How to Setup Your Own Auto IRA

How to Setup Your Own Auto IRA: IRA stands for Individual Retirement Account. When you start working and earning, you should open an IRA Account. If your employer provides 401K Plan or any other retirement plan then IRA is optional for you. Whether you have one retirement account or more, you have to keep your contribution towards IRA within the prescribed limit.

IRA is basically your own retirement fund which gives you support when you will retire. Financial support is very important at every age. When you were children, your parent(s) fulfills your financial needs. When you are young, you start earning to meet your basic needs. And when you will retire, your IRA Account will give you necessary financial support.

What is IRA?

Individual Retirement Account (IRA) is a retirement savings account available to every individual. Every person likes to save some money from his/her regular income. The IRA gives you an opportunity to save from your earning and create a large fund for your retirement.

How IRA is different from Regular Savings Account or Deposit?

When you open a savings account at bank, you can keep your money there. It will earn limited interest. In case you open a Certificate of Deposit, you may earn some more interest. But IRA Account offers you the best choice for investment towards your own retirement. Firstly, the contributions to IRA are deductible in calculation of tax. So you will get tax benefit as much as you save money for IRA. It is a win-win situation for you.

Investment Offers in IRA

When you open an IRA, the IRA Specialist will explain various offers under IRA Account. You should understand everything very carefully. Thereafter you should take some time to decide which IRA Account is suitable for you. You can open an IRA Account and invest your money in mutual funds and stocks.

Types of IRA Account

There are two types of IRA Accounts i.e. Traditional IRA and Roth IRA. Both types of IRA are beneficial to the account holder. Let us understand the basic difference between IRA and Roth IRA.

Traditional IRA

When you start earning, you become eligible to open an IRA Account. However, the contribution limit is applicable as per rules and based on your income. The contribution to IRA Account is eligible for deduction from tax. You don’t need to pay the tax on the contributed amount until you withdraw funds from your IRA Account.

Roth IRA

In order to invest in Roth IRA, you must meet the minimum & maximum income slab mentioned for Roth IRA Account. Your contribution to Roth IRA is not deductible from tax. This is a downside of Roth IRA Account, but it also has a plus point. You don’t need to pay tax on any withdrawal you make from your Roth IRA Account.

The main difference between Traditional IRA and Roth IRA is that one is taxed on withdrawal and the other is taxed on contribution. But traditional IRA does not have any income rules, you can open an IRA even if your income is low.

Age Limit for IRA

If you wish to open a Roth IRA Account, there is No Age Limit. The people who want to contribute towards traditional IRA, their Age must be under 70-1/2 as per rules.

IRA Contribution Limit

There are some specific rules on contribution towards IRA Account. Every person with IRA Account has to keep his/her annual contribution under the limit mentioned below:

  • Your contribution to IRA Account must not be exceeding your income of that year.
  • Your contribution to IRA Account must not be exceeding the limits imposed by IRS for that year.

In addition to above two rules, the Roth IRA Account Holders have to deal with one more condition. The contribution limit to Roth IRA can be reduced or eliminated based on your (MAGI) Modified Adjusted Gross Income.

IRA Contribution Rules

Now you know that you can contribute to IRA based on given limits and rules. We are going to discuss about how much you can save in your IRA Account every year. What happens when your income goes higher the ceiling limit set for contribution towards Roth IRA Account? Let us understand each aspect in detail.

Year Age Criteria Annual Contribution Limit
Traditional IRA Roth IRA
Tax Year – 2018 If your Age is below 50 Years: $5500 $5500
If your Age if above 50 Years: $6500 $6500
Tax Year – 2019 If your Age is below 50 Years: $6000 $6000
If your Age if above 50 Years: $7000 $7000

How to Choose an IRA Account and Provider

IRA Account looks like tough task, but actually, it is as simple as opening a savings bank account. Here we provide some important points you should consider at the time of opening an IRA Account.

  • You can choose an online broker who will take care of your investment time to time. You can also choose a robo-advisor who will prefer the best and low cost funds for your IRA Investment.
  • You can choose an IRA Provider that has good reputation. The IRA Provider should be there as and when you need it. It means it should give you quick access to your funds when you wish to withdraw.
  • You should talk to an IRA Consultant who can help you choose better investment stocks/bonds to earn more return from your IRA Account.

Popular IRA Provider List

Here we provide the list of most popular IRA Providers as under:

  1. Merrill Edge
  2. Ally Invest
  3. E-Trade
  4. TD Ameritrade
  5. Interactive Brokers
  6. Vanguard
  7. Charles Schwab
  8. Fidelity
  9. T. Rowe Price

You should check each of above providers information and choose the one which suits your needs for IRA Account.

Updated: April 6, 2019 — 6:25 am

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