Opening An IRA

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When Should You Open An IRA?

Whether you choose a traditional IRA or a Roth IRA as your retirement investment account, you can benefit from tax-deferred compounding of your earnings over the long term. What is compounding? It is when earned interest is added to the principal which earns additional interest on itself. Over time, compounding can produce significant growth.

For example, if you invested the contribution limit of $5,000 each year for 20 years, the total contribution would be $100,000. If you put $5,000 per year into an account earning 8 percent annually and allow it to grow undisturbed for 20 years, your $100,000 investment will grow to $247,115. After 30 years, it will reach $611,730.

• Banks often accept small accounts and may charge minimal or no fees, making them a good choice for small investors. But a bank probably will not offer as many investment alternatives as a mutual fund company or brokerage firm.
  
  
• Mutual fund companies offer a variety of investment options, so you may be able to invest your IRA in different types of funds, creating a personalized mix that is right for you. You may even be able to move some or all of your IRA from one fund to another when your investment goals change.
  
  
• Brokerage firms offer IRA accounts and allow you to design your own portfolio. In addition, brokers make it possible to own mutual fund shares as well as individual stocks.
  
  
• Insurance companies may be appealing to you if you would like to invest your IRA in an annuity or another of the insurer’s offerings.
  
  

Making The Decision

1. Fees. There may be start-up fees, annual maintenance costs and fees for changing your investments or withdrawals.
2. The cost of transferring your account to another provider.
3. Automatic deductions and limits.
4. Investment options. For example, can you invest in stocks, bonds and mutual funds?