How to Open an IRA

IRA is an abbreviation for an individual retirement agreement, a retirement plan that allows you to save money while also getting taxation benefits. This page is an introduction on how to open an IRA account.
Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

How to Open a Traditional IRA

This video features a financial expert discussing how to open up a traditional IRA. He describes what an IRA is, and the tax benefits that are provided by a traditional IRA. Any bank or investment advisor should be able to help you open an IRA. The video suggests meeting with a financial planner to determine how much is appropriate for you to invest.

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Introduction

Opening up an IRA account can be a way for self-employed individuals, or other people who don't have an employer retirement plan, to save up for retirement. It can also be a way to supplement an employer retirement plan.
Step 1: Types of IRA
1. An IRA allows for people to get tax benefits related to retirement savings. IRAs are either tax-deductible when contributing to them, or when withdrawing money from them.
2. There are three basic types of IRAs: traditional IRAs, Roth IRAs and Savings Incentive Match Plans for Employees (SIMPLE).
3. Contributions to Traditional IRAs are tax deductible. You will pay taxes when you withdraw the money after retiring. They are therefore considered a good option for people who estimate that their income will decline with retirement.
4. Roth IRAs are considered a good option for people who estimate that their income will increase with retirement. Withdrawals from Roth IRAs are tax deductible.
5. Savings Incentive Match Plan for Employees (SIMPLE) is an IRA plan where both the employer and employee contribute. They are similar to 401(k) plans but subject to lower limits on contributions.
6. There are several requirements for different types of IRAs and you will not always be able to choose freely. Traditional IRAs are typically subject to stricter regulations and requirements.
Step 2: IRA Requirements
- IRAs are subject to many requirements and regulations. Consult IRA publications and a financial adviser for specific information. Some general requirements when opening an IRA are:
1. Contributions are limited to $5,000 a year or $6,000 if you are over 50 years old. The contribution tables have increased, due to a "catch up" allowance, for those nearing retirement age.
2. An IRA can be funded with cash or cash equivalents, but this money can be invested in securities or other assets.
3. IRAs are subject to income limitations, and a traditional IRA is subject to lower income limitations than Roth IRAs.
Step 2: Choosing an IRA Custodian
- Retirement plans can be opened at several institutions, including banks, mutual fund companies and brokerages.
1. At a bank, you can get help choosing how to invest your money. There is usually a charge to open an account.
2. A mutual fund company will allow you to spread your risk across a variety of investments.
3. If you are experienced with investments, you can open an IRA with a brokerage firm, where you can select your own investments.
Step 3: Opening an IRA
- This page is an introduction on how to open an IRA. Before opening an IRA, make sure to research different types of IRAs and learn about investment strategies. Learn about the restrictions on withdrawals from IRAs and other key components. Consult a financial adviser for more information. There are also a variety of resources available from the IRS.
Conclusion
- To open an IRA, research types of IRAs and their requirements and restrictions, choose a financial instution and learn about investment strategies.
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