How to Open an IRA

In this post I will guide you through the process, step by step, of opening and funding an IRA over the internet at one of the largest investment management companies in the US. I guarantee that you will be able to follow my lead and successfully get started down the path to a healthy retirement savings plan.

In order to successfully open an IRA the only weird piece of information you’ll need that sometimes throws people off is your bank routing number.  This entire process takes less than 15 minutes, so pull up a chair and let’s get to work.

How to Open an IRA

Choosing a Broker

The first step in opening an IRA is determining which brokerage firm you want to use. The term “brokerage firm” is just a fancy term for a bank where you can open an investment account in order to buy and sell securities (stocks, mutual funds, bonds, ETF, etc.). Since an IRA is just a special type of  investment account, we’ll need a brokerage firm to open our IRA.

There are many online brokerage firms to chose from. I highly recommend Vanguard and I’ll be using Vanguard in all of the screen shots in this post. No, Vanguard isn’t paying me to say that.

Creating an Account

Here we go, step by step, screen by screen, instructions on how to open an IRA at Vanguard.

  1. Begin by loading the homepage of the brokerage, for Vanguard it’s https://investor.vanguard.com/home/
  2. Click “Open an account” on the lower left side of the screen. Select “Open a new account” and then “Start” on the next screen.
  3. The next screen will ask you if you are registered on vanguard.com. Select the appropriate answer and continue. If you don’t have an investment account with Vanguard, you are not registered and should select “No.”
  4. The next page will summarize the steps that the website is going to walk you through. Click “Continue.”
Summary of steps to open IRA</a>
The steps to opening an IRA.
  1. We’re opening an IRA, which is a retirement account, so select “Retirement” on the next page. Then select either “Roth IRA” or “Traditional IRA.” If you are unsure which IRA type you should open, see my post All About IRAs.
  2. The next page asks for your identification information. Enter everything accurately and click “Continue.” Now it will ask for an address and phone number.
Choosing Funds
  1. Now that your basic information has been recorded, it’s time to select the type of investments you want in your IRA. For now I recommend selecting the “Vanguard funds (most common)” option and clicking “Continue.”
  2. The next screen will ask you to specify the funds you want. Don’t be intimidated. Click on the link “Choose from a list of all of our funds »”
  3. I am going to guide you to a good-enough-for-now target date mutual fund. As you get more familiar with retirement saving you can come back and change your investments here. For now, select the “Target Retirement Funds” option in the top left corner of the window that opened after Step #2.
  4. You’ll notice that the list of funds repopulated itself after Step #3. Select the fund with the year of your retirement in it’s title. Assume for now that you will retire when you are 65 years old. I was born in 1983, so I would choose the Target Retirement 2045 or Target Retirement 2050 fund. Click “Continue.”
Selection of Vanguard Target Date funds</a>
An examples of some target date mutual funds.
  1. You should have popped back out to the screen we saw in step #2, click “Continue.”
Completing fund selection</a>
Completing fund selection.
  1. The next screen will ask you to specify how much money you want to put into the IRA. This money will be used to purchase the fund we specified in the last few steps. Select any amount you are comfortable with and click “Continue.”
  2. Now we’ll enter our bank information. This information will be used to link your checking account to the your new brokerage account so that you can transfer money. You’ll need your bank account number and your bank routing number. This information can be found on your paper checks or by calling your bank and talking with a teller. Click “Continue” when you are finished.
  3. You’re done! Review the information and click “Submit.” It should take a business day or two for Vanguard to approve the application and set the account up. Congratulations!
Other Helpful Tips
  • It’s a good idea to immediately set up reoccurring deposits. Vanguard calls these “Automatic investments” and the option to turn them on and off can be found in the Account Maintenance area of the Vanguard website. I have our IRAs set up so that 1/12th of the maximum allowed IRA contribution is automatically invested each month. This ensures that we always contribute as much as possible to our IRAs. You can’t “forget” to contribute when it’s done automatically.
  • Don’t stress out so much on the fund choice. Just pick a target date fund and move on. You can come back and change your investments whenever you want. It’s more important to have the money in the IRA invested in nearly anything that to not have the money in the IRA.
  • Nothing you do by opening on IRA will have negative tax consequences. You can only make your tax situation better when April rolls around.
  • Opening an IRA and setting up automatic contributions will place you ahead of nearly 85% of the US population! DO IT. You can thank me by sending me a check in 30 years. Just kidding. Kinda.
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