Lots of single moms aren’t sure how to open an IRA – so they skip it. But, honestly, all it takes is 5 simple steps, and in less than 30 minutes, you can be on your way to a worry-free retirement.
Here’s all it takes:
- Decide whether you want a traditional or Roth IRA.
- Choose a brokerage firm.
- Open a brokerage account.
- Fund your account.
- Pick investments.
It really is as simple as it seems, and it won’t take very long at all, especially if you do the whole thing online.
Let’s walk through each step together…
Step 1. Decide whether you want to go with a traditional IRA, a Roth IRA, or a combination of the two. Not sure which is right for you? This article will help you decide. For most single moms, though, the more flexible Roth IRA makes a better choice since the money you put in is not locked up until retirement age. (But, in most cases, you can’t take the account earnings out early without a tax penalty.)
Step 2. Choose a brokerage firm. When it comes to brokerage firms, there are a LOT of choices. Which brokerage will work best for you depends on your unique situation (we’ll talk about this in-depth next month). Based on ease of use, customer service history, low fees, and low minimum balances, some of the best choices for single moms include:
- Charles Schwab
- TD Ameritrade
Step 3. Open an account. You can open your account online, or walk into a local office (for brokerages that have physical branch offices) and have a broker help you. Either way, you’ll have to supply some basic information, including your Social Security number, birthdate, and contact information. The whole process (online) usually takes about 10 minutes.
Step 4. Fund your account. When you open your account, you’ll usually have a couple of funding options. You can make an immediate deposit of your full IRA contribution for the year, or set up recurring monthly deposits. Those deposits can be made by check or transferred directly from your bank account (the easier way). If you’ll be funding your IRA with a bank transfer, make sure to have your account and routing numbers on hand. Make sure you only fund up to legal limits, or you may be faced with IRS penalties.
Step 5. Choose your investments. Many people (not just single moms!) think that an IRA is an investment, but it’s actually an investment account. Once you have it set up and funded, you’ll select investments for your retirement portfolio. (If you don’t invest the funds, they’ll stay as cash, sort of like a savings account – that’s an option, but one that won’t help your retirement nest egg grow.) Most brokerages offer a wealth of investment options for IRA accounts, usually centered around mutual funds and exchange-traded funds (ETFs), which offer more diversification than individual stocks or bonds. (We’ll go in-depth on different types of investments, how to buy and sell them, and how to figure out your best investment mix right after tax season.)
Congratulations! You’ve just taken an important step toward financial freedom. Every single dollar you put into your retirement fund moves you closer to financial security, so keep adding to those IRAs.