How to Open an IRA: Step-by-Step Guide

An individual retirement account, or IRA, is an important tool that can help build your retirement savings. Unlike employer-sponsored 401(k)s, IRAs are tax-advantaged accounts that individuals can open independently to save for retirement. When it comes to opening an IRA, it can be helpful to understand the different types of IRAs in order to figure out which one most closely aligns with your unique financial situation and investment goals. Other steps in the process include deciding where to open an IRA, how to fund your account, and what to invest your money in.  

Do you have questions about retirement planning? Speak with a financial advisor who serves your area today.

Step #1: Deciding What Type of IRA Is Best for You

When it comes to choosing an IRA, most investors have two basic options: a traditional IRA or a Roth IRA. The annual contribution limits for each of these accounts are the same. For 2026, the IRS caps IRA contributions at $7,500 (up from $7,000 in 2025), though account holders age 50 and up have a slightly higher limit of $8,600 (up from $8,000 in 2025). When it comes to taxes, traditional and Roth account contributions are treated very differently.

With a traditional IRA, your contributions may be partially or fully tax-deductible, depending on your income level, filing status, and whether or not you or your spouse has an employer-sponsored retirement plan.

And while you may qualify for a tax deduction upfront, when the time comes to withdraw from your traditional IRA in retirement, you’ll have to pay income taxes.

On the other hand, the assets in a Roth IRA grow tax-free, because Roth IRAs are funded with after-tax dollars. That means account holders would have already paid taxes on the money that’s being deposited into the account.

Roth IRA contributions can generally be withdrawn at any time without taxes or penalties. However, withdrawals of investment earnings are typically tax-free only if the account has satisfied the five-year requirement and the owner is at least 59 ½, although certain exceptions apply. Early withdrawals for qualified education expenses, first-time home purchases and other eligible purposes may also avoid the 10% early withdrawal penalty, even if income taxes still apply.

If you’re a small business owner or are self-employed, you also have the option of a SEP IRA or a SIMPLE IRA. For 2026, SEP IRA contributions are generally limited to the lesser of 25% of an employee’s compensation or $72,000. Self-employed individuals must use a separate calculation based on their adjusted net earnings from self-employment.

Owners of a small business with 100 or fewer employees can open a Savings Incentive Match Plan for Employees (SIMPLE) IRA. Once a SIMPLE IRA is set up, employers are required to contribute 2% to 3% each year (3% for matching contributions). Employees can elect whether to contribute or not. Employees generally qualify for a SIMPLE IRA if they earned at least $5,000 from the employer in any two preceding calendar years and are expected to earn at least $5,000 in the current year. Employers may also establish less restrictive eligibility requirements.

For 2026, the standard SIMPLE IRA employee contribution limit is $17,000, with an additional $4,000 catch-up contribution for those age 50 and older. Participants ages 60 through 63 qualify for a higher catch-up limit of $5,250. Certain SIMPLE IRA plans may also permit higher contributions under SECURE 2.0.

Summing it up, for those who are younger and expect to be in a higher tax bracket when they reach retirement, opening a Roth IRA could be a good idea. For investors who expect to be in a lower tax bracket during retirement, a traditional IRA may be appealing, particularly if they qualify for deductible contributions. Traditional IRA investments grow tax-deferred, with taxes generally due on withdrawals of previously untaxed amounts in retirement. Small business owners and self-employed individuals have even more options to consider in the form of SEP IRAs and SIMPLE IRAs.

Step #2: Choosing Where to Open Your IRA

You can open an IRA at most banks credit unions and other financial institutions. IRAs are also available through online brokers, mutual fund providers and other investment companies, such as Vanguard and Fidelity. Of course, each of these options has its respective benefits and downsides.

If you’re a hands-on investor, you might want to open an IRA through an online brokerage. A brokerage could help you generate strong returns, but for this growth, you’ll need to choose your own investments and manage your portfolio. When selecting a brokerage to work with, consider trading fees and minimums, as well as the quality and usability of their online and mobile platforms. Fees are especially important, as any charges will directly affect your retirement funds.

