You’ve saved some money and have decided it’s time to make an IRA contribution. Congratulations! Saving into an IRA is a great way to sock money away for retirement because funds grow tax deferred and you might be able to deduct your contribution from your taxes. Different from a 401k, which can limit your possibilities for investment, an IRA offers nearly unlimited investment options; anything from stocks or bonds to savings accounts and real estate investment trusts are options inside an IRA. Choosing which one is right for you all depends on your goals and investment time frame.
Write down your goals. This process will help you decide what the right amount is to invest and give you a head-start on some options for investments. According to the National Endowment for Financial Education, good financial goals are well-defined, measurable, include the time frame and are reasonable.
Pick an investment to meet your goal. When you contribute to an IRA, you’ll want the money to go directly into an investment of your choice. If this is your first IRA, you’re probably going to want to buy a single investment because most funds charge either a small account fee or fees for every investment you open. Mutual funds work well for first IRA contributions because your money is diversified among many investments rather than a single stock or bond.
Open an IRA, if you haven’t already. IRAs are offered through every major brokerage firm and bank. To open an account, either search for IRA paperwork online or visit an office and ask to open an IRA. Compare the fees of a few IRA providers before investing. To get a complete picture, you’ll want to ask about custodian fees, account inactivity fees, annual fees, minimum balance fees and account closing fees as well as any fees attached to the investment inside the IRA.
Decide how you’re going to contribute to the IRA. Review your budget to determine whether a single annual, monthly or quarterly contributions work best for your budget. Check the IRS website for current year contribution limits by performing a search at the IRS.gov homepage for "current IRA limits." Some IRA providers have minimum investments they’ll accept, although many will waive these requirements if you agree to invest automatically every month. Sometimes these monthly requirements are as low as $50.
Set up your IRA contribution and keep a receipt of your transaction for tax time. If you’re going to automatically contribute monthly, check online or call your IRA provider to inquire how best to make your contribution. You’ll need your bank’s routing transit number and account number to begin the process. For one time transactions write a check to your IRA provider and include your account number in the memo section of your check.
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- Can Anyone Contribute to a Non-Deductible IRA?
- How to Determine Your Reduced Roth IRA Contribution Limit
- Do I Report a Roth IRA Contribution on a 1040?