What you need to open an IRA account and the best places to get started
If you're ready to start investing in an IRA, you'll need to choose a provider. Here are some things to look for when you select a provider:
- Fees: Many IRAs charge either a flat fee, e.g., $5 or $7 a month, or a percentage of assets under management (AUM), such as 0.25% of the total amount you have invested. Look for an account with low investment costs since the fees eat away at your returns over time. Be especially cautious about flat monthly fees if you're starting to invest with a small amount, as even a small flat fee could erase your returns.
- Investment choices: Many brokers allow you to invest in virtually whatever stocks, bonds, exchange-traded funds (ETFs), or mutual funds you choose, while others have far more limited investment options. Others are designed for passive investing and limit your options to a handful of pre-selected ETFs that are based on your goals. If you don't want to handpick investments, look for a provider that offers a robo-advisor.
- Minimum investment: Some providers don't have any minimum deposit requirements, while others require a starting deposit that can run as high as $500. Minimum deposits are also pretty common if you're using a provider's robo-advisor.
- User experience: Look for a platform that has an easy-to-use website and mobile app. You may also want to check out online customer reviews on sites like BBB and TrustPilot, but be aware that reviews for financial institutions tend to skew negative. However, if a provider has an unusually high number of complaints compared to its peers, you may want to stay away.
Some good IRAs for beginners include SoFi Active Investing (SOFI -4.41%), Fidelity, and Charles Schwab (SCHW -1.27%). You can check out our other options for top IRA providers.
Provided that you're at least 18, you can open an IRA in just a few minutes at an online broker by providing a few basic pieces of information:
- Full name
- Date of birth
- Social Security number
- Employment information
- Bank account info (for funding the account)
Brokerages also typically ask a few questions designed to gauge your risk tolerance. You'll then need to pick the type of IRA (Roth or traditional), fund the account, and select your investments.
Pros and cons of an IRA
Some of the key IRA benefits include:
- You can invest for retirement even if you don't work for a company that offers a retirement plan as long as you earn money from working.
- They're a helpful tool for supplementing workplace retirement savings.
- You get to choose the provider and your investments.
- They offer tax advantages, such as a potential tax deduction (if you go with a traditional IRA) or tax-free retirement income (if you choose a Roth IRA).
- You control the account 100%, and you won't need to worry about rolling it over if you switch jobs.
However, there are a few disadvantages to investing in an IRA.
- The annual contribution limits are significantly lower than 401(k) contribution limits.
- You won't get an employer contribution (with the exception of a workplace IRA), though some brokers offer promotions where they match a small percentage of your contribution.
- There's a risk of losing money with any investments, including those you choose for your IRA.
- You'll often owe taxes and a penalty on early withdrawals.
- Unlike workplace plans, which often allow for 401(k) loans, you're prohibited from borrowing money from an IRA.
Overall, though, you'll probably find that the benefits of an IRA outweigh the negatives. Taking advantage of this flexible retirement savings will usually be a win for your later years, as long as you understand the rules and commit to long-term investing.
