You need a financial institution, your Social Security number, and proof of income to open an IRA

Opening an IRA takes about 15 to 30 minutes and requires three things: a choice of where to open it (a bank, brokerage, or credit union), your Social Security number, and proof that you earned income in the year you want to contribute. You do not need a large sum to start—many institutions let you open an account with $0 and add money later, though some have minimums of $500 to $1,000. The real decision is not whether to open one, but which type of IRA fits your situation and which institution to use.

The two main types are Traditional IRA and Roth IRA. A Traditional IRA may let you deduct contributions from your taxes now, but you pay taxes when you withdraw in retirement. A Roth IRA takes after-tax money now, but withdrawals in retirement are tax-free. Your income, age, and whether you have access to a workplace retirement plan determine which one makes sense for you. If you are unsure, start with whichever your employer or a trusted financial institution recommends—you can always open a second IRA later or move money between them.

Key Takeaways

  • You can open an IRA at a bank, brokerage firm, or credit union; brokerages typically offer more investment options but banks are simpler if you want to keep money in savings.
  • You will need your Social Security number, proof of income (a pay stub or tax return), and a government-issued ID to complete the application.
  • Traditional IRAs may reduce your taxable income this year, while Roth IRAs let you withdraw tax-free in retirement; which one suits you depends on your current income and retirement timeline.
  • You can contribute up to $7,000 per year (or $8,000 if you are 50 or older) for 2024, but you must have earned at least that much income to contribute the full amount.
  • Most institutions let you open an account online in 15 to 30 minutes and start contributing immediately, though some require a phone call or in-person visit.

Decide between Traditional and Roth before you choose a provider

The type of IRA you open determines how your money is taxed, so pick the type first. A Traditional IRA lets you deduct contributions from your federal income taxes in the year you make them—if you earn $50,000 and contribute $6,000, you report $44,000 as taxable income. You pay no taxes on the growth inside the account either. When you withdraw money in retirement (age 59½ or later), those withdrawals are taxed as ordinary income. A Roth IRA works the opposite way: you contribute after-tax dollars (no deduction now), the money grows tax-free, and withdrawals in retirement are tax-free.

Your income and whether your employer offers a 401(k) or similar plan affect which type you can use. If you have no workplace plan and earn any amount, you can contribute to either type. If your employer offers a plan and your income is below a certain threshold (these thresholds change yearly and vary by filing status), you can still deduct Traditional IRA contributions. Above that threshold, Traditional contributions are not deductible, though you can still contribute to a Roth. The IRS website lists current income limits by year and filing status. If you are unsure, a Roth is often simpler for younger workers because you pay tax now at a lower rate and avoid taxes later.

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

You can open an IRA at three types of institutions. A brokerage (Fidelity, Vanguard, Charles Schwab, E-Trade, Merrill Edge) gives you the widest range of investments—stocks, bonds, mutual funds, exchange-traded funds (ETFs). A bank (Chase, Bank of America, Wells Fargo, your local bank) typically lets you open an IRA savings account or money market account; the money earns interest but you cannot buy individual stocks. A credit union offers similar options to banks and may have lower fees or higher interest rates if you are a member.

If you want to invest in individual stocks or a wide range of funds, choose a brokerage. If you want simplicity and are comfortable keeping your money in a savings account or certificate of deposit (CD) earning interest, a bank works fine. Many people start at a brokerage because the account setup is free and you can keep cash in the account without investing it immediately. Avoid choosing based on promotional offers or promises of high returns; focus on fees (some charge annual account maintenance fees, though many do not) and whether the institution offers the investments you want.

Gather your documents and information before you apply

Have these items ready when you start the application: your Social Security number, a government-issued ID (driver's license or passport), your date of birth, your current address, and proof of earned income. Proof of income can be a recent pay stub, a W-2 from last year, or a tax return. If you are self-employed, a Schedule C from your tax return or a profit-and-loss statement works. The institution needs this to confirm you earned enough to make the contribution you plan.

