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Whether you're self-employed, earning side income, or working for a company without a 401(k), opening an IRA gives you greater control over your retirement savings.
IRAs can offer tax deductions (with Traditional IRAs) or tax-free withdrawals (with Roth IRAs), depending on your income and goals.
How to Start an IRA: A Step-by-Step Guide
Starting an IRA is a smart move toward securing your retirement, but it helps to follow a clear plan. Here’s a step-by-step guide to help you open and manage your IRA effectively:
1. Understand Your Goals and IRA Options
Before opening an IRA, it’s essential to clarify your retirement goals and understand the differences between Traditional and Roth IRAs.
- A Traditional IRA allows tax-deductible contributions (depending on income), but withdrawals are taxed later.
- In contrast, Roth IRA contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.
For example, if you're early in your career and expect higher future income, a Roth IRA may offer greater long-term tax advantages.
On the other hand, someone looking for an immediate tax break might favor a Traditional IRA. This foundational decision affects everything from your tax planning to future withdrawal flexibility.
Feature | Traditional IRA | Roth IRA |
|---|---|---|
Tax Treatment | Contributions may be tax-deductible | Contributions are made with after-tax dollars |
Withdrawals in Retirement | Taxed as income | Withdrawals are tax-free (if qualified) |
Income Limits | No income limits to contribute | Income limits apply for contributions |
Required Minimum Distributions | Yes, starting at age 73 | No RMDs during account holder's lifetime |
Ideal For | Those seeking current tax deductions | Those expecting higher taxes in retirement |
2. Gather Key Information Before You Start
To open an IRA, you’ll need some basic personal and financial information ready. Preparing ahead can save you time and avoid delays during the application process.
Social Security Number – Required for identity verification and tax reporting.
Bank account information – Needed to link funding sources for contributions or transfers.
Employment and income details – Relevant if you're planning to deduct Traditional IRA contributions or checking Roth eligibility.
Beneficiary information – Designating a beneficiary ensures your assets transfer smoothly if something happens to you.
Many brokerages, including Charles Schwab and Vanguard, allow you to open an account online in 10–15 minutes if you have this info handy.
3. Choose the Right IRA Provider
Where you open your IRA matters. Providers differ in fees, investment options, tools, and account support. If you’re a hands-on investor, a self-directed IRA at a brokerage like Fidelity or J.P. Morgan might work well.
Broker | Annual Fees | Best For |
|---|---|---|
E-Trade | 0% – 0.35%
0% on stocks and ETFs in self directed brokrage, 0.35% for Core Portfolio Robo Advisor
| Options & Futures Trading |
Interactive Brokers | 0% – 0.75%
$0 online commission on U.S. listed stocks and ETFs, Options: $0.15 – $0.65 per-contract, Futures: $0.25 – $0.85 per-contract. For Interactive Advisors: asset-based management fees of 0.10% to 0.75% | Professional Trading Tools |
Fidelity | 0% – 1.04%
Fidelity Go® Robo advisor: $0: under $25,000, 0.35%/yr: $25,000 and above
Fidelity® Wealth Management dedicated advisor: 0.50%–1.50%
Fidelity Private Wealth Management® advisor-led team: 0.20%–1.04%
| Retirement Account Investing |
Vanguard | Up to 0.30%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Vanguard Digital Advisor – 0.015%, Vanguard Personal Advisor: 0.03%, Vanguard Personal Advisor Select: up to 0.03%, Vanguard Wealth Management: up to 0.03% | Low-Cost ETF Investors |
J.P. Morgan Self Investing | $0
$0 online commission on U.S. listed stocks and ETFs and $0.65 per-contract | Chase Bank Customers |
Charles Schwab | Up to 0.80%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Schwab Intelligent Portfolio – 0%, Schwab Intelligent Portfolios Premium – One-time planning fee: $300 + Monthly advisory fee: $30, Schwab Wealth Advisory: up to 0.80% | Advanced Trading Tools |
Merrill Edge | 0.45% – 0.85%
0.45% for Merrill Robo Advisor (Guided Investing), 0.85% for Investing With An Advisor | Bank of America Clients |
But if you prefer automation, robo-advisors like Betterment or Wealthfront manage portfolios for you using low-cost ETFs.
Low fees – Avoid providers that charge annual maintenance or trading fees.
Investment flexibility – Look for broad access to mutual funds, ETFs, and stocks.
User-friendly platform – Easy navigation and strong mobile apps can make a big difference.
Support and education – Especially useful if you're opening your first retirement account.
As a result, choosing the right provider can directly impact how efficiently your money grows.
