The Steps to Open an IRA Account

Opening an IRA account can be tricky, but the process will be smooth sailing if you know what to do. Here are six simple steps to opening an IRA that will leave you better prepared than ever to start saving for retirement.

Step 1: Determine if You Qualify

Each taxpayer is entitled to make tax-deductible contributions of up to $5,500 for an individual retirement account (IRA). For example, if you are younger than 50 years old as of December 31, 2021, your contribution limit increases by $1,000.

Step 2: Choose Your IRA Provider

If you go with a broker, be sure they are active registrants with a self-regulatory organization (SRO). Some good choices would be FINRA or SoFi Invest. Choose an investment firm that offers customer service and low costs. Fees can eat up your investments, so find one with fair prices. You can compare different providers and their fees at Morningstar or NerdWallet. When evaluating potential options, make sure there are no account minimums and no restrictive terms that would prevent you from closing your account if necessary.

Step 3: Select Your IRA Account Type

After you open an IRA account, you need to select your IRA account type. You have a few different options: traditional, Roth, or SEP. For example, a Traditional IRA allows your investment dollars to grow tax-deferred, while a Roth can be withdrawn tax-free in retirement. If you’re self-employed, consider opening a SEP IRA.

Traditional IRAs allow you to deduct contributions from your taxable income, which is more beneficial if you’re in a higher tax bracket than when you retire. To contribute to a traditional IRA, your modified adjusted gross income (MAGI) must be below $101,000 (married) or $63,000 (single). If not, a Roth IRA may be a better choice for you.

Step 4: Open Your IRA Account

Once you have decided on your type of account, contact your broker or investment advisor and open your account. Most brokers require a series of forms, such as personal information, details on your beneficiaries (who will receive any remaining funds if you pass away), preferred contribution method, banking information, and a government-issued ID. You’ll also want to ask questions that only a professional can answer, such as fees and minimum balance requirements.

Step 5: Make Contributions to Your IRA

There are two types of contributions that you can make to your IRA: regular contributions and rollover contributions. A recurring contribution is a deposit you make into your account. For example, if you qualify for an extension, you must meet your tax-filing deadline or an extended deadline. According to experts at SoFi, “you can open multiple IRA accounts. Please note the IRS contribution limits still apply across all accounts and are not limits per account.”

Step 6: Start Investing Your Funds

Stocks, bonds, index funds, exchange-traded funds, mutual funds, and exchange-traded funds are all ways of saving for retirement and are structured differently. For a beginner investor who does not have a lot of money, we recommend starting with Mutual funds or ETFs. Once you get comfortable with these vehicles and understand how they work, you can make wise decisions about when to use stocks and bonds as investments.

IRAs (Individual Retirement Accounts) are a great way to save for retirement. They offer tax advantages and allow you to invest your money in various investment vehicles, such as stocks, bonds, and mutual funds.

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