If you’re a more hands-off type of investor, you could consider working with a robo-advisor. Just like with a brokerage, compare fees and services to make sure your needs are met. Many robo-advisors rebalance portfolios and allocate assets automatically to balance risk versus reward. Some may even give you access to a financial advisor.

Banks and credit unions may offer IRAs that hold CDs, savings accounts or other eligible deposit products. CDs, or certificates of deposit, often have lower yields than investments. On the bright side, they minimize your risk by guaranteeing your rate of return over time.

Step #3: Opening and Funding Your IRA

Once you’ve chosen the type of IRA you want to open and the provider you want to work with, starting the application process is as easy as going to the company’s website. Some companies may also have a branch you can visit, but it’s often easier to initiate transfers through online services.

When you fill out an application for an IRA, you’ll need to provide certain personal information, like your full name, address, phone number, Social Security number, email address and more.

If you’re transferring funds from your own savings or checking account, you’ll also need to provide your bank’s routing number and your account number. But if you’re funding your account through a 401(k) rollover, you would instead list your company’s name and address, as well as the manager of your 401(k). The IRA provider can often help with this, and some even have rollover specialists on staff.

The process usually involves contacting the 401(k) manager and filling out a few forms. The account balance is then sent to your new provider via check or wire. You can also transfer money from another IRA, in which case the provider will ask for that account’s information.

Remember that the IRS limits how much you can contribute to an IRA. Again, for 2026, the normal IRA contribution limit is $7,500, while those age 50 or older can contribute up to $8,600. (Note that 401(k) rollovers do not count against these limits.)

Whether you’re prioritizing a Roth or traditional account, long-term outcomes matter. Use our retirement calculator below to estimate how your strategy could play out over time.

Step #4: Investing the Assets in Your IRA

Opening an IRA at a bank is as simple as deciding on the CD rates and terms that best suit your situation. If the potentially stronger returns of a brokerage-based IRA interest you, you’ll have some other decisions to make.

Once your IRA is set up, the last thing you’ll do is select your investments. This involves choosing from an array of mutual funds, bonds, stocks, exchange-traded funds (ETFs) and more. Those nearing retirement often stick to more conservative options such as bonds, ETFs and cash allocations. Meanwhile, those who are younger often elect riskier options in the pursuit of higher potential returns.

If you’re new to investing, mutual funds and ETFs tend to be the simplest options. Mutual funds and ETFs pool investors’ money to invest in portfolios of securities, such as stocks and bonds. Unlike traditional mutual funds, ETFs trade on exchanges throughout the day. Both types of funds can be actively or passively managed.

While you can certainly manage your own IRA investment portfolio, it can be helpful to have the help of a financial advisor. Advisors can also aid you in building a long-term financial plan that covers things like college savings, estate planning, tax planning and more.

Does an IRA Belong in Your Financial Plan?

An IRA can be a useful addition to your retirement savings strategy, even if you already contribute to a workplace 401(k). While employer-sponsored plans typically offer a limited selection of investments, IRAs often provide a broader range of choices. They also offer tax advantages that can help you build savings over time, depending on whether you choose a traditional or Roth account.

If your employer offers a 401(k) match, contributing enough to receive the full match may be a good starting point. From there, you can consider whether additional contributions to an IRA make sense based on your income, tax situation and retirement goals. Using both accounts can give you more flexibility in how you save and manage your investments.

Savings accounts and CDs can also play a role in your financial plan, particularly for emergency savings and short-term needs. Unlike investments held in IRAs and 401(k)s, eligible deposits at FDIC-insured banks offer federal deposit insurance up to applicable limits. Ultimately, the right combination of accounts depends on your financial circumstances, time horizon and tolerance for investment risk.

Bottom Line

Opening an IRA can help you build retirement savings while taking advantage of potential tax benefits. Whether you choose a traditional IRA, Roth IRA or another type of account, consider how its contribution rules, tax treatment and investment options align with your financial goals. Comparing IRA providers, fees and investment choices can help you find an account that meets your needs and complements your broader retirement savings strategy.

Retirement Planning Tips

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• An IRA gives account holders maximum flexibility, allowing them to manage these accounts on their own. However, this doesn’t mean investors should neglect other retirement savings accounts, like a 401(k). 401(k)s are usually available through an employer, with some employers even offering matching contributions.

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