select Your Investments

Working with Professionals

Working with Professionals