Saving for retirement can be intimidating, and the overwhelming amount of information available doesn’t really help. Even if you have figured out your ideal retirement lifestyle, there are a lot of technicalities to understand. This is where online retirement accounts come in!
Unlike 401(k)s, which are largely accessible through your employer, online individual retirement accounts are open to almost everyone. This guide will show you how to open an online retirement account in a few easy steps:
Step 1: Decide on a Type of Retirement Account
The first thing you need to do is decide on a suitable online retirement account. The four most common types of IRAs include:
Traditional IRA
In a traditional IRA, contributions may be tax-deductible and should be made with earned income. For 2025, the contribution limit is $7,000 for those under 50 and $8,000 for those age 50 and older.
Your contributions grow tax-deferred and are taxed as ordinary income at the time of withdrawal.
Roth IRA
The contribution limit for a Roth IRA is the same as that for a traditional IRA. The only difference is that contributions are not tax deductible. Moreover, withdrawals are tax-free.
SEP IRA
A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small business owners to make tax-deductible contributions to employees’ retirement accounts. SEP IRAs generally have higher contribution limits than traditional and Roth IRAs.
Rollover IRA
A Rollover IRA is a retirement account that allows you to move money from your employer-sponsored plan, such as a 401(k), to an IRA. The best part? You bear no taxes or penalties when transferring funds from a qualified retirement plan.
Do thorough research and compare the features of each retirement account.
Step 2: Choose Between Self-Directed IRAs vs Robo IRAs
Next, choose how you want to manage your IRA. You generally have two options:
Self-Directed IRAs
A self-directed IRA gives you complete control, allowing you to choose your investments. You make all investment decisions and pay no commissions on your trades. You can explore a wide range of investments, including stocks, bonds, ETFs, and alternative assets like real estate and private equity.
Robo IRAs
If investment decisions overwhelm you, a Robo IRA is the best option for you. It follows an automated and hands-off mechanism. Robo-advisors leverage algorithms to build and automatically rebalance your portfolio based on your risk tolerance and goals.
Step 3: Choose the Right Provider
Not all retirement account providers are the same. This is why it’s important to choose a provider that understands your retirement goals and fits your current financial situation. Look for the following features:
- Diverse investment options
- No account fees
- No commission on stocks or ETFs
- Contributions with no minimum amount required
SoFi retirement accounts are especially known for their low fees and high investment returns.
Step 4: Gather Necessary Information
Lastly, gather all necessary information, such as your name, address, date of birth, and Social Security number. You would also need to submit details of your current employment.
Discuss further details with your chosen provider and start saving for retirement.
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