The basic steps to open an IRA

Opening an IRA takes about 15 to 30 minutes and involves choosing a financial institution, picking the type of IRA that fits your situation, and completing an account application. You will need your Social Security number, proof of income (like a recent pay stub or tax return), and a valid ID. Most banks, credit unions, and investment firms let you open an account online, by phone, or in person.

The process itself is straightforward: you pick where to open the account, decide between a Traditional IRA or Roth IRA based on your tax situation, fill out the application, and fund the account. Some institutions let you fund it immediately; others require you to link a bank account first. Once the account is open, you can begin making contributions up to the annual limit set by the IRS.

Key Takeaways

  • You need your Social Security number, a valid ID, and proof of income to open an IRA at a bank, credit union, or investment firm.
  • Traditional IRAs and Roth IRAs have different tax rules—Traditional contributions may be tax-deductible now, while Roth contributions are made with after-tax money but grow tax-free.
  • The annual contribution limit is the same whether you open a Traditional or Roth IRA, and the IRS sets this amount each year.
  • You can open an IRA online in minutes at most institutions, though some require you to link a bank account before funding it.
  • Once your account is open, you choose how to invest the money—options range from savings accounts to stocks, bonds, and mutual funds depending on the institution.

Where to open an IRA account

You can open an IRA at a bank, credit union, brokerage firm, or investment company. Banks and credit unions typically offer IRAs that hold savings accounts or CDs (certificates of deposit), which earn a fixed interest rate. Brokerage firms and investment companies offer IRAs where you can buy stocks, mutual funds, bonds, or exchange-traded funds (ETFs).

The choice depends on how you want to invest. If you want a simple, low-risk account that earns interest, a bank or credit union IRA works well. If you want more control over individual investments or lower fees, a brokerage firm may be better. Compare the fees each institution charges—some charge annual account fees, transaction fees, or fees to buy and sell investments. Many online brokerages charge no account fees at all.

Choosing between Traditional and Roth IRA

A Traditional IRA lets you deduct your contributions from your taxable income in the year you make them, which lowers your tax bill that year. The money grows tax-free inside the account. When you withdraw money in retirement, those withdrawals are taxed as income. You must begin taking withdrawals at age 73 (as of 2023), whether you need the money or not.

A Roth IRA works the opposite way. You contribute money that has already been taxed, so you get no tax deduction now. The money grows tax-free, and when you withdraw it in retirement, you pay no tax on those withdrawals. You are never required to take withdrawals, and you can withdraw your contributions (not the earnings) at any time without penalty.

Which one makes sense depends on your current tax bracket and what you expect in retirement. If you are in a high tax bracket now and expect to be in a lower one in retirement, a Traditional IRA saves you more money today. If you are in a lower bracket now or expect to be in a higher one later, a Roth IRA usually makes more sense. Your income also matters—Roth IRAs have income limits that may prevent you from opening one if you earn above a certain amount.

What documents and information you need

Have these items ready before you start the application: your Social Security number, a valid government-issued ID (driver's license or passport), your current address, and your employment information. Most institutions will ask whether you are employed, self-employed, or retired.

You will also need to provide proof of income, though the institution may not ask for it until after you open the account. A recent pay stub, W-2 form, or tax return works. If you are self-employed, bring your most recent tax return or business income statement. Some institutions ask for this information upfront; others collect it later when you make your first contribution.

The application process online, by phone, or in person

Most banks and brokerages let you open an IRA entirely online. You enter your personal information, choose the type of IRA, review the account terms, and sign electronically. The whole process usually takes 10 to 20 minutes. After you submit, the institution verifies your information and sends you a confirmation email with your account number and login details.

If you prefer to speak with someone, you can call the institution's customer service line or visit a branch in person. A representative will walk you through the same questions and help you choose between account types. In-person applications at a bank or credit union branch may take 30 to 45 minutes because the representative will explain your investment options and answer questions.

After your account opens, you will receive login credentials to access it online. Some institutions let you fund the account immediately during the application; others require you to link a bank account first and then transfer money. The first transfer may take one to three business days to complete.

Funding your IRA for the first time

Once your account is open, you can fund it by transferring money from your bank account, mailing a check, or rolling over money from another retirement account. The IRS sets an annual contribution limit—for 2024, you can contribute up to $7,000 per year if you are under age 50, or $8,000 if you are 50 or older. You can contribute this amount to a Traditional IRA, a Roth IRA, or split it between both, but the total across all your IRAs cannot exceed the limit.

You do not have to fund the account all at once. You can make one large contribution or several smaller ones throughout the year. If you are opening the account late in the year, you have until the tax filing deadline (usually April 15 of the following year) to make contributions that count toward that year's limit.

After you fund the account, the money sits in a cash holding area until you invest it. At a bank or credit union, it may automatically go into a savings account or CD. At a brokerage, you choose what to buy—stocks, mutual funds, bonds, or other investments. If you are unsure what to invest in, many brokerages offer target-date funds, which automatically adjust their mix of investments as you get closer to retirement.

What happens after your account is open

Once your IRA is funded and invested, you can check your balance online anytime. You will receive statements at least quarterly showing your contributions, investment performance, and current balance. If you make changes—like buying or selling investments—those transactions appear in your account within one to three business days.

You can make additional contributions anytime during the year, up to the annual limit. If you have earned income from a job or self-employment, you can contribute that year. If you do not have earned income, you cannot contribute to an IRA, even if you have money to invest.

Keep records of all your contributions, especially for a Roth IRA. The IRS needs to know how much you have contributed versus how much has grown, because you can withdraw contributions tax-free but not earnings before age 59½. Your institution will send you a Form 5498 each year showing your contributions; keep these forms with your tax records.

Frequently Asked Questions

Can I open an IRA if I do not have a job?

No. To open and contribute to an IRA, you must have earned income from employment or self-employment in that year. If you are retired or do not work, you cannot make new contributions. However, if you have an existing IRA, you can keep it open and let it grow.

How long does it take to open an IRA?

Online applications usually take 10 to 20 minutes to complete. Your account is typically active within one business day. If you apply in person at a bank branch, plan for 30 to 45 minutes. Funding the account may take an additional one to three business days if you are transferring money from another bank.

Can I change from a Traditional IRA to a Roth IRA after I open it?

Yes, you can convert a Traditional IRA to a Roth IRA, but you will owe income tax on the money you convert. This is called a Roth conversion. You should speak with a tax professional before converting, because the tax bill can be substantial depending on how much money you convert and your current income.

What if I do not have a Social Security number?

You need a Social Security number or Individual Taxpayer Identification Number (ITIN) to open an IRA. If you are not a U.S. citizen but have an ITIN, most institutions will accept it. Contact the institution directly to confirm they accept ITINs before you apply.

Do I have to invest the money right away, or can I leave it in cash?

You can leave the money in cash. At a bank or credit union, it will sit in a savings account or money market account earning interest. At a brokerage, it will sit in a cash holding area. You can invest it whenever you are ready, or leave it in cash indefinitely. However, keeping it in cash means you miss out on potential growth from investments.