When we met Ashley on Monday, she was pacing the floor, worried about her future savings—when suddenly she got the news that her mother had already opened a Roth IRA in her name.
This raised several questions for Ashley, and a particular one for many readers, who asked: How do you open a dang IRA anyway?
Because we don’t want you to miss a single step in this invest-along-with-Ashley, here’s the answer.
- A common misconception. Many people assume that when they open any sort of IRA or 401k, that this IS the investment. It’s an easy mistake to make, because people always say that you “contribute to your IRA or 401k.” Not quite.
- The IRA or 401k is just a vessel: an empty egg carton, a truck with no cargo. You select mutual funds (usually) to put onto your truck or into your egg carton. The money you deposit grows inside these investments.
- To open an IRA, call Fidelity, Vanguard or another low-cost or discount brokerage and tell them that you want to open an IRA or a Roth IRA, if you prefer.
If you’re not sure which mutual funds or investments to pick yet, that’s fine. Get started simply by depositing cash into a money market account, in the IRA—which is like a savings account—and later, when you know more, you can transfer that cash to the investments of your choice without incurring a penalty. This is a first step! We won’t let your new IRA languish, uninvested. Keep following Ashley’s story here on DailyWorth.
Note: If you’re calling HR to open your 401k, the rules and options may be quite different, but there is often a money market option you can pick.