How to open an IRA—3 steps to get you started
Updated: September 17, 2024
An individual retirement arrangement (IRA) plan can help you prepare for retirement with the added benefit of tax-deferred growth. It is a personal savings account that allows you to make regular contributions toward your retirement and can provide peace of mind for your future, adding to your Social Security so you can live more comfortably as a retiree.
But first, there is the matter of how to open an IRA. The process can vary, depending on the type of account you choose. If you are ready to start preparing for retirement, this is how to open an IRA so you can get started preparing for your financial future.
How do I open an IRA?
Opening an IRA depends largely on the type of account you are opening and where you plan to open it.
If you are considering opening an IRA, this is how to open an IRA account.
Step 1: Choose an online broker or a robo-advisor
When you open an IRA, you have a choice of an online broker or robo-advisor. There is a major difference between the two.
A robo-advisor is great for beginners and passive investors who want a more hands-off approach to investing. It’s a system that uses a particular algorithm to track the market and make trades based on performance. Just beware of management and service fees that can cut into your earnings.
If you prefer to manage investments yourself, an online broker can help. All you have to do is open an IRA account and then you can begin buying and selling investments independently. There are typically several types of investments available, allowing you to trade everything from stocks and bonds to exchange-traded funds (ETFs) and mutual funds. You may have access to help from a financial advisor, but you are responsible for managing your investments yourself. Be sure to review associated account and trading fees, as well as any investment minimums that may apply.
Step 2: Open an account
Once you decide between a robo-advisor versus online broker, you are ready to open a new account. You will need to decide on the type of IRA account (below we explore them in detail), then choose a financial institution.
Fidelity and Merrill Edge are all popular for their IRA accounts, while hands-off investors may benefit from the services of platforms like Betterment, Wealthfront and M1 Finance. You may also opt to work with both a robo-advisor and online broker for greater diversification of your overall portfolio.
Most financial institutions will allow you to open an account online. Select the IRA account you want and complete the form with your personal information. Below, we discuss what you need to open an IRA account.
Step 3: Add funds to your account
After you open an account, you’ll need to fund it. Typically, you have a few options on how to fund your IRA account. You can transfer money from your bank account, or you can transfer existing IRA assets.
You may also roll over an existing IRA. If you have funds in an existing IRA, 401(k) plan or 403(b) plan, you can roll over your IRA to a new account. Simply ask your IRA provider on the next steps. Typically, this includes contacting your former employer’s plan administrator to release payment to your new IRA provider. If payment is released to your account, you must reinvest those funds into a new IRA in order to avoid tax penalties.
You can invest whatever you like, as long as it is within the requirements for account minimums. Just be sure to remember tax considerations when planning your investment. The IRA has a maximum 2024 annual contribution of $7,000 for those 49 years of age and younger, or $8,000 for those 50 and older1.
Before you invest, consider what you can reasonably afford, and try to commit to automatic transfers as you can – anything is better than nothing to save for your future.
What you need to open an IRA
When opening an IRA, there are certain materials you will need to provide.
- Personal information. Your provider will ask for your full name to open your account. You’ll also need to furnish proof of identity, which can include your driver’s license number, Social Security Number and date of birth.
- Contact information. A full address and phone number will need to be kept on file with your provider.
- Bank account information. You will need to provide your account and routing number for your bank account so you can make future transfers. The contact information for your bank, including the address and phone number, will likely be required, as well.
Requirements may vary from institution to institution, so be sure to check the exact requirements for your IRA provider.
Information Needed to Open an IRA
| Types of information | Details |
|---|---|
| Personal information |
● Full name
● Date of birth ● Address ● Phone number |
| Financial information |
● Bank routing number
● Bank account number ● Bank address ● Bank contact information |
| Other details |
● Beneficiary information
● Employer details |
Where to open an IRA?
Part of knowing how to open an IRA is knowing where to open one. Interactive Brokers and tastytrade are popular robo-advisory platforms, while Rosland Capital is a great option when you are seeking an online broker.
Before you choose a provider, however, be sure to research the company. Look for important details like investment availability and minimums, as well as available customer support options. That will help you determine how to invest in an IRA on your terms.
Formerly TastyWorks, tastytrade is a discount broker that rates high for low fees and customer service. Traditional, Roth and SEP IRAs are available, but investment options are limited, restricting you to stocks, ETFs, options and futures. Still, there is something to be said for the money you’ll save and the service you’ll receive. If low fees are a priority, tastytrade is an excellent middle-of-the-road broker that will save you money if you’re willing to make a few sacrifices.
Interactive Brokers is one of the most popular online brokers for active investing today. It’s affordable thanks to low fees and offers a large selection of securities with generous access to global markets. Investors can benefit from fantastic tools integrated into an easily customizable interface. It may be a little overwhelming to new traders, but overall, Interactive Brokers is one of the go-to brokers for IRA accounts today.
You can take advantage of the long-term market potential of this precious metal by starting a Precious Metals IRA with help from Thor Metals. Enabling investors to include gold or silver in their portfolio, a Precious Metals IRA can be a secure and stable investment option, enhancing diversification and safeguarding your cash value against economic uncertainties. Thor Metals offers expert guidance and secure storage of your precious metals assets in partnership with top-tier, IRS-approved depositories. Plus, their investment guides help you to better understand the market and make sound decisions about your investments.
Types of IRAs
The IRS recognizes six main types of IRA accounts available2.
- Traditional IRA. A traditional IRA allows you to contribute pre-tax dollars up to the contribution limit that are not taxed until withdrawal. Funds are eligible for penalty-free withdrawals after the age of 59.5 unless you meet special requirements. Required minimum distributions (RMDs) are required at the age of 73.
- Roth IRA3. When comparing a Roth IRA vs traditional IRA, both have eligibility requirements based on income and where you have an existing retirement account at work. However, Roth IRA investing rules allow you to invest after-tax dollars up to the contribution limit. You typically cannot withdraw funds from a Roth IRA for five years but initial contributions can be accessed without tax or penalty. Roth IRAs do not require RMD withdrawals, and after the age of 59.5, all withdrawals are free of tax and penalties.
- Payroll Deduction IRA. A Payroll Deduction IRA4 is an IRA for employees from their employer. After an IRA is established, employees can make regular contributions directly from their paychecks for a fuss-free way to save.
- SEP IRA5. A simplified employee pension (SEP) IRA allows employers to contribute to their employees’ IRAs, up to a portion of the employee’s salary. Because of this added contribution, the contribution allowances are higher than a traditional IRA.
- SARSEP6. The Salary Reduction Simplified Employee Pension Plan (SARSEP) is a type of SEP IRA that was created before 1997 and includes a salary reduction arrangement.
- Simple IRA7. A simple IRA is for a small business with 100 or fewer employees. Employer contributions are set at 2% or 3% for matching contributions, and employees then have the choice to add their own contributions or not.
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Lena Muhtadi Borrelli brings over 20 years of experience in the finance industry. She began her career at Morgan Stanley before transitioning over to media. As a finance writer, she has served as an authority for several respected outlets, including Forbes, TIME, Newsweek, Bankrate, Investopedia, Insurance.com, and InvestorPlace. No matter what she is writing, Lena has a unique ability to simplify complex topics, making finance more approachable and relatable to the average reader. When she is not writing or scanning the news for the latest headlines, she is happiest spending time in the Florida sunshine with her husband and two pups.
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