How To Open An Individual Retirement Account (IRA)

Accountancy Resources

How To Open An Individual Retirement Account (IRA)

Retirement Author: Admin


All different types of financial services companies offer IRAs. Banks, mutual fund companies, brokerages, and other investment firms offer IRAs in their various forms: Traditional, Roth, etc. Mutual fund companies, such as Fidelity and Vanguard, and banks, such as Bank of America and Wells Fargo, offer their customers IRAs. IRAs can be opened through community banks and regional banks as well. Today, even discount brokerage firms, such as E-Trade and Scottrade, offer IRAs. IRAs can also be started at an investment advisory firm with the help of a financial advisor. It is suggested that people who know little about IRAs and investing, in general, seek the help of a financial advisor before opening an IRA.

Choosing the Right Company

All of these different institutions have different positives and negatives to opening an IRA with them.

Each company will charge different fees associated with maintenance and investment management. Many companies now offer no-fee IRAs and others have low transaction costs. Minimum initial investments and/or contributions may be a stipulation of an IRA as well. Investment choices may be limited at some places while they are broader at others. A smaller bank may offer an IRA but allow its opener limited investment choices, such as certificates of deposit (CDs) or money market funds only. Similarly, a mutual fund may have a limited scope of mutual funds to choose from to allocate in an IRA. Accessibility is another factor to consider when opening an IRA. Certain companies offer online services in which customers can monitor their IRAs daily while others do not.

Information Needed to Open an IRA

Investors can go to company websites or to brick-and-mortar locations to open their IRAs. Retail branches of banks usually have advisors that work with customers to open IRAs and other products. People confident in their investing prowess may be best suited by opening an account through a discount brokerage on the internet and making trades as they deem necessary. Those that need help and know little about investing should talk with an advisor or set up an account with the help of someone at a physical location. Whether in person or online, investors will need their personal information such as Social Security and bank account numbers, date of birth, address, and employer information. They need the information to not only open the account but also fund it once it is open. Regulations require companies that offer IRAs to get an investor profile for each investor. The investor profile concerns the investment objectives, risk tolerance, and investing sophistication of each investor. Therefore, people opening IRAs should be prepared to answer questions about their income, net worth, and investment goals. Investors have to select the tax treatment of their IRA when they fill out the application as well. Contributions are taxed while distributions are not with Roth IRAs. The opposite is true for Traditional IRAs; the income is taxed while the contributions are not. Investors can usually set up automatic contributions to their plan from their bank accounts once an IRA is opened as well.

Deciding Which Investments Are Best

Once an IRA is opened and funded, investors have to make their investment choices and allocate their money into different asset classes. Stocks, bonds, mutual funds, gold, real estate, and other assets can all be choices with an IRA. It is important for each investor to research how different investments work and how they contribute to his or her IRA. IRAs give investors the freedom to invest their money how they truly want to.

The IRA market has expanded generously over the past couple of years. People planning for retirement have more options than ever before, so it is important to research different companies’ IRA offerings and see which plan works best. Financial advisors can help investors make the right decisions on investment choices and tax treatment for an IRA. Financial advisors can also guide their clients through the application process for an IRA. Overall, there are several different avenues to choose from when opening an IRA. Seeking the help of an advisor, applying online, or setting up an account in-person are all options for an investor wanting to start an IRA.