A Traditional IRA (Individual Retirement Account) is a tax-advantaged savings account that allows you to contribute pre-tax dollars, reducing your taxable income in the year of contribution. Earnings grow tax-deferred until withdrawal in retirement, when they are taxed as ordinary income.
27 steps across 7 sections
1. Confirm Eligibility
- You must have earned income (wages, salaries, self-employment income, etc.)
- No age limit for contributions (removed by SECURE Act)
- No income limit to contribute, but income affects tax deductibility
- If covered by a workplace retirement plan, deduction phases out at higher incomes
2. Choose a Brokerage or Financial Institution
- Compare major brokerages: Fidelity, Vanguard, Schwab, TD Ameritrade
- Evaluate: account minimums, investment options, fees, tools, and customer service
- Many brokerages have $0 account minimums for IRAs
- Consider whether you want self-directed investing or robo-advisor management
3. Open the Account
- Visit the brokerage website or app to start the application
- Provide personal information: name, address, SSN, date of birth, employer info
- Select "Traditional IRA" as the account type
- Designate primary and contingent beneficiaries
- Complete and submit the application (usually takes 15-30 minutes)
4. Fund the Account
- Link your bank account for transfers
- Choose a funding method: lump sum, recurring automatic contributions, or rollover
- Contribute up to $7,500 (under 50) or $8,600 (age 50+) for 2026
- You can contribute until the tax filing deadline (April 15, 2027 for 2026 contributions)
5. Choose Investments
- Select from available options: index funds, ETFs, mutual funds, stocks, bonds
- Consider a target-date fund for simplicity
- Diversify across asset classes based on your age and risk tolerance
- Review expense ratios — lower is better for long-term growth
6. Set Up Automatic Contributions
- Schedule recurring transfers (monthly, biweekly, etc.)
- Dollar-cost averaging reduces timing risk
- Many brokerages allow automatic investment into chosen funds
7. Track Deductibility and File Form 8606
- If your contribution is fully deductible, report on Schedule 1 of Form 1040
- If partially or fully non-deductible, file Form 8606 to track your basis
- Keep records of all non-deductible contributions for future reference
Common Mistakes
- Not contributing because you can't deduct
- Forgetting to invest after contributing
- Exceeding the contribution limit
- Not filing Form 8606 for non-deductible contributions
- Missing the contribution deadline
Pro Tips
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