How much do you need to start an IRA account? If you are new to retirement investing, understandably you will have several questions about how to open and maintain your account. Based on the financial institution you invest with, the amount of money you need will vary. It is important to have a clear understanding of whether to go with a traditional IRA, a Roth IRA or both when you begin. Understanding the difference between the two most popular IRA accounts will help you determine how much money you are able to invest.
What is the difference between a Traditional IRA and a Roth IRA?
The most important difference between a traditional IRA and a Roth IRA account is when you pay taxes. The money you put into either IRA account is taxable. A traditional IRA is tax deferred. This means that you will need to pay taxes once you withdraw your money. This is a good option for individuals who do not expect to enter a higher income bracket, which would also raise the amount of taxes exacted on the contribution. With a Roth IRA, you pay your taxes on your contributions up front, not when you withdraw. This option appeals to individuals who anticipate reaching a higher income bracket by the time of retirement. Roth IRAs are especially recommended for younger individuals, so it is important for anyone younger than 30 to learn how to open a Roth IRA account.
How much money do you need to open an IRA?
The amount of money you need depends on where you choose to open your account. IRAs can be opened at your local bank, a mutual fund company or a brokerage firm. Generally speaking, the local bank offers the lowest minimum for an IRA account. Many banks allow you to start an IRA account for an opening balance of $50 if you set up automatic contributions. You can continue to contribute to your account until you reach the maximum of $5000 annually ($6000 if you are aged 50 or above). Mutual fund companies and brokerage firms can offer accounts starting at a minimum of $100, but some of them might charge fees for accounts with a minimum balance of less than $1000. It is a good idea to start off at with $1000 minimum if you are interested in starting an IRA at a financial firm, and always ask about the fees first.
How much can I put in my Roth IRA? The amount will adjust for inflation every tax year, but you might not be able to contribute the maximum if your income is too high.
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