Opening an Individual Retirement Account is one of the smartest money moves you can make in your twenties, thirties, or any decade really. The process is faster than ordering takeout, and the long-term payoff can be huge. If you have ever wondered how to open an IRA, the steps below will walk you through it from start to finish.
You do not need a financial advisor, a fancy degree, or a big pile of cash to get started. You need a phone, a few personal details, and about 15 minutes of focus.
What an IRA Actually Is
An IRA is a personal retirement account with tax advantages built in by the federal government. Unlike a 401(k), it is not tied to your employer, so you can open one on your own.
The trade-off for those tax perks is a yearly contribution limit and a few rules about when you can take the money out. For most people, those rules are a small price to pay for decades of tax-free or tax-deferred growth.
Roth vs. Traditional: Picking Your IRA Type
Before you can open an IRA, you have to pick one of two main flavors. Each one treats taxes differently.
A Roth IRA is funded with money you have already paid taxes on. Your investments grow tax-free, and qualified withdrawals in retirement are also tax-free. If you want a deeper walkthrough of just the Roth flavor, our guide to set up a Roth IRA covers it end to end.
A traditional IRA flips the script. Contributions may be tax-deductible today, your money grows tax-deferred, and you pay income tax when you withdraw in retirement.
For younger savers in lower tax brackets, a Roth often wins, which is part of why so many Gen Z retirement plans lean that way. For higher earners who want a tax break now, a traditional IRA can make more sense. If you are not sure, a Roth is a reasonable default for most beginners.
How to Open an IRA in Six Steps
The actual mechanics of how to open an IRA are simple once you know the order. Here is the path most people follow.
Step 1: Confirm You Are Eligible
You need earned income for the year to contribute to an IRA. That means wages, salary, tips, or self-employment income, not just savings or investment returns.
For a Roth IRA, there are also income limits. If you earn above a certain threshold, your contribution amount phases out. Check the latest IRS guidelines before you commit.
Step 2: Choose a Brokerage
Your brokerage is where the account actually lives. Look for one with no account minimums, no annual fees, and a wide selection of low-cost investments, and check that it is one of the brokerages reviewers consider the best investment app for new IRA owners.
Many beginners open their first IRA at Robinhood because the app is simple, there are no commissions on stocks and ETFs, and the IRA setup takes only a few minutes. Other options include Fidelity, Charles Schwab, and Vanguard, all of which have strong reputations. If you are weighing platforms head to head, the Robinhood vs Fidelity and Charles Schwab vs Robinhood comparisons cover the IRA-specific differences.
Whichever you pick, make sure it lets you invest in the things you actually want to own, like index funds and ETFs.
Robinhood
Robinhood
Robinhood is a trading platform that brings stocks, ETFs, options, futures, prediction markets, crypto, and retirement accounts together in one app.
Standout feature
One platform for stocks, ETFs, options, futures, prediction markets, and crypto
Fees
$0 commission on stocks, ETFs, and options.
Pros
Zero-commission trading on stocks, ETFs, and options
Cons
Best perks (high APY, lower margin rates) require Gold subscription ($5/month)
Step 3: Gather Your Info
You will need a handful of personal details ready before you start the application:
- Social Security number
- Driver's license or state ID
- Date of birth and current address
- Employer name and address
- Bank account and routing numbers to fund the IRA
- A beneficiary's name and date of birth
Having these in front of you keeps the application from getting interrupted.
Step 4: Open the Account Online
Go to your chosen brokerage and look for the option to open a retirement account. Pick Roth or traditional based on what you decided in step two.
Fill in your personal details, agree to the disclosures, and submit. Most brokerages approve new IRAs within minutes, though it can occasionally take a business day or two.
Step 5: Fund the IRA
Next, link your bank account and transfer some money in. You can start small. Even $50 or $100 puts you in the game and builds the habit.
The annual contribution limit changes from year to year, so check the current cap before you transfer a large amount. Going over the limit can trigger an IRS penalty.
Step 6: Actually Invest the Money
This is the step a lot of new IRA owners forget. Funding the IRA does not invest the money. The cash just sits there until you buy something.
Many beginners choose a target-date retirement fund or a low-cost broad-market S&P 500 ETF as their first investment. These options spread your money across many companies in one trade.
How Much to Put In When You Open an IRA
There is no magic number that works for everyone. A good starting point is whatever you can comfortably afford every month without disrupting rent, groceries, or your emergency fund.
A common rule of thumb is to aim for 10% to 15% of your income across all retirement accounts. If that feels far away, start with 1% and raise it as your pay grows.
Consistency matters more than size in the early years of investing.
Common Mistakes to Avoid When You Open an IRA
A few small slip-ups can cost new IRA owners real money. Here are the ones to watch for.
Forgetting to invest the cash is the biggest one. If you leave the money in the settlement fund, it earns very little and misses out on growth.
Overlooking fees is another. Some brokerages charge maintenance fees or fund expense ratios that quietly drag down returns. Stick with low-cost providers and low-cost index funds.
Missing the contribution deadline is also common. You have until tax day of the following year to make a contribution for the current year, but waiting until the last minute means lost growth time.
What to Do After You Open an IRA
Once the account is funded and invested, the hard part is just leaving it alone. Set up automatic monthly contributions if your brokerage offers them, then check in every quarter or so.
Review your beneficiaries every couple of years, especially after major life events like marriage, divorce, or a new child. Beneficiary designations on retirement accounts usually override what is in your will.
This article is for general educational purposes and is not tax or investment advice. Speak with a qualified financial professional about your specific situation.
Frequently Asked Questions
How much money do I need to open an IRA?
Many brokerages let you open an IRA with $0 and no minimum. You can fund it gradually with small deposits. Some mutual funds have their own minimums, but most major ETFs let you start with the price of a single share.
Can I open an IRA if I already have a 401(k)?
Yes, you can have both at the same time. The IRA has its own contribution limit, separate from your 401(k). Many savers use both accounts to maximize their tax-advantaged retirement savings.
How long does it take to open an IRA?
The online application itself typically takes 10 to 20 minutes. Account approval usually happens within minutes or, at most, a couple of business days. Funding from a linked bank account can take another one to three days to settle.
Is it better to open a Roth or traditional IRA?
It depends on your current tax bracket and where you expect to be in retirement. If you think your tax rate will be higher later, a Roth often makes sense. If you want a tax break today and expect lower taxes in retirement, a traditional IRA can be a better fit.