You will also need to decide how much you want to contribute initially. You do not have to contribute the full $7,000 (or $8,000 if you are 50+) right away; many people open the account with $100 or $500 and add more throughout the year. If you are opening a Roth IRA, the institution may ask whether you want to fund it from a bank account, a paycheck, or a check you mail in. Have your bank account number and routing number ready if you plan to transfer money electronically.

Complete the application online, by phone, or in person

Most brokerages and many banks let you open an IRA entirely online. Go to the institution's website, click "Open an Account" or "New Account", and select IRA as the account type. You will choose Traditional or Roth, enter your personal information, upload or enter your ID and proof of income, and agree to the account terms. The whole process takes 15 to 30 minutes. You will receive a confirmation email with your account number and login credentials.

Some banks and credit unions require a phone call or in-person visit, especially if you are not already a customer. Call the number on their website or visit a branch and tell them you want to open an IRA. They will walk you through the same questions and may ask you to sign documents in person. If you open in person, bring your ID and proof of income with you. Once the account is open, you can fund it by transferring money from your bank account, mailing a check, or setting up automatic deposits from your paycheck.

Fund your account and choose your investments (if opening at a brokerage)

After your account is open, you can add money immediately. If you opened at a bank, your money sits in the savings or money market account earning interest; there is nothing else to do. If you opened at a brokerage, you have a second choice: keep the money in a cash sweep account (which earns a small amount of interest), or invest it in mutual funds, ETFs, or individual stocks.

If you are new to investing, a simple approach is to choose a target-date fund—a single fund that automatically adjusts its mix of stocks and bonds as you get closer to retirement. For example, a "2055 Target Date Fund" is designed for someone retiring around 2055 and shifts from aggressive to conservative over time. You can also choose a simple three-fund portfolio (a U.S. stock fund, an international stock fund, and a bond fund) or ask the brokerage for a recommendation. The key is to start with something and adjust later; the cost of waiting for the perfect choice is usually higher than the cost of a slightly imperfect choice made now.

Understand contribution limits and annual deadlines

For 2024, you can contribute up to $7,000 per year to an IRA if you are under 50, or $8,000 if you are 50 or older. You must have earned at least that much income in the year you are contributing for. If you earned $4,000, you can only contribute $4,000. You can contribute to a Traditional IRA and a Roth IRA in the same year, but your combined contributions cannot exceed the annual limit.

You can contribute for a given year until the tax filing deadline the following year—usually April 15. For example, you can contribute to your 2024 IRA until April 15, 2025. The institution will ask you which tax year the contribution is for when you fund the account. If you miss the deadline, you can still open an IRA and contribute for the current year, but you cannot go back and contribute for prior years (with rare exceptions). Set a calendar reminder for early April each year so you do not miss the deadline.

Frequently Asked Questions

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

No, you must have earned income to open and contribute to an IRA. Earned income means wages from a job, self-employment income, or taxable alimony. Investment income, Social Security, or unemployment benefits do not count. If you are married and your spouse works, you may be able to open a spousal IRA in some cases; ask your financial institution.

What happens if I contribute more than the annual limit?

The IRS charges a 6% penalty tax on excess contributions each year they remain in the account. If you accidentally over-contribute, contact your financial institution right away and ask them to remove the excess plus any earnings on it before the tax filing deadline. This avoids the penalty.

Can I move money from one IRA to another after I open it?

Yes. You can transfer money between IRAs at different institutions without penalty or tax consequences. This is called a rollover or transfer. Contact the new institution and ask them to initiate a direct transfer from your old IRA; this is safer than withdrawing the money yourself and depositing it elsewhere, which has stricter rules.

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

You can leave it in cash. At a bank, it automatically sits in a savings account earning interest. At a brokerage, you can keep it in a money market fund or cash sweep account. There is no requirement to buy stocks or mutual funds, though most people do eventually to grow their money faster than savings account interest allows.

What is the difference between opening an IRA and opening a 401(k)?

An IRA is an account you open yourself at a bank or brokerage. A 401(k) is offered by your employer and often includes employer matching contributions. If your employer offers a 401(k), you typically contribute through payroll deductions. You can have both an IRA and a 401(k) at the same time, though contribution limits apply separately to each.