Project Retirement

First, Choose a Custodian

There are many choices for who will hold your money including banks, mutual funds, and brokers. Not surprisingly, each has its relative advantages, not to mention its particular fee and commission structures. To make the right decision, it’s important for you to get several pieces of information.

Broadly speaking, you have three custodian choices: banks, mutual funds, and brokerage firms.

Banks frequently offer lower account minimums, so they may be a great choice if you have just a small amount to invest. Just make sure they have the investment options you need and watch their fees, especially any fee specifically for a small balance account.

Directly investing with mutual funds can be a good choice too as it helps to keep things simple. Most mutual fund families offer enough investment choices for you to find the appropriate option for you but not so many as to become overwhelming. Like with banks, be sure to evaluate mutual funds’ fees and commissions. In addition, compare the expense ratios between mutual funds. There can be enormous differences. You’ll often find that index funds have much lower expense ratios, often with superior recent performance. (Although, of course, past results are not an indication of future performance.)

Brokerage firms usually offer the most choices for your investments, so those people looking for anything sophisticated will almost have to start here. Even those whose needs may be more basic may find that a brokerage is still a great place to begin, especially as account balance minimums have fallen in recent years.

Second, Fill Out Their Forms

Once you’ve selected your custodian, you’ll have to fill out some fairly basic forms. Just take your time and answer the mostly demographic questions. You can do this online, at a branch, or even a combination (print them out online and then mail or hand them in). Once your completed forms have been processed, you’ll get confirmation that your account is open and receive an account number!

Third, Fund Your Account

The next thing you’ll need to ensure is that the money you’ve set aside finds its way into your IRA. To do so, you’ll typically need to mail (or hand) a check representing your initial deposit. Afterwards, you can often set things up so that you can make future deposits electronically.

Last, Invest Your Money

Now that your money is in your brand new IRA, don’t forget to invest it. After all, when your money is first received into an account, it’s still cash. You need to provide instruction for what types of investments to purchase. You’ll need to make sure you properly allocate your assets as part of this process. For the equity piece, an index fund is a wonderful way for new investors to begin.

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