The basic process: what happens when you open an IRA

Opening an IRA takes about 15 minutes online or 30 minutes in person at a bank or brokerage. You pick a provider (a bank, credit union, or investment company), choose which type of IRA fits your situation, fill out an account application with your name and Social Security number, link a bank account to fund it, and you're done. The account is active the same day or the next business day.

The hard part isn't the paperwork—it's deciding which provider and which type of IRA before you start. Once you know those two things, the actual opening is straightforward.

Key Takeaways

  • You can open an IRA at a bank, credit union, or brokerage, and the choice depends on whether you want to invest in stocks and bonds or keep money in savings accounts and CDs.
  • A Traditional IRA and a Roth IRA have different tax rules, and you can only contribute to one or the other in the same year if your income is above certain thresholds.
  • You'll need your Social Security number, proof of identity, and a bank account to link for funding, but you don't have to fund the account on the day you open it.
  • Once your IRA is open, you control when and how much you contribute each year, up to the annual limit set by the IRS.

Decide between a Traditional IRA and a Roth IRA first

The two main types of IRAs have opposite tax structures. With a Traditional IRA, you may deduct your contributions from your taxes in the year you make them, but you pay income tax on the money when you withdraw it in retirement. With a Roth IRA, you contribute money that's already been taxed, but withdrawals in retirement are tax-free.

The choice often comes down to your income now versus what you expect in retirement. If you're in a high tax bracket now and expect to be in a lower one later, a Traditional IRA usually makes more sense. If you're early in your career and expect to earn more later, a Roth IRA often works better. If you're not sure, a Roth is simpler because there are no required withdrawals later and no income limits that prevent you from contributing.

There's also a SEP IRA if you're self-employed or own a small business, and a SIMPLE IRA if you have employees. For most people opening a first IRA, it's one of the first two.

Choose where to open your account: bank, credit union, or brokerage

Your provider is separate from your IRA type. You can open a Traditional or Roth IRA at any of these places. The difference is what you can do with the money once it's inside.

A bank or credit union lets you put IRA money into a savings account or certificate of deposit (CD). The money grows slowly but safely, and you don't have to make any investment decisions. This works well if you want a simple, hands-off account or you're uncomfortable with stock market investing.

A brokerage (like Fidelity, Vanguard, Charles Schwab, or E*TRADE) lets you invest IRA money in stocks, bonds, mutual funds, and exchange-traded funds. You have more control and usually more growth potential, but you also take on investment risk. Many brokerages also let you keep cash in the account, so you can do both.

If you already have a checking or savings account somewhere, opening an IRA at the same place is convenient because the bank already has your information. If you want to invest, you'll need to go to a brokerage.

Gather the documents and information you'll need

You'll need three things to open an IRA: your Social Security number, a form of government-issued ID (driver's license, passport, or state ID), and the routing and account number of a bank account you own to link for funding.

The bank account doesn't have to be at the same institution where you're opening the IRA. It can be a checking or savings account anywhere. You'll use it to transfer money into your IRA, though you don't have to do this on the day you open the account—you can fund it later.

If you're opening the account online, you'll upload a photo of your ID or answer security questions to verify your identity. If you're opening it in person, bring the ID with you.

Fill out the application and choose your investment or savings option

The application itself is short. You'll enter your name, address, Social Security number, date of birth, and employment status. You'll confirm whether you want a Traditional or Roth IRA. You'll choose a username and password for online access.

If you're at a brokerage, you'll also pick what to invest in—or you can skip this step and do it later. Many brokerages offer a "target-date fund" that automatically adjusts its mix of stocks and bonds as you get closer to retirement. This is a good default if you don't want to pick individual investments.

If you're at a bank, you'll choose between savings accounts and CDs and pick the interest rate and term that work for you.

Most providers let you change these choices later, so you don't have to get it perfect the first time.

Fund your account (now or later)

You can fund your IRA the day you open it, or you can wait. There's no penalty for opening an empty account and adding money later in the year or even in the following year (as long as you're contributing to the right tax year).

When you're ready to fund it, you'll link your outside bank account and transfer money in. Most transfers take one to three business days. Some providers let you set up automatic monthly transfers, which can make it easier to save consistently.

The IRS sets an annual contribution limit—for 2024, it's $7,000 if you're under 50, and $8,000 if you're 50 or older. You can contribute less than that, or nothing in a given year, but you can't exceed the limit.

Confirm your account is active and set up online access

Once your application is processed, you'll get a confirmation email with your account number and a link to set up online access. Log in and verify that your account type and investment or savings choices are what you intended.

Most providers also send a welcome packet by mail with your account details and a summary of the rules for your IRA type. Keep this for your records.

At this point, your IRA is open and ready to use. You can make contributions whenever you want during the year, up to the annual limit. You control the timing and the amount—there's no deadline to contribute by a certain date, though contributions for a given tax year must be made by the tax filing deadline (usually April 15 of the following year).

Frequently Asked Questions

Can I open an IRA if I don't have a job?

You need earned income to contribute to an IRA—money from a job, self-employment, or freelance work. If you have no earned income, you can't contribute. However, if you're married and your spouse has earned income, some providers let you open a "spousal IRA" and contribute based on their income.

Do I have to invest the money, or can I just keep it in cash?

At a brokerage, you can keep money in a cash account and not invest it at all. At a bank, your money automatically earns interest in a savings account or CD. Either way, you don't have to buy stocks or mutual funds if you don't want to.

What happens if I contribute more than the annual limit?

The IRS charges a 6% penalty tax on the excess amount each year it stays in the account. You can fix this by withdrawing the excess and any earnings on it before your tax deadline. It's better to ask your provider about the limit before you contribute.

Can I open more than one IRA?

You can open multiple IRAs, but your total contributions across all of them can't exceed the annual limit. For example, if you open a Traditional IRA and a Roth IRA, you can contribute $7,000 total between them, not $7,000 to each one.

How long does it take to open an IRA?

Online applications usually take 10 to 20 minutes, and your account is active the same day or the next business day. In-person at a bank or branch takes about 30 minutes. The longest part is usually waiting for your first transfer to clear, which takes one to three business days.