A client of mine recently asked me HOW, WHERE, and WHAT to invest in an IRA. I realized so many people have those same questions. Before you begin investing in an IRA, ask these questions:
 
1. Do you already have an IRA or any other investments open?
If so, they may be the easiest or just a good place to start. Just make sure you are happy and familiar with your investment firm. If you do not feel like you are getting the service you should be getting or are paying more fees than you like, then move on!
 
2. If you want to do it super cheap and still get excellent investments…
I like Fidelity and Vanguard. Their minimum to OPEN is $2,500 and $3,000, respectively. Once the mutual fund within the IRA is open, you can add as little as $100 at a time. They have the lowest fees all around with top performers!
 
3. If you earn less than $127,000 as a single person or $188,000 as a married couple…
You should open a ROTH IRA and contribute up to $5,500 a year.
 
4. Now, for the investments…
If you don’t have any yet, that’s easier. You can start with a Balanced Mutual Fund (a mutual fund with both stocks and bonds)—also called Moderate Allocation.
 
5. If you have other investments…
It is a bit more complicated because you want to make sure you aren’t buying the same investment. They key is to make sure you are diversified and investing for your risk level and time frame.
 
6. SRI (socially responsible investing)…
Traditionally, they aren’t the best performers and are more expensive than other funds, but if it is important to you, check out Pax or Calvert, two leading SRI funds.
 
7. Are you PANK (Professional Aunt, No Kids) and earning lots of money and working for yourself?
If so, you should consider opening a SEP IRA because you can put much more away per year (up to 25% of your income capped at $51,000/year), and it save you money on taxes today.

Published: January 8, 2013