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So, you finally decided that you want to make more money and start saving for retirement in 2018 and you’re wondering how to open a traditional IRA?
Awesome! Go you.
There’s no better time than now to start thinking ahead and mapping out your financial future. And once you begin to harness the power of having your money work for you, opportunities really start to open up.
This article will show you exactly how to open a traditional IRA and where I believe is best place to open an IRA.
The amazing power that saving and investing can have on your life is truly incredible.
Below I’ll show you the exact steps you need to get started investing from home, right now.
Should I Open an IRA?
How You Can Grow $2,500 into $222,180 Starting Today
Let’s go over exactly how money grows in an IRA and I’ll let you decide if you should open an IRA.
Investment calculators are SO eye opening, and they’re insanely fun to play with.
Below is a screenshot of a scenario I made up to show how you really can start with just a small amount of money and turn it into something big:
By starting with only $2,500 dollars and saving $50 a month (something that I know almost all of you can find room to do in your budget), you can grow it to over $220k. Think about what you could do with all of that extra money!
And that’s just the beginning…
If you’re able to put more money to work at the beginning, or able to contribute more each month, or invest for a longer period of time, your end amount increases immensely.
By tweaking my calculator inputs just a little bit (to fit my own circumstances) to a starting balance of $5k; $200 monthly contribution; and 40 year time span, the end amount I’ll have is $780,097.05.
This is life-changing amounts of money, and it all starts with only $200 per month.
The most important part of this process, though, is getting started.
To take full advantage of compounding growth, the earlier you start the better. If you decide to put it off (even for just a couple years), your earnings go down.
If you haven’t started investing for your future yet, today is the best day that you can do it.
Open a Traditional IRA (Step-by-step)
In this guide, I’m going to walk you through how to open up an Individual Retirement Account (IRA) with Ally Invest.
Best Place to Open an IRA
There are a bunch of companies you can choose from to open your account, but I’m going to talk about Ally Invest in particular because I think they have the most user-friendly platform for new investors.
GuidedChoice is another great option if you like to have comparisons.
How much does it cost to open an IRA?
Ally is definitely the best bang for your buck (opening an account is free, and trades are only $4.95 each; well under the industry average).
They’ve also got a ton of free resources for you to use, too, which is great.
Ally Invest has 2 main options for investors:
Ally Invest Managed Portfolios– $2,500 account minimum. Their team recommends and manages a professionally designed portfolio based on your personal goals, time horizon and risk tolerance. Annual fee for this is 0.30% of assets managed.
Self Directed Trading– No account minimums. You’re on your own to figure it all out. No ongoing fees; you only pay trading costs ($4.95 per stock or ETF trade).
So which one do I recommend?
Well, it depends on your situation. If you have never invested in your life and you can meet the $2,500 account minimum, I think the annual fee for the Managed Portfolio option is well worth the cost. If you are more of a Do-It-Yourselfer (or you can’t meet the account minimum for Managed), the Self Directed option will work perfectly fine, and it will also most likely cost you less over the long run.
Here’s how to get started with each option.
Option 1: Ally Invest Managed Portfolio
If you meet the $2,500 account minimum and need some help with building and managing your investment portfolio, visit Ally’s website and scroll about halfway down to open a traditional IRA. You should see two options- the option on the right is for the Managed Portfolio product.
After clicking on the open account button, you’ll be directed to a basic form to get started:
After hitting the “Show Me My Plan” button, this is what I got:
If your eyes glaze over when you look at asset allocations and you have no clue what anything means, then the Managed Portfolio option (this option) is probably best for you– let the pros handle it for a very reasonable cost.
After this step, you simply answer a few more questions to open your account and then you’re well on your way to opening a traditional IRA and becoming an investor!
Some highlights of the Ally Invest Managed Portfolio program that I really like:
Their team recommends professionally designed, personalized portfolios tailored to your financial needs, risk tolerance, goals and investment horizons. Basically, you’ve got someone looking after you to guide you along.
Advisory fees are low (0.30% of your account value per year) and there are no trade fees when they buy or sell investments.
Note: when I used to work in wealth management, we would charge upwards of 1.75% per year, which is ludicrous (and part of the reason I left the industry). 0.30% for this level of service is a very reasonable fee and I think it is well worth it.
They’ve got 24/7 phone support, and you can always speak to a real human about your portfolio.
They regularly update your asset allocation based on your investment profile, including your risk tolerance, projected length of investment and wealth outlook. So basically, you don’t need to stress about your investments.
Option 2: Self Directed Trading
Despite the Managed Portfolio option being a really great option for new investors, the truth is, even a 0.30% annual fee does add up over time.
The best way to get rid of that annual fee is to choose and watch over your investments yourself.
Don’t worry, this does not have to be hard. With just a little bit of learning, you can build a super lean and simple portfolio that doesn’t need a ton on maintenance.
If you’re up to the task, I personally recommend Ally Invest’s Self Directed Trading Platform for building your own portfolio.
To get your account set up, simply go to Ally’s website and select the left-hand option to open a traditional IRA (about halfway down the page):
Since this type of account is self-directed, it’s quite a bit quicker to get started opening a traditional IRA.
Here’s the kind of information that they need in order to open your account:
Basic personal information
Financial information – net worth information, liquid assets, etc.
Investment objectives – risk tolerance, time horizon, etc. Even though you will be managing your own account, they still need to have this information on file.
Beneficiary information – how your account will be handled should you pass away.
Once you have your traditional IRA opened, the next step is to fund your account and start investing! There are tons of resources out there to help you learn the ropes, but this article may be a good starting point.
Other resources that might help:
Most Importantly – Get Your IRA Opened
Like I said at the beginning of this article, the most important part of this whole equation is getting started now. If you want to really get the most out of your money, you owe it to yourself to do it the right way.
Whether you’re a stock market veteran or a total newbie, it’s usually a good idea to keep your portfolio simple. You don’t need to complicate things!
Now that I’ve taught you exactly how to open a traditional IRA, it’s your move. What will you do?