Individual Retirement Accounts

Individual Retirement Accounts

Individual Retirement Accounts

If you are self-employed or don’t work for an employer that has a retirement plan, you can still save and invest for retirement. 

Individual Retirement Accounts

If you are self-employed or don’t work for an employer that has a retirement plan, you can still save and invest for retirement. 

If you are self-employed or don’t work for an employer that has a retirement plan, you can still save and invest for retirement on your own through an Individual Retirement Account (IRA), a tax-advantaged account that helps you save and invest for retirement.  

Steps to open an IRA account include: 

1. Decide how to manage your IRA investments

Unlike a pension, 401(k), or 403(b) plan, which give you little to no say on your investment options, an IRA lets you invest in whatever stocks, bonds, mutual funds, ETFs, and other assets you want. But the dizzying array of investment options can be overwhelming.

You can manage your IRA’s investments by working with an online broker or a robo-advisor.

  • An online broker will provide a wide-ranging menu of investment options. They can help you set up your account and answer questions, but you are responsible for choosing what to invest in.
  • A robo-advisor is an algorithm-driven investment platform. It will ask you a series of questions to identify your financial goals, time frame and risk tolerance – then it will select and manage your IRA investments for you based on your answers.

2. Decide where to open an IRA

You can open an IRA at a brokerage firm such as Charles Schwab or Fidelity, as well as at some banks, mutual fund companies, or life insurance companies.

Look for factors like management fees, investment minimums, available investments, planning tools, educational resources, and customer service. Some IRAs even match your contributions up to a certain amount.

3. Choose an IRA account type

There are two main types of IRAs, each with different tax implications:

  • Traditional IRA. You contribute money pre-tax, which brings down your tax liability now – but when you withdraw your funds later, those payments are taxed. This could be preferable if you will be in a lower tax bracket at retirement. You can start withdrawing from an IRA at age 59½, and you must start withdrawing by age 73. Withdrawals before age 59½ are subject to a extra 10% tax penalty.
  • Roth IRA. You contribute money after-tax. You can’t withdraw funds for five years, but then you can withdraw the initial contributions tax-free and penalty-free as long as you meet certain requirements. After age 59½, all withdrawals are tax-free.

4. Open an IRA and fund your account

Usually you open an IRA account online. You’ll need personal documentation to prove your identity as well as financial information such as your bank account. 

Once your account is set up, you can fund it in a variety of ways:  

  • Roll over a 401(k), or 403(b) retirement account from a previous employer or roll over funds from a different IRA account. 
  • Transfer funds from your bank account one time or set up auto-transfers 

You can contribute up to $7,000 to an IRA account in 2025, with an additional catch-up contribution of $1,000 for people ages 50 and up. 

Socially Responsible Options

Individual Retirement Accounts hold $14.5 trillion in assets worldwide; of that, an estimate $435 billion is invested in fossil fuels.

Fortunately, it is much easier for IRA holders to invest in socially responsible funds than it is for pension fund members or 401(k) / 403(b) plan participants. However, managing an IRA may require more engagement.

  • Start by defining your values and goals. Do you want your investments to make a difference in climate change? Affordable housing? Racial equity? Knowing which issues are most important to you will help guide your investment decisions. This questionnaire from US SIF can help.
  • Learn how responsible investing works in practice, and about its performance and popularity.
  • Research socially responsible and ESG funds. Look for funds that align with your values and have a track record of strong performance. As You Sow's Invest Your Values rates funds on a variety of issues and lets you compare performance to a benchmark fund.

If researching socially responsible options for your retirement plan becomes overwhelming, you don't have to go it alone. You can find a financial advisor. Green America has several listings of financial advisors who understand socially responsible investing and can help you make the most of your investments.

Are you looking to save for a child's college education? An educational savings plan can help.

Green America is not an investment adviser, nor do we provide financial planning, legal, or tax advice. Nothing in our communications or materials shall constitute or be construed as an offering of financial instruments or as investment advice or investment recommendations. 

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