Start with your employer plan if one is available
If your employer offers a 401(k), 403(b), or similar workplace retirement plan, that is usually the fastest way to begin. You enroll through your HR or payroll department — they give you a form or direct you to an online portal where you choose how much to contribute from each paycheck and pick your investments from the plan's menu. Many employers match a portion of what you contribute, which is assistance programs toward your retirement.
If your employer does not offer a plan, or you are self-employed or a freelancer, you will need to open an account on your own. That means choosing a type of account (IRA, SEP-IRA, Solo 401(k), or another option depending on your situation) and then choosing a financial institution to hold it.
Key Takeaways
- Employer plans are the easiest entry point because payroll deductions are automatic and many employers contribute matching funds.
- If you do not have an employer plan, you can open an Individual Retirement Account (IRA) at a bank, credit union, or brokerage firm.
- You choose how much to contribute each month and what to invest in — stocks, bonds, mutual funds, or a mix.
- Contribution limits change yearly, so check the current year's limit before you start.
- The sooner you start, the more time your money has to grow through compound interest.
Decide between a Traditional IRA and a Roth IRA if you are opening your own account
A Traditional IRA lets you deduct your contributions from your taxes in the year you make them, which lowers your taxable income now. You pay taxes later when you withdraw the money in retirement. A Roth IRA works the opposite way: you contribute money that has already been taxed, but your withdrawals in retirement are tax-free.
The choice depends on whether you think your tax rate will be higher or lower in retirement than it is now. If you expect to earn less in retirement, a Traditional IRA often makes sense. If you expect to earn about the same or more, or if you want tax-free withdrawals later, a Roth IRA may be better. Both have annual contribution limits that the IRS sets each year — the limit is the same for either type in a given year.
You cannot contribute to a Roth IRA if your income is above a certain threshold, which changes yearly. A Traditional IRA has no income limit, but the tax deduction phases out if you have a workplace retirement plan and earn above a certain amount. Check the current year's limits on the IRS website before you decide.
Choose where to open your account
You can open an IRA at a bank, credit union, brokerage firm, or robo-advisor platform. Banks and credit unions often offer IRAs that hold savings accounts or CDs — these are simple and safe but earn lower returns. Brokerage firms like Fidelity, Vanguard, Charles Schwab, and E*TRADE let you invest in stocks, bonds, mutual funds, and exchange-traded funds (ETFs), which historically have higher long-term growth potential but carry more risk.
Robo-advisors like Betterment, Wealthfront, and Vanguard Personal Advisor Services build a diversified portfolio for you based on your age and risk tolerance, then rebalance it automatically. They charge a small fee, usually between 0.25% and 0.50% per year, but they require less knowledge to use.
Compare the fees each institution charges — some have no account opening fees, while others charge annual maintenance fees or require a minimum deposit. Many large brokerages waive fees if you set up automatic monthly contributions or keep a certain balance.
Set up automatic contributions and choose your investments
Once your account is open, you decide how much to contribute each month. Start with whatever you can afford — even $50 or $100 per month adds up over time. You can increase the amount later as your income grows. Most institutions let you set up automatic transfers from your bank account on a date you choose, so the money moves without you having to remember.
Next, you choose what to invest in. If you are at a brokerage, you will see a list of mutual funds, ETFs, individual stocks, and bonds. If you are unsure where to start, target-date funds are a simple option — you pick the fund closest to the year you plan to retire, and the fund automatically shifts from stocks to bonds as you get closer to that date.
If you are at a bank or credit union, your options are usually limited to savings accounts, money market accounts, or CDs. These are safer but earn less. If you are using a robo-advisor, the platform builds the portfolio for you based on your answers to a questionnaire.
Understand contribution limits and catch-up rules
The IRS sets a maximum amount you can contribute to an IRA each year. For 2024, the limit is $7,000 for people under 50 and $8,000 for people 50 and older (the extra $1,000 is called a catch-up contribution). These limits change periodically, so check the IRS website or your institution's website each January to confirm the current year's limit.
If you have both an employer plan and an IRA, you can contribute to both, but the limits are separate. Your employer plan has its own annual limit, which is much higher than an IRA limit. You can contribute the maximum to each in the same year.
If you exceed the contribution limit, the IRS charges a 6% penalty tax on the excess amount each year until you remove it. Most institutions will warn you if you are approaching the limit, so pay attention to those notices.
Know the rules about withdrawals and early access
Money in a Traditional IRA or Roth IRA is meant to stay there until you turn 59½. If you withdraw before that age, you usually owe a 10% early withdrawal penalty plus income taxes on the amount (in a Traditional IRA) or just the penalty (in a Roth IRA, since contributions were already taxed). A few exceptions exist — you can withdraw without penalty for a first home purchase (up to $10,000 lifetime), certain medical expenses, or disability — but these are narrow.
A Roth IRA has one advantage here: you can withdraw the money you contributed (not the earnings) at any time without penalty, since you already paid taxes on it. This makes a Roth slightly more flexible if you need access to your money before retirement.
At age 73, you must begin taking Required Minimum Distributions (RMDs) from a Traditional IRA — the IRS calculates how much based on your age and account balance. Roth IRAs do not require RMDs during your lifetime, which is another reason some people prefer them.
Review and adjust your plan annually
Once your account is running, check it at least once a year. Look at how your investments are performing and whether your mix of stocks and bonds still matches your age and goals. If you have drifted too far toward one type of investment, rebalance by moving money around.
Also review your contribution amount each year. If you got a raise, consider increasing your monthly contribution. If your financial situation changed, you can lower it (though you cannot lower it below zero). The sooner you increase contributions, the more time that extra money has to grow.
If your life circumstances change — you get married, have a child, change jobs, or inherit money — that is a good time to revisit your retirement plan and see if your savings strategy still makes sense.
Frequently Asked Questions
Can I have both an employer 401(k) and an IRA at the same time?
Yes. You can contribute to both in the same year, and the contribution limits are separate. Your 401(k) limit is much higher than your IRA limit, so many people max out their employer match first, then open an IRA with additional savings.
What is the difference between a SEP-IRA and a Solo 401(k) for self-employed people?
A SEP-IRA is simpler to set up and has lower paperwork, but a Solo 401(k) lets you contribute more money per year if you have high self-employment income. A SEP-IRA contribution is limited to 25% of your net self-employment income, while a Solo 401(k) allows both employee and employer contributions, up to a higher total. Talk to a tax professional about which fits your income level.
How much should I contribute each month to retire comfortably?
That depends on your current age, retirement age, income, and expected expenses. A common rule of thumb is to save 10% to 15% of your gross income, but start with what you can afford and increase it over time. Many financial calculators on brokerage websites can estimate how much you need based on your personal situation.
What happens to my retirement fund if I change jobs?
If you have a 401(k) at your old employer, you can roll it into an IRA at a brokerage, roll it into your new employer's plan (if they allow it), or leave it where it is. A rollover to an IRA gives you more investment choices. Do not cash it out — you will owe taxes and a 10% penalty if you are under 59½.
Is it too late to start a retirement fund if I am in my 50s or 60s?
No. You can open an IRA or contribute to an employer plan at any age. People 50 and older can make catch-up contributions, which are higher than the standard limit. The money will have less time to grow, but starting now is better than not starting at all.