How do I Open an IRA Account?

Ken Black
Ken Black
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Opening an individual retirement account, or IRA account, though not difficult, is not something many people do regularly and therefore there may be a lot of confusion. An IRA offers a number of advantages for those who are seeking a certain level of independence in retirement, but there are a myriad of choices that can be made, some of which may dramatically increase the cash you have when it comes time to withdraw.

One of the most basic decisions to be made when opening an IRA account is to determine what type of IRA account you may want. The two main types to choose from are the Roth IRA and the traditional IRA. With the traditional IRA, the contribution is tax deductible, but taxes are paid later upon withdrawal. With a Roth IRA, there is no provision for deducting contributions from income taxes, but there are no taxes paid on any earnings from the investments.

The next step in opening an IRA account is finding a brokerage that will look after your interests, not their own. This type of brokerage may charge an annual fee, but there are those which do not. Further, some may charge substantial commissions on trades. This can severely cut back on the amount of money coming back to investors when they retire.

Once the brokerage firm is chosen, the rest of the setup will likely be handled by a financial representative. The only other portion the investor will likely be responsible for is putting in an initial contribution to the IRA account or perhaps setting up a regular contribution schedule. Many find this is the most convenient way to contribute.

Some employers may offer an IRA payroll deduction program and even offer employees free assistance in opening an IRA account. This assistance may be free appointments with a financial services representative or perhaps a company workshop on what IRAs are all about. The payroll withdrawal happens automatically and many employees may not even realize they are missing the money.

While most are familiar with IRA account contribution limits, it should be noted that for those opening new accounts, there are certain rules that apply. In 2009, the contribution limit was $5,000 US Dollars per year. However, this number often increases an an annual basis or once every two years. Therefore, for those who can afford to contribute more, it may be worthwhile to check each year to see if an increase is possible. The IRS publishes this information regularly whenever an update is needed.

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