It is never too early to set up an individual retirement account, or IRA. An IRA is a retirement savings account at a financial institution that allows you to save money while enjoying tax advantages.
An IRA is different than an employer-sponsored 401(k). Your IRA portfolio can include a range of financial products, such as bonds, stocks, and mutual funds. You set it up yourself, outside of the workplace.
Why Should You Get an IRA?
IRAs provide a good way to save for your retirement. If you don’t have an employer-sponsored 401(k), IRAs can help you put away dollars for your golden years. Even those who have 401(k)s offered through their employer may want to look into an IRA as well. One reason many people choose to use an IRA to save for retirement is because of the possible tax benefits.
How to Set up an IRA
Below is a step-by-step guide to setting up a free IRA in Pennsylvania.
- Determine What Type of IRA You Want to Open
Your first step will be determining what type of IRA you want to set up. There are two main types:
- Traditional IRA, which offers tax benefits and has strict rules regarding how much you can contribute based on your income
- Roth IRA, which holds your tax-free investments until you can access them at age 59½
Your choice depends on your individual circumstances. You may want to discuss these options with a financial advisor to see which is right for you and your family.
- Ensure You Meet the Eligibility Requirements for an IRA
While there are some similarities between a Traditional IRA and a Roth IRA, such as the maximum contribution limit, the “catch up” provision, and deadline for contributions, there are also many differences. One of these differences is income eligibility, which will likely determine which type of IRA you can open.
You must have earned income to open a Traditional IRA. However, to open a Roth IRA, there are income eligibility requirements. Individuals must have a Modified Adjusted Gross Income (MAGI) of less than $118,000 to make a full contribution, and no more than $133,000 to make a partial contribution. Families must have a MAGI of less than $186,000, or between $186,000 and $196,000, to make a full or partial contribution, respectively.
- Find a Place to Open Your IRA
Once you know what type of IRA you’d like to open, you’ll need to choose a financial institution to work with, such as a credit union, bank, or a brokerage firm. The choice depends on your preferences. For example, if you like to manage funds yourself, you should explore options that allow you to do so. However, if you’re one of the many people who prefer to let the experts take care of your investment decisions, you should consider options that will take that work off your hands.
If you decide to open your account with PSECU, your first step will be contacting us so we can help you get started.
- Ask Questions About Your IRA
You never want to enter any type of investment arrangement blindly, so assemble a list of questions before you contact your financial institution. You want to make sure you get all of your questions answered so that you gain the confidence you need to pursue this new investment opportunity. Some of your questions may include:
- Can I automate my contributions?
- Is there a minimum monthly contribution requirement?
- Can I roll money over from an existing retirement account?
- What is the maximum contribution I can make each year?
- Are there any service charges on the account?
- Are online IRA management services provided?
Some of these questions have standard answers. For instance, the federal government sets the maximum yearly contribution to IRAs, and that does not vary no matter where you open your account. Individual financial institutions, however, may also have unique rules or product offerings and benefits that you’ll want to understand before opening the account.
- Determine Your Initial Investment in the IRA
Although at PSECU you don’t need an initial investment, many financial institutions do require one. When you’re considering where you want to open your account, be sure you understand any minimum requirements for this initial investment.
- Name the Beneficiaries for Your IRA
When you deal with money, you always need to plan for the worst-case scenario. When opening an IRA, you’ll be asked to designate a beneficiary for the funds in the event of your death. Make sure you keep this paperwork up to date so that the funds are distributed to the person of your choosing. You’ll want to update it after major life events, such as a marriage or the birth of a child, to make sure the documentation matches your current wishes.
Set Up a Free IRA at PSECU Today
Now that you know how to set up an IRA in Pennsylvania, get in touch with PSECU to get started. We can walk you through the process and get your IRA set up quickly so you can begin reaping tax benefits now and gain peace of mind for the future. Contact us today to get started. And for more money-saving tips and advice, visit our WalletWorks page.