How Do I Start an IRA When My Work Doesn’t Offer Any Retirement 401K?


ummary – This article provides good direction from which to get started on the path to securing finances for the future and mitigating a stressful retirement, elected or otherwise. We recommend seeking financial guidance from multiple sources before you select one investment strategy. Remember everyone has an opinion and few people will tell you their strategy was poor but the more questions you ask the quicker you will become informed!

You are working for someone who does not provide you with a retirement account, so you are thinking of starting your own. You are fortunate because this is really easy to do. The type of account you will need to open is an Individual Retirement Account that is also known as an “IRA.” These accounts are advantageous for saving for retirement because they provide investors with tax benefits that help their money grow.

Where to Open an Account

You can open either a Roth IRA or a Traditional IRA in a financial institution that received permission from the IRS to offer these accounts to the public. Your bank is a good choice, but you can also visit a federally-insured credit union, a mutual fund company, a savings and loan corporation or a brokerage firm.

Investment institutions charge fees for their services. Therefore, before you decide on a firm, make sure that you compare fees from several institutions first. An example of a discount firm is E*Trade Financial Corporation. Vanguard, Fidelity and T. Rowe Price sell “no-load” funds and do not charge fees.

How to Open an Account

After choosing the right financial institution, all you need to do is tell them you would like to open an IRA. Some firms will ask you to deposit a minimum of $3,000 into the account. In other instances, rather than offer a large deposit, you can make arrangements to automatically withdraw a set amount of money each month. The sum could be as low as $100. If the firm you are interested in has a website, you may be able to open an account online.

Documents Associated with the IRA

After your account is open, your financial institution must present you with an IRA disclosure statement that informs you of the account’s rules and regulations. This document will be written in easy-to-understand language. You will also receive the IRA adoption agreement and plan document. This paper explains things such as how contributions will be deducted and your rights as the accountholder. Your IRA will be valid only after you have signed this contract.

Which IRA is right for you?

The Roth IRA

The Roth IRA is the best option for long-term investing. If you are in your 40s and planning to retire in your 70s, you will have time to make this opportunity work, and you will receive tax benefits. Money invested in a Roth IRA is after-tax dollars, so in 30 years when you withdraw the money, you will not have to pay income taxes again.

To make your Roth IRA work for you, you will need to make monthly contributions. If you were to deposit just one $1,000 contribution into your account, it would not contain very much money after 30 years. In contrast, you would only need to commit to depositing $600 a year to turn your initial investment into more than $50,000 at an average annual yield of 6 percent.

Who Can Open a Roth IRA?

The Roth IRA has income limitations, so you will only be able to open this type of account under these circumstances:

  • You are married and filing jointly with a modified adjusted gross income less than $167,000
  • You are single, married and filing separately or head of household with a modified adjusted gross income less than $105,000
  • You are living with your spouse part-time, filing separately and earn less than $10,000

The Traditional IRA

To open a traditional IRA, you must be under 70½ years of age, and you must be employed. You will deposit pre-tax dollars into your traditional IRA, but you will be required to pay income taxes when you begin to withdraw the money. The good news is that you may be in a lower tax bracket by the time you retire. You can make tax-free contributions into the account until this day arrives, and they may even be tax-deductible. This helps your money to grow at a much faster rate.

The traditional IRA is particularly beneficial to you if you are at least 50 years of age because you are allowed to make “catch-up” contributions. Ordinarily, investors are limited to making contributions of $5,500 per year. Those who meet the age requirement can invest an extra $1,000 this year.

Where Do You Invest Your Funds?

Now that you have chosen your account, you are ready to decide where you want to invest your money. You have several options, including money market funds, mutual funds, CDs, exchange-traded funds and stocks and bonds. You can also allow your broker to make the choice for you.

What If You Don’t Have Any Retirement Savings?

If you have neglected your retirement until today, you are not alone. The best thing you can do is accept the fact that you didn’t make retirement savings a priority earlier and pledge to do things differently from this day on. This means that it isn’t too late to open an IRA.

You may be concerned about where you can find the extra money to make monthly contributions, but this only requires that you look at your budget to find things you can eliminate. For example, if you are spending a lot of money on cigarettes, you can consider quitting. You only need to put in a little effort, and you will be on your way to a comfortable retirement.


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