How to Open at IRA at Your Bank

Should I get an IRA? Word IRA held in hand
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Want to open an Individual Retirement Account (IRA)? Consider your local bank.

Many banks offer IRAs for customers, which are essentially tax-advantaged retirement savings accounts with strict rules regarding contributions and withdrawals. For example, in order to make withdrawals without paying a hefty penalty, you must be at least age 59 1/2.

Your bank may offer both a traditional and a Roth IRA. So, what's the difference between the two accounts? A traditional IRA allows you to make contributions tax free, but you will be taxed on your withdrawals. A Roth IRA’s contributions are taxed, but you can make withdrawals tax-free once you reach retirement age.

Key Takeaways

  • IRAs are retirement savings vehicles, typically opened with a brokerage firm, but many banks offer retirement savings accounts as well.
  • Most banks offer IRAs as certificates of deposit (CDs), which are pretty secure, but they can result in less of a return.
  • Some banks have investment arms that will offer IRAs that should result in a greater rate of return.
  • This conservative strategy might be most appropriate as you grow older rather than when you have multiple years ahead of you to save.

The More Secure the Investment, the Lower the Return

Most banks offer IRAs as certificates of deposit (CDs). The CDs are insured by the FDIC for up to $250,000 per person, per bank, in case the bank were to fail. However, the rate of return on CDs is generally much lower than the rate of return if you were to open an IRA at a brokerage firm. Generally speaking, the more secure the investment, the lower the return.

The investment portion of your bank may offer IRAs that are not CDs. Check with your bank to see if their IRAs fall under the "Certain Retirement Accounts Category" of FDIC Insurance. If they do, then your IRAs will be protected with the same limits as a CD. Either way, your funds will likely earn a much higher rate of return in an IRA than they would in a CD.

A CD locks in a set rate of return for a specific period of time, and when that period of time ends, you may choose to roll the current CD into a new one, without drawing out any funds. The market rates may go up or down, depending on the current economic conditions.

Choose an IRA Type

When you are choosing the type of IRA you want to open, you should consider if you prefer security or growth, then open an IRA with the institution that best meets your needs. This decision may also change according to your age.

When you are young, you may be comfortable with taking risks with your retirement savings. However, as you age (and get closer to retirement), your retirement investments should become more conservative.

If an IRA is your only current retirement savings account, you may be better off going with an investment firm, since it can offer you an overall better rate of return. You want your retirement savings to grow so you can retire comfortably. Just remember to switch to a more conservative investment strategy as you grow older. If you want a self-directed IRA, you will need to look for one at an investment firm. 

Other Retirement Savings Options

In addition to your IRA, you should open a retirement account with your employer if they offer one, such as a 401(k). Additionally, if they offer an employer match, you should contribute at least that much to your retirement account.

If you are self-employed, there are retirement accounts available to you. You can open a SEP, a KEOGH, a self-employed 401(k), or an IRA. Remember that when you are self-employed, you are solely responsible for preparing for your retirement.

Although you are required to pay Social Security, you should not plan on receiving Social Security as part of your retirement financial plan. The Social Security system might not be in place when you retire, and you might not qualify for as high of a benefit as you think.