Rovo Advisor | Annual Fees | Minimum Deposit |
|---|---|---|
Wealthfront | 0.25% | $500 |
Betterment | 0.25%
$4 monthly for $0 – $20K balance, 0.25% annually for $20K – $1M balance, 0.15% annually for $1M – $2M balance, 0.10% annually for +$2M balance | $10 |
Acorns | Monthly: $3 – $12
$3 for Bronze, $6 for Silver and $12 for Gold
| $0 |
Schwab Intelligent Portfolios | Up to 0.80%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Schwab Intelligent Portfolio – 0%, Schwab Intelligent Portfolios Premium – One-time planning fee: $300 + Monthly advisory fee: $30, Schwab Wealth Advisory: up to 0.80% | $5,000 |
Vanguard Digital Advisor® | Up to 0.30%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Vanguard Digital Advisor – 0.015%, Vanguard Personal Advisor: 0.03%, Vanguard Personal Advisor Select: up to 0.03%, Vanguard Wealth Management: up to 0.03% | $100 |
E*TRADE Core Portfolios | 0% – 0.35%
0% on stocks and ETFs in self directed brokrage, 0.35% for Core Portfolio Robo Advisor
| $500 |
Merrill Guided Investing | 0.45% – 0.85%
0.45% for Merrill Robo Advisor (Guided Investing), 0.85% for Investing With An Advisor | $1,000 |
4. Decide How You Want to Invest
Once your IRA is open, you’ll need to choose investments that match your risk tolerance and retirement timeline. A common mistake is opening the account but leaving it in cash. In order to grow your retirement savings, your money must be invested.
Target-date funds – Ideal if you want a one-stop diversified solution that rebalances over time.
Stocks and ETFs – Best for those comfortable selecting investments and actively managing risk.
Bonds or CDs – Can be part of a conservative strategy, especially for older savers.
Precious metals or alternatives – Possible through self-directed IRAs, but riskier and less liquid.
For example, a 30-year-old might invest heavily in stock ETFs, while a 60-year-old may shift toward bonds for stability.
Asset Type | Risk Level | Potential Return | Typical Use Case |
|---|---|---|---|
Target-Date Fund | Low–Medium | Moderate | Set-it-and-forget-it retirement planning |
Stock Index Funds (ETFs) | Medium | High | Long-term growth for younger investors |
Bonds/Bond Funds | Low | Low–Moderate | Stability and income, often used closer to retirement |
CDs | Very Low | Low | Principal protection with fixed returns |
Gold & Precious Metals | Medium–High | Varies | Hedge against inflation (via self-directed IRAs) |
5. Complete the Application and Fund Your IRA
Opening the account is usually simple, but it’s important to follow each step carefully.
Most brokerages offer online applications where you select the IRA type, enter personal details, and connect a funding source. You can fund your IRA in several ways:
Direct deposit or bank transfer – Contribute manually or set up recurring transfers.
Rollover from a 401(k) – If you’ve left a job, consider rolling over to avoid taxes and penalties.
Transfer from another IRA – Useful if consolidating accounts.
Be sure to stay within the annual contribution limit—$7,000 for those under 50, and $8,000 if 50 or older in 2025.
6. Monitor and Adjust Over Time
Opening an IRA is just the beginning. You’ll also need to check in periodically to ensure your investments are performing well and remain aligned with your goals.
Life changes—such as a new job, income shift, or approaching retirement—may call for rebalancing or changing contribution types.
Revisit your portfolio at least once a year.
Adjust contributions if your income or tax status changes.
Stay informed about IRA rule updates from trusted sources like FINRA.
As your financial situation evolves, so should your IRA strategy—ensuring you stay on track for a secure retirement.
Getting Started with IRA: Common Mistakes To Avoid
Starting an IRA is a smart step, but rushing in without planning can lead to poor decisions. Avoid these common missteps when opening your account:
Not Understanding Tax Implications – Some savers assume all IRA contributions are tax-deductible. However, deductibility depends on income and whether you or your spouse has a workplace retirement plan.
Ignoring Required Minimum Distributions (RMDs) – Traditional IRAs require RMDs starting at age 73. If you forget, you may face hefty IRS penalties. Roth IRAs don’t have RMDs during your lifetime, which may be a better fit for long-term wealth transfer.
Choosing the Wrong Provider – Opening an IRA with a provider that charges high fees or limits investment choices can hurt long-term returns. Compare platforms before committing.
Neglecting Beneficiary Designations – Failing to name a beneficiary or keeping outdated information could cause delays or disputes in estate transfer. For example, someone who remarried but didn’t update their IRA might unintentionally pass funds to an ex-spouse.
FAQ
Yes, you can open multiple IRAs (Traditional and Roth), but your total annual contribution cannot exceed the IRS limit across all accounts.
Some providers let you start with no minimum, while others may require $500 or more. Robo-advisors often have low or no minimums.
Absolutely. You can open a Traditional or Roth IRA, and you may also consider a SEP IRA or Solo 401(k) for higher contribution limits.
You generally need earned income to contribute, but a non-working spouse can contribute through a spousal IRA if the other spouse has income.
Excess contributions are subject to a penalty if not withdrawn by the IRS deadline. You may need to file an amended return to fix it.
Yes, you can roll over a 401(k) to a Traditional IRA without taxes or penalties, maintaining the tax-deferred status of the funds.
You can rebalance or trade within your IRA as often as you like without triggering taxes, but trading fees or account restrictions may apply.
A 401(k) is employer-sponsored, often with matching contributions, while an IRA is self-directed and offers broader investment choices.
Early withdrawals before age 59½ usually face taxes and a 10% penalty, though exceptions exist for things like first-time home purchases or education.
Both are valid, but monthly contributions (dollar-cost averaging) may help reduce the impact of market volatility over time.
A backdoor Roth involves contributing to a Traditional IRA and then converting it to a Roth to bypass income limits—often used by high earners.
