How Do I Open an IRA?

by IRA Rollover in Retirement, Roth IRA, Traditional IRA with Comments Off on How Do I Open an IRA?

You’ve studied all the information about planning your retirement so now you’re probably wondering:  how do I open an IRAWhat is an IRA account, anyway?  An IRA (individual retirement account) is like a savings account only better.  The money is invested over the years and grows into a fund that will, ideally, support you in your retirement.  A total investment of $50,000 over a period of 25 years might yield several hundred thousand dollars if it is invested wisely!

First, decide whether you want a traditional or Roth IRA.  If you open Roth IRA it means you must pay taxes on it now but the money you withdraw in retirement is tax free.  If you open traditional IRA it offers you a tax deduction each year but when you withdraw the money you’ll pay taxes on it—and taxes may be even steeper in the future than they are now.

Since an IRA is all about making your money grow enough to support your retirement, the first thing you need to do is to find a Retirementdiscount broker that you trust.

Discount brokers offer lower expenses than other types of brokers and since you want to get the most from your money, a discount broker will give you more money to work with.  Fees can drain your IRA and the less money that’s there to work for you, the less you’ll have when you retire.  An IRA trustee (brokers included) is legally allowed to charge annual fees in return for maintaining your IRA.  Some discount brokers charge nothing beyond their small commissions on trades.  If you are paying $100 a year in transaction fees it can actually cost you tens of thousands of dollars over the long run—money you won’t have to live on when you finally retire.  It pays to shop around!

Once you find a broker whose expertise, experience, and fees you’re comfortable with you’ll fill out an application.  Although you may be able to complete it online, you usually have to print it and mail it with a check to the broker.  The check will be the funds you want to use to open the account and it can be the maximum yearly contribution or a lesser amount.  You can also transfer funds from an existing IRA to a new IRA.  Check the IRA rollover rules imposed by the government or ask your broker or financial advisor to insure that everything is done properly.

Now you’ve opened an IRA!  It wasn’t difficult and only took a short time once you decided on a broker.  Now you can start trading to make your IRA grow.  If you do not feel comfortable in your knowledge of the stock market you may want to buy mutual funds.  Many people use full service brokers who are more costly but invest their funds without their having to deal with making decisions.  Be sure that if you use a full service broker the firm is a fiduciary—that is, they have a legal obligation to make investment choices that are in your best interest instead of their own.

Many people who ask how do I open an IRA have no idea how easy it is!

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