How to Set up an Ira

Setting up an IRA today is easy. You must decide on what type of IRA. A Traditional IRA will allow you to deduct the amount of money you invest against the Adjusted Gross Income (AGI) which will allow you to pay less taxes. You will be required to pay taxes only when you take distributions from it years down the road. A Roth IRA will allow your money to grow tax free and will not require you to pay taxes on it when you withdraw from it. You won’t be able to deduct your contributions against your AGI though.

Personally, I use the Traditional IRA exclusively. When we change the tax code from an income tax to a sales tax all the Traditional IRAs will be the same as the Roth IRAs today. Income will no longer be taxed, so the taxes will be paid when I spend the money. This gives me the best of both worlds. Tax deferment under today’s system and tax payment through the new Fair Tax system of tomorrow.

You can set up an IRA through a number of different ways. Through a bank, directly through a mutual fund, or through a broker. Most can be done online as well.

I will be exploring setting up one through an online discount broker.

I use TD Ameritrade for my IRA. Their website address is:

First you go to the website and click on the “Apply Online Now” button in the upper right side corner. Next choose the account type and follow the prompts on the next pages to enter your personal information etc. You may have to download some documents that require your signature and then mail those back to them. During this setup process you may be able to setup the bank account link to fund your account or after your account is opened you can do this.

Linking to your bank account is very important because it’s the safest way to get funds into your account and I highly recommend it. Once you have it set up you can make automatic deposits to your IRA that will allow you to take advantage of “dollar cost averaging” when you buy securities to invest in. Contribution limits for the tax year 2007 are $4000 if you’re below age 49 and $5000 if you are above age 50. the best way to ensure you have met the contribution limit is to divide the amount by the number of months between now and April 15, 2008. This will be the monthly deposit taken out of your checking account with your Automatic Investment Plan. You can set whatever interval you like, even making it bi-weekly or weekly.

Once you have your account set up and funded you should decide on what to invest in. The investments can be mutual funds, individual stocks, bonds or CDs or a combination of all. The only fees you will incur are from making trades. TD Ameritrade charges $9.99 per trade. They don’t charge any maintenance fees.

I’m comfortable with investing in individual stocks, so this is what my whole portfolio consists of. I invest in primarily in dividend paying stocks for two reasons. First, they will generate income regardless of what the market does. Second, they tend to hold their value better than stocks that don’t pay any dividends. As an added bonus there are sometimes special dividends when a company sells something they distribute the profits via dividends to take advantage of the lower tax rates. You get an amount based on the number of shares you own. I recently had such happen to me, an extra $200.00 appeared in my account just for owning a particular stock. Dividend stocks are the only ones I buy and hold.

If you choose to go this route you should get another small program that will allow you to track the stocks and to make trades right from it without opening a web page to your TD Ameritrade account. If your TD Ameritrade account is worth more than $2000.00 your registration fee is free. The program is called QuoteTracker and you can download a copy here: It’s a robust program with charting to allow you to see what your stocks are doing. I use it to check my brokerage accounts as well as the various watch lists. I got tired of putting a new portfolio on a website only to not be able to access it for whatever reason. When I get a tip I enter a fictitious position in a watch list and then “paper trade” it to see if it’s a good investment or just the latest pump & dump stock.

I use the QuoteTracker to list all the dividend paying stocks and have them organized as to what month they pay out. This way I can organize my IRA so that every month money lands in my account. I access my account about twice a month and then decide on which stock to buy based on the next dividend payout date. This way each month I can be assured of an ever increasing dividend amount. I usually wait until I have about $200 to $300 to invest before I purchase any more shares. Not to worry, because TD Ameritrade pays money market interest on all cash left in your account. The dividends are more than enough to pay the commissions so the account is self generating. If you lose your job or for whatever reason you lose your income and cannot contribute to your IRA you’ll still be able to buy stock by reinvesting the dividends on a monthly basis. My account will generate about 10% of its worth per year on dividends alone.

That’s all there is to it. There’s nothing mysterious about it, just use common sense and stick to your plan. All the information is readily available to everyone on the internet.

My first IRA consisted of CDs at my local bank. When that grew to about $5000 I moved it to Scudder Funds where I grew it to $15,000. I then moved it to TD Ameritrade where it’s now worth over $30,000. Each time I moved it I used the fund company or brokerage house to complete the transaction. Just fill out the paperwork and let them do the rest. This way you don’t get nailed for the 10% early withdrawal tax and you don’t give into temptation to spend the money. It seems to take forever to get it to grow when it’s worth is below $20,000 simply because you own less shares. Once you crest the $20,000 mark it starts to grow much more rapidly. Just remember the sooner you start the more money you’ll have faster later. As long as you are over age 18 and have some amount of income you can open an IRA. Do it today!

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