Opening an IRA
Want a cozier retirement and a bunch of tax savings, too? Then open an Individual Retirement Account (IRA). It's a snap.
0:58: Roth or regular IRA... what's your pleasure?
Your first step is to decide which type is best for you -- a Roth or traditional IRA. Do you want to save on taxes today (with a deductible traditional IRA) or in retirement (with a tax-free Roth IRA)? We help simplify this situation with our handy Roth vs. Traditional calculators, which tell you which will give you more income in retirement and how tax rate changes may affect your decision.
You can also find out whether you're eligible for both (shilly-shally!) or neither (drat!), as well as how much money you can contribute.
0:44: Find a place to invest your cash
A discount brokerage account is a logical place to house your long-term retirement savings. Below is the short version of this handy comparison guide of our sponsor broker's IRA products and fees. Two particular things to note as you shop:
- Fees. By law, your broker can charge an annual fee to maintain your IRA, but many don't.
- Trading commissions. Make sure the bulk of your contribution is going toward your retirement nest egg, not to trading commissions.
0:32: Open an account
Setting up an IRA account is usually as easy as downloading the application forms, signing them, and folding them nicely into an envelope with a check to fund your account. Contribution limits to IRAs are $4,000 for 2007 but rise to $5,000 in 2008 and beyond. In addition, the catch-up contribution for those age 50 or older remains at $1,000.
Consider an IRA as the basket that holds your retirement money. You get to decide what goes in that basket. That means deciding which stocks or mutual funds you want to buy. (Hint: If you're new at this or just don't have the time to evaluate individual stocks, you might want to consider an index fund to get started.)
0:07: Dream of the future
Start thinking about how you'll spend those blissful (and flush!) retirement years. Will you have a view of the beach or the mountains from your porch? Will you be gardening or go-carting in your spare time? What froufrou beverage will you serve? And which guest suite will be available for your friends at the Fool the weekend of August 14, 2023?
Got a few extra minutes to spare?
- Maxing out your IRA is a big step toward making your retirement dreams come true. However, you have many options when it comes to retirement accounts (employer-sponsored retirement plan (i.e., your 401(k) or 403(b), taxable investments, annuities, etc.). Here's a general pecking order of where to deposit your savings.
- For more on finding the best brokerage account for your money, check out our 60-Second Guide to Choosing a Broker.