Now that you know almost everything there is to know about IRAs (well, almost), there's one little problem standing in the way of your post-retirement dreams of lounging in a Parisian cafe, partaking in brie, baguettes and Bordeaux: How do you sign up for an IRA?
Simple! If you thought IRAs were a piece of cake to understand in my last post, the process of signing up for one is even more straightforward -- think cake with all the calories taken out of it. All it takes to sign up is a little time, your social security number, employment information (again, you can only contribute earned income to an IRA), bank account info and money to deposit (obvi).
Unlike 401(k) accounts that employers generally set up for their employees, an IRA is usually something you need to do on your own. I can already hear you panicking, eyes glossing over at the thought of tables and tables of complicated numbers you couldn't possible begin to understand. Scratch that visual right now. I take it most of you have filled out student loan forms? Well, filling out an IRA form is even easier -- much like filling out a credit card or job application. No hand-holding needed!
The hardest part of opening an IRA account is choosing which brokerage firm you'll want to sign up with. These include many big names that I know you've heard of: TD Ameritrade, Sharebuilder, Vanguard, Fidelity Investments, E*Trade Financial and T. Rowe Price are all prominent in the IRA world. I can't advise which place is the best to go with (as I'm not a financial adviser), but when researching each firm, make you sure you watch out for how much trading commissions are and if there are any annual fees. Many places have no fees (rock on!), but may have higher trading commission costs (i.e., fees charged for every trade made with your money). Also, be cognizant of what the minimum IRA contributions are for each, as you'll want to be able to make them on a monthly basis. Do your homework when choosing who will be the lucky firm to house your money.
Once you've found who you want to sign up with, you can download forms off their website, fill out the info (very straightfoward questions are asked, trust me), either include a check or direct deposit from your bank account, and plop in the mail. Or, if you prefer doing it digital, many places allow you fill out all forms online. And that, chickadees, is how you sign up for an IRA.
Again, just putting your money into an IRA doesn't mean it's accumulating much of anything. Think of it as a glorified savings account. Yes, you've taken the necessary steps to put money aside every month for the good of your golden years, and yes, the tax benefits are nice, but you have to invest the money once it's in the account. Use it as a vehicle to reap big rewards for your future. You have the ability to tell your brokerage firm how you want them to invest your monthly cash. Are you more of a mutual fund maven? Stock sistah? Or an index .... well, you get the idea. Generally, if you don't know much about the stock market or don't have the time to learn and do research, mutual funds and index funds are a fabulous option as they pad your portfolio with diversification.
Don't worry if you decide you want to change the kind of IRA you are enrolled in. Once you sign your name on the line, it's not written in blood. If you sign up for a traditional IRA, for example, and realize you'd rather be in a Roth (or vice versa), it is possible to make the switch, just be aware that it may have a large impact on your taxes when it's time to withdraw the money from your account. (Because, as I've mentioned before, one of the main differences between the two IRA accounts comes down to when and how you are taxed on your contributions.)
And, if you've found a dazzling new job opportunity and the only thing standing between your current job in hell and climbing the corporate ladder to paradise is confusion over what to do with your IRA account, don't fret. You can transfer your IRA funds to different IRA accounts (such as from Roth to Roth), but the transfer has to happen between plans, meaning you (as the retirement account holder) don't get to touch any of the money ... yet. Think of it as something to look forward to when your hair begins to gray!
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