You've determined your IRA contribution limit and selected a regular IRA or Roth IRA as your IRA of choice. The next step in determining How to Save for Retirement With an IRA is to actually open the IRA. Doing so is a fairly straightforward process.
How to Open an IRA Step One: Choose a Custodian
There are many choices for who will hold your money including banks, mutual funds, and brokers. Not surprisingly, each has its relative advantages, not to mention its particular fee and commission structures. To make the right decision, it's important for you to get several pieces of information.
Broadly speaking, you have three custodian choices: banks, mutual funds, and brokerage firms.
Banks frequently offer lower account minimums, so they may be a great choice if you have just a small amount to invest. Just make sure they have the investment options you need and watch their fees, especially any fee specifically for a small balance account.
Directly investing with mutual funds can be a good choice too as it helps to keep things simple. Most mutual fund families offer enough investment choices for you to find the appropriate option for you but not so many as to become overwhelming. Like with banks, be sure to evaluate mutual funds' fees and commissions. In addition, compare the expense ratios between mutual funds. There can be enormous differences. You'll often find that index funds have much lower expense ratios, often with superior recent performance. (Although, of course, past results are not an indication of future performance.)
Brokerage firms usually offer the most choices for your investments, so those people looking for anything sophisticated will almost have to start here. Even those whose needs may be more basic may find that a brokerage is still a great place to begin, especially as account balance minimums have fallen in recent years.
How to Open an IRA Step Two: Fill Out Some Forms
Once you've selected your custodian, you'll have to fill out some fairly basic forms. Just take your time and answer the mostly demographic questions. You can do this online, at a branch, or even a combination (print them out online and then mail or hand them in). Once your completed forms have been processed, you'll get confirmation that your account is open and receive an account number!
You've now opened the IRA you wanted, but you still need to fund your IRA and invest your IRA money. Fortunately, those are the next two steps in the How to Save For Retirement With an IRA series.
