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How and Where to Open an IRA

Investing, IRA
how to invest in mutual funds

IRAs are important tools for saving for retirement, but many people mistakenly think an IRA is an investment itself. Instead, it’s an account that holds your investments. Here we’ll walk you through the process of choosing an IRA provider and opening an account, step by step.

But first, we’re assuming two things: One, you either don’t have a 401(k), or you’ve already contributed enough to grab any matching dollars offered by your employer. And two, that you’ve already decided which kind of IRA account you want — traditional or Roth. If so, keep reading.

1. Determine what kind of investor you are

What sort of investor are you — hands-on or hands-off? Your answer will help determine whether you should look for a traditional IRA provider or a robo-advisor.

  • If you want to choose and manage your investments, you’ll need an online broker. Here you’ll open an account and buy and sell investments yourself over time. We’ll give you some tips on how to choose a broker below.
  • If you’d like an automated way to manage your investments, consider a robo-advisor. A robo-advisor will choose low-cost funds and rebalance your portfolio, keeping it in line with your investing preferences and timeline — for a fraction of the cost of hiring a human financial advisor. Keep reading for more on what to look for in a robo-advisor.

2. Choose where to open your IRA

Once you’ve identified your investing style, the next step is choosing a provider that fits your preference. We’ve highlighted a few our top picks below, based on hours of research. (Or you can head straight to our list of the best IRA providers.)

For hands-off investors …

Robo-advisors are great for those who agonize over investment decisions. Look for one with a low management fee — generally 0.25% or less — and services that meet your needs; automatic rebalancing, tax-loss harvesting and portfolio allocation usually are standard, but others can vary by provider.

Here are some of NerdWallet’s favorites, due to their low fees, advanced features and, in the case of one, access to human advice:

BrokerHighlightsCommissionsAccount MinimumCurrent OffersStart Investing
Wealthfront
Wealthfront
Show Details
Free management of first $15,000; advanced tax optimization strategies.
Commissions
0.25%management fee
Current Offers
$15,000
amount of assets managed with no fee
Open an account
on Wealthfront's secure website
Show Details
Betterment
Betterment
Show Details
Offers access to human advisors for additional fee.
Commissions
0.25%management fee
Current Offers
Up to 1 year
of free management with a qualifying deposit
Open an account
on Betterment's secure website
Show Details

For hands-on investors …

Look for a broker that has low or no account fees and small commissions; offers a wide selection of no-transaction-fee mutual funds and commission-free exchange-traded funds; and provides solid customer support and educational resources, especially if you’re a new investor.

Also, pay attention to account minimums and any fund minimums. Some mutual funds may require a minimum investment of $1,000 or more. ETFs can be purchased by the share, making them less expensive to get into, especially if you choose a commission-free fund.

Here are a couple of our favorite brokers:

BrokerHighlightsCommissionsAccount MinimumCurrent OffersStart Investing
Ally Invest
Ally Invest
Show Details
Impressive platform and research depth; low commissions
Commissions
$4.95
per trade
Current Offers
$200
in cash bonus with a qualifying deposit
Open an account
on Ally Invest's secure website
Show Details
Merrill Edge
Merrill Edge
Show Details
Breadth of research from other providers and own offering
Commissions
$6.95
per trade
Current Offers
$100-$600
in cash bonus with a qualifying deposit
Open an account
on Merrill Edge's secure website
Show Details

3. Apply to open an account

The actual steps will vary slightly by provider, but opening an IRA is pretty easy. In general, you’ll head to the provider’s website, choose the type of IRA you want to open (Roth or traditional) and fill in some personal details such as your Social Security number, date of birth, contact information and employment information.

4. Fund your account and get started

Once you’ve decided where to open your account, you’ll need to select how you want to fund it. Usually you’ll do this by transferring funds from a bank account, transferring existing IRA assets, or by rolling over a 401(k).

Are you rolling over a 401(k)?

If you have a 401(k) from an old job, or are about to leave for a new job, you can (and probably should) move that money — rolling it over into your new employer’s retirement plan or into an IRA. And for many people, rolling over into an IRA is the best option.

The IRA provider will help you do this — many have “rollover specialists” on staff — but the basics are simple: You’ll contact your former employer’s plan administrator and complete a few forms, and they will send your account balance (via check or by wiring the funds) to your new provider.

Are you funding from your bank or brokerage?

You’ll need the account number and sometimes the routing number. If you’re just starting out, it may be helpful to set up automatic transfers. Many brokers waive their minimum investment requirements if you agree to automatic deposits of a smaller amount, like $100 or $200 a month. This can help you get in the investing door without a lot of money.

(IRAs have annual contribution limits: In 2017, you can contribute up to $5,500 if you’re under age 50 or $6,500 if you’re 50 or older. These limits cover multiple accounts, so if you have both a Roth and a traditional account, you’ll need to keep your total contributions at or under the maximum.)

How should you choose your investments?

If you’re going to be hands-on, consider building a portfolio out of index funds and ETFs. To do that, you’ll want to first decide on an asset allocation, or the amount of your portfolio you’d like to divide between riskier investments (like stock funds) and safer, income-producing investments (like bond funds and cash).

Once you’ve decided on a stock/bond/cash allocation, you can select specific funds to fulfill that. Many brokers have fund screeners to help you, and you can sort by expense ratio, asset class or any number of other features.

One quick hack to building a portfolio: Check out the portfolios used by robo-advisors (often displayed on their websites) and target-date funds, then mimic them. Just remember that you’ll want to rebalance your portfolio if things get out of line over time.

OK, what’s next?

You know what to look for, now you’re ready to choose an IRA provider. We’ve spent hundreds of hours reviewing the field, highlighting their pros, cons and current promotions, and broken them down by their features so you can choose the one that’s best for how you want to invest.

Read: Best IRA providers »

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