Many American workers either don’t have quality 401(k)s available to them at work or maybe the plans they have access to have sub-par investment options or high fees. Regardless of your reason for opening an IRA, congratulations for taking his super important step to building long term wealth and financial security.
5 easy steps to setting up your IRA
You’ve heard the advice—start an IRA. And you might think it’s not for you, but here’s the simple truth: it’s a financial tool that’s accessible to almost everyone and one that is also under-utilized. Some sources put the percentage of retirees without any savings at 40% . That’s an alarming statistic. But you’re here, and that means you’re already a step ahead and ready to begin securing your financial well-being. The process to setting up an IRA is simple. Let’s have a look
Step 1: Traditional vs. Roth
Traditional or Roth? It sounds complicated, but it’s all about when you want to pay your taxes. For some, getting a tax deduction now makes more sense. If you’re just starting out or working part-time, Roth might be your match, with its tax-free withdrawals in retirement. Remember, Roth IRAs have income caps, but they’re set at levels that make this an option for a broad range of earners (less than $153,000 for single tax filers, and less than $228,000 for those married, and filing jointly). You can take a moment to learn more about the differences between Traditional and Roth IRAs here.
Step 2: Picking Your Partner—The IRA Provider
We’re big fans of Vanguard here, but there are no shortage of institutions through which you can easily start an IRA online. You can start with your bank if you’re otherwise happy with their services or go to a trusted provider like Vanguard or Fidelity. The key isn’t finding the “best” but that you find a reputable company and get started.
There are lots of options to chose from and steps to getting your IRA set up will be largely the same regardless of who you chose. So although selecting a provider is indeed an important step, don’t fret much. Remember that taking this step in and of itself is what is important.
Step 3: What You'll Need To Get Started
Setting up your IRA doesn’t require a finance degree. You’ll need some basic information, which you should gather before you sit down to open your account—think Social Security number and date of birth. Most providers have made this process user-friendly. If you can order takeout online, you can do this.
Any reputable provider will make this process available entirely online but also give you the option to call to have someone walk you through it, step by step. I promise you the process need not take long more is it overwhelming.
Step 4: Funding Your IRA—Even a Little Goes a Long Way
After your application is approved, you can fund your IRA. In 2023, you can invest up to $6,500 if you’re under 50, or $7,500 if you’re 50 or older. If you can’t max out, don’t stress. Even a small, consistent contribution can make a big difference over the years. After you’ve opened and funded your account, you’ll usually have to decide how to invest those funds. But guess what? That’s a topic for another day, and there’s absolutely no rush. It’s perfectly okay to let your money sit in the account while you decide how to invest. The important first step is simply getting your account set up and funded.
For long-term success, consistency is key. If your budget allows, consider setting up automatic contributions to your IRA to ensure you’re consistently saving for your retirement. If you can max it out, all the better! But consistency is important. This way, you can take advantage of dollar-cost averaging, which can help smooth out market fluctuations over time.
Step 5: Review, Adjust, Relax
Your financial life will evolve, and so should your IRA. Not a Wall Street whiz? No problem. There are easy options like Target Date Funds. But if you’re up for a little more involvement, low-cost index funds often outperform their flashier counterparts.
So, wherever you’re starting from, know that these five steps can lead you to a more secure financial future. In a world where only about 50% of families have retirement accounts, you’re making a move that sets you apart. Kudos to you for taking a step that is, without question, a smart decision for anyone at any income level. Cheers to future you, already enjoying a more secure tomorrow.