How To Open An Online IRA: 5 Easy Steps

The key to a happy and relaxing retirement is having enough money to do whatever you want. You don’t have to spend your whole career in a top tax bracket to get there—you just need to invest early and often.

Whether or not your company offers a pension plan or 401k, if you have something extra to put away, opening an individual retirement account (IRA) is an excellent way to add to that nest egg. You’ll get the satisfaction of taking control of your future and take advantage of some tax benefits in the process.

If you’re unfamiliar with investing, you might be surprised at how easy it is to open an online IRA. We’ve set up this handy guide to take you through the process step by step. Before you know it, you’ll have your IRA up and running—bringing you one step closer to the retirement of your dreams.

5 Steps To Opening an Online IRA

1. Choose an institution for your IRA

When it comes to money, one of the most important decisions you must make is who to entrust to hold it. For investment accounts, this is paramount because each institution will have different benefits and fees to consider.

Along with banks, you can choose from various brokerage firms and even robo-advisors to open your IRA. A brokerage is probably the best choice if you are a hands-on investor and want to take responsibility for buying and selling your own investments. You can compare several of them to find the ones with the lowest fees and commissions.

Robo-advisors are a good option for those who prefer investing to be more automated. You can set these up to balance your portfolio automatically, and they usually have lower management fees and other benefits like an app or a dashboard where you can easily keep an eye on your portfolio.

2. Decide which type of IRA works best for you

Each type of IRA offers different tax benefits, so you may want to speak to your accountant before choosing which one makes the most sense for your financial situation.

The three main types of IRAs include:

  • Traditional IRA: These are popular because you fund the account from your pre-tax income. You’ll pay taxes on those deposits later as you start making withdrawals when you retire. The contributions you make to a traditional IRA are also tax deductible. 
  • Roth IRA: Because you’ll fund this type of IRA with your post-tax earnings, you won’t owe any income tax on your retirement withdrawals. This is a good option if you’re likely to move up into higher tax brackets later in your career. On the other hand, your contributions to a Roth IRA won’t be tax deductible. 
  • SEP IRA: The Simplified Employee Pension IRA is best for self-employed people and business owners, similar to a traditional IRA. You would use pre-tax income to fund it, and the withdrawals would be taxed later.

3. Open your online IRA

Most institutions will allow you to open your IRA entirely online. In some cases, you might need to visit a branch in person. When opening an IRA, you’ll need to provide some personal and financial information, including:

  • Contact information, including your full name, your address, birthday, Social Security number, and phone number
  • A government-issued ID like a passport or driver’s license
  • Bank account details (if you’ll fund the account with electronic transfers) or the details of your former retirement accounts (such as a 401(k) or other IRAs) if you’re doing a rollover

4. Start making contributions

You can’t do anything with an IRA until you put some money into it. There are many ways to start contributing to the IRA, including through a direct bank transfer—or you might have a 401(k) from a previous employer that you need to roll over into the new IRA.

You’ll want to contribute as much as possible to your online IRA to get the maximum tax benefits. However, annual limits exist for how much you can contribute, which vary depending on your age, income, and the type of IRA you have.

5. Invest your funds

How you invest your IRA contributions is a very personal decision. The best way to ensure your portfolio grows steadily over time is to diversify your investments. There are countless options for how to invest your money, but here are some of the main categories you can choose from:

Individual stocks

Stocks are a higher-risk investment because your investment depends on the success of one specific company. Each stock’s value can drastically change from day to day. But stocks can be very profitable if you don’t mind the risk. You can pick your stocks, pay an advisor, or leave it up to a robo-advisor to choose for you. 

Mutual funds

Mutual funds like index funds and exchange-traded funds (ETFs) can help you diversify your investments easily. The funds have a grouping of related stocks, with percentages allocated to different companies rather than just one. For instance, you might choose an ETF focused on one industry, such as tech or healthcare. 

Bonds and Annuities

These are considered low-risk investments, but they also have lower growth rates. Adding some of these safer investments as part of your portfolio is good.

Wrap Up

Take a crucial step toward a secure and prosperous retirement by initiating the straightforward process of opening an online Individual Retirement Account (IRA). Transform your financial future, leverage potential tax benefits, and move closer to the retirement you’ve always dreamed of by following the five simple steps outlined in this guide.

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