An individual retirement account (IRA) could offer tax benefits and help you plan for your financial future. However, there are different types of IRAs you might choose based on your financial goals. You’ll also need to carefully consider where you open your account to make sure you get the most out of it. So, let’s dive into a quick step-by-step guide on how to open an IRA at your bank.
Choose The Right Type of IRA
There are multiple types of IRAs, so it’s important that you understand the difference. Here’s an explanation to help you decide which type of IRA is best for your situation.
- Traditional IRAs allow you to tuck money away before taxes, which means you won’t have to pay taxes on your contributions, but you will have to pay taxes when you withdraw the money down the road. Investment earnings are not taxed for as long as they remain in the account. You can contribute up to $6,000 in 2022 or $7,000 if you’re over 50.
- Roth IRAs require you to pay taxes on your contributions up-front, but you can withdraw that money tax-free down the road. The rules for withdrawing money from a Roth IRA are more lenient than a traditional IRA, helping you avoid penalties. The contribution limits for 2022 are the same as above.
- SEP IRAs are designed for employers to set up for their employees, giving the employer tax benefits. Earnings grow tax-free, but you’ll need to pay taxes when you withdraw from the account. Annual contribution limits are much higher, equaling up to $61,000 in 2022 or 25% of your compensation, whichever is lesser. Self-employed individuals can open a SEP IRA for themselves.
- Simple IRAs are similar to an employer-sponsored 401(k), and they are ideal for small businesses and self-employed individuals. Contribution limits are lower than a 401(k), but tax considerations are similar to a traditional IRA.
In addition to the information provided above, there may be additional tax advantages or implications based on your income level and contributions to other retirement accounts. Asking a trusted financial advisor should be your next step to make sure you choose the best account.
Gather The Necessary Information
Once you know which type of IRA is best for your situation, gather the necessary information to open the account. In general, your local bank will ask for the following:
- Proper identification, like your driver’s license or passport, along with secondary identification, like your birth certificate or Social Security card.
- Documents proving your address, such as a recent utility bill or lease agreement signed by your landlord.
- Information about your income and other retirement accounts.
Partner With a Trusted Bank
Choosing the right bank to open your IRA at is not as simple as it may sound. It’s important to choose a bank with trusted financial advisors, low fees, and additional services to help you plan your financial future.
As you search for a bank to partner with, call ahead to check rates. Also, inquire about account bonuses, features, and advantages that can help you get the most out of your banking relationship.
Vinings Bank is here to help, if you decide to partner with us!
While the search will take some time, you can unlock new tax advantages, save for retirement, and grow your money with greater peace of mind.