Finance Basics: How to Open an IRA

Let me introduce you to Samuel. Samuel has recently discovered how useful an IRA can be in saving for retirement, and sheltering him from taxes.

So, what does he do next? How does he open an IRA?

So many people come to us asking exactly that, looking for that extra level of certainty. Fortunately, this step is one of the easiest, and one that you can take today!

Photo by Glenn Carstens-Peters on Unsplash

First: Select your custodian

The first thing Samuel needs to do is decide what company will hold his IRA. There are a lot of choices out there. Banks, credit unions, and brokerages can all open accounts. But what should Samuel look for to pick one out of the pack?

Rather than opening one at a bank, Samuel would probably be better served opening one up that can hold stocks. After all, one of the IRA’s great advantages is that stocks will incur capital gains tax while held within the account.

That will help him narrow the field a bit. Now he’ll just need to find a reputable brokerage.

Some we recommend are:

  • Fidelity
  • TD Ameritrade/Schwab
  • Vanguard
  • Rowe Price

These brokerages offer good investment options, and execute transactions efficiently.

Second: Apply for an IRA

Once Samuel selects where he’d like to park his account, all he needs to do is go on their website and fill out an application for an IRA. Samuel will be able to find the application form simply by looking for “IRA” in the brokerage’s website.

This application looks different at each brokerage, but with the four we recommended, the process should be user-friendly.

It might take a few business days for the account creation process to finish.

Once the IRA is opened, it’s time to move money into the account!

Third: Fund the account

Once again, each brokerage’s website might look different, but the process is similar across each platform.

Logged into his online account, Samuel will need to connect his IRA to his checking account, or whatever account he’ll be using to deposit money.

Once connected, he will have to decide how money gets deposited into the account. On the online platform, Samuel will select the amount of money to deposit, and whether to make it a recurring deposit, or a one-time transfer.

At this point, he might also need to decide what year he wants his IRA contribution to count towards.

Aside: Remember, you can only contribute $6,000 per year towards IRAs. Not only that, but the deadline for contributions is Tax Day. So, if you want to make contributions for 2020, you can actually wait until Tax Day of 2021! Because of this, you might be asked what year you’d like your contribution to count towards. Your financial advisor can help you make the decision about what year you should select.

Once the money is in the account, it’s time for Samuel to put the money to work!

Step Four: Let money make money

Once the money is in the account, it’s time for Samuel to put the money to work. Once again, each platform looks different, but Samuel should look for an option that says “Trade.” That page will give Samuel the options to buy and sell securities in his account.

What should Samuel buy?

That’s a good question! This is where a financial advisor can step in and help him make the wisest choices.

If you need help deciding what securities to purchase so your money can start working, sign up for a FREE Bronze Account. Once you complete a Free Financial Assessment, you will receive a starter portfolio allocation, and a free meeting with a financial advisor will show you how to implement it!

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