Why And How To Open An IRA

Opening an IRA, or Individual Retirement Account, is an excellent way to put away cash to fund retirement later. The IRA uses the miracle of compound interest to grow your modest initial investment over time, providing you with a cushion for your retirement years. Opening an IRA is simple and requires only a small investment to begin.

If your IRA is invested through your employer (through a SEP IRA, for instance), your broker has already been chosen for you. For those who are investing on their own, such as W-2 employees, small business owners, freelancers, contractors and the self-employed, finding a discount broker or no-fee mutual fund platform is the first step in opening your retirement account.

How To Open An IRA

There are many brokerage firms on the market that will assist you in opening your account. Many only require an opening account of $1,000. Discount brokers often charge lower transaction fees and commissions than the larger firms. When selecting your broker, make sure to pay attention to the fees. These can easily eat up your retirement account’s funds. When you are learning how to open an IRA, shop around to find low or no fund broker.

When you have selected the broker, you can start funding your account. Many brokerage firms now offer online applications that allow you to electronically fund your account from your checking or savings account. Others require you to fill out an application and mail in a check. You start earning interest from the day your account is opened.

After depositing your funds, you will need to select your stock profile. The farther away from retirement you are, the more aggressive your portfolio should be. A 20-year-old investor, for example, can invest the majority of their money in stocks and a smaller portion in mutual funds. This will allow for regular market fluctuations and give the portfolio time to recover in the event of a dip in the market. However, a 50-year-old investor would be wise to choose a more conservative portfolio, investing more heavily in mutual funds than in stocks. If you are unsure of how to choose stocks, you can always invest in an index fund. An index fund is a group of pre-selected stocks that are chosen based on your investment preferences.

Finally, contribute to your IRA on a regular basis and watch your funds grow. Make sure to adhere to the annual contribution limits, and contribute the yearly maximum allowed by law. Over time your hard earned funds will grow to a sizable nest egg.