Instructions for Setting up a Traditional IRAReviewAdviceFAQ's

Instructions for Setting up a Traditional IRA

A traditional individual retirement account (IRA) helps you build a nest egg to take care of post-retirement needs, doing so on a pre-tax basis while you are working. To set up a traditional IRA account, talk to your banker or your company's human resources manager, especially personnel who coordinate employee retirement planning. Alternatively, you can enlist the help of an investment adviser, who will walk you through the setup process and make sure you make the most out of your periodic contributions. The setup process for a traditional IRA includes finding a custodian, funding the account, selecting an investment company, figuring out deduction thresholds, determining your contribution amount, and pondering the most effective contribution methods.

Find a Custodian

You need to find a custodian that is approved by the Internal Revenue Service and abides by the agency's regulations, especially when it comes to things like archiving, full disclosure and periodic investment tracking – in other words, sending you, or making sure you receive, periodic IRA statements. The IRS has approved a hodgepodge of organizations to be IRA custodians, running the gamut from banks and brokerage firms to mutual fund companies. Contact your bank to see whether it is an IRS-approved custodian and, if yes, to learn more about its IRA procedures and requirements.

Instructions for Setting up a Traditional IRA

Fund the Account

After finding the custodian that suits your needs and retirement aspirations, take care of the account-opening paperwork and send a check or wire transfer to fund the account. Talk to your custodian to learn more about funding requirements, especially when it comes to minimum amounts that vary from an investment company to another. Determining how much you would transfer to the account sometimes requires analytical abilities and a sense of retirement planning, and some custodians provide a free assessment to determine where you are from a financial standpoint, where you are going, and what to do to help you get there – in other words, to help you meet your goals. Chase Bank, for example, provides clients with a free analysis tool to help existing clients and prospective patrons figure out effective ways to close the retirement gap – a situation that happens when you are contributing less than you would need once you are off the labor force.

Pick an Investment Company

Select an IRA provider that suits your needs, is registered with regulatory agencies and gives you full disclosure about things like fees and investment objectives, among others. The portal is replete with interesting facts about IRAs and their requirements, but what really makes the website stand out is its comprehensive review of investment companies providing IRA services to the public. Examples of things you would read in reviews range from in-house mutual fund offerings and face-to-face advice to low cost, breadth of service, and guidance and education during the investment process.

Determine Deduction Limits

Talk to your custodian to determine how much the law allows you to contribute each year. Remember that you can always fork over more cash than allowed, but you will not reap the tax benefits. For 2013, the maximum contributions is the lower of your taxable income for the year and $5,500 – or $6,500 if you are at least 50 years old.


At a time of rapidly rising expenses, setting up a retirement account to handle post-employment life necessities is important more than ever. Retirement accounts, such as IRAs, help you supplement income from other sources like Social Security payments, certificates of deposit, money market accounts and short-term investments. To effectively set up a traditional IRA, you should hire a specialist, select an investment company and determine deduction limits, among other things.

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