Updated for 2021

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Not sure how to open an IRA account? All it takes is 5 simple steps, and you’ll be on your way to a worry-free retirement.

  1. Decide whether you want a traditional or Roth IRA.
  2. Choose a brokerage firm.
  3. Open a brokerage account.
  4. Fund your account.
  5. Pick investments.

Let’s take a closer look at each step.

Step 1. Decide whether you want to go with a traditional IRA, a Roth IRA, or a combination of the two. Not sure which is right for you? This article will help you decide. For most situations, the more flexible Roth IRA makes a better choice.

Step 2. Choose a brokerage firm. When it comes to brokerage firms, there are a LOT of choices. Which brokerage will work best for you depends on your unique situation (we’ll talk about this in-depth next month). Based on ease of use, customer service history, low fees, and low minimum balances, some of the best choices include:

Step 3. Open an account. You can open your account online, or walk into a local office (for brokerages that have physical branch offices) and have a broker help you. Either way, you’ll have to supply some basic information, including your Social Security number, birthdate, and contact information. The whole process (online) takes about 10 minutes.

Step 4. Fund your account. When you open your account, you’ll usually have a couple of funding options. You can make an immediate deposit of your full IRA contribution for the year, or set up recurring monthly deposits. Those deposits can be made by check or transferred directly from your bank account (the easier way). If you’ll be funding your IRA with a bank transfer, make sure to have your account and routing numbers on hand. Make sure you only fund up to legal limits, or you may be faced with IRS penalties.

Step 5. Choose your investments. Many people think that an IRA is an investment, but it’s actually an investment account. Once you have it set up and funded, you’ll select investments for your retirement portfolio. If you don’t invest the funds, they’ll stay as cash, which won’t help your retirement nest egg grow. Most brokerages offer a wealth of investment options for IRA accounts, usually centered around mutual funds and exchange-traded funds (ETFs), which offer easy, instant diversification.

You’ve just taken a giant leap toward financial freedom. Every dollar you add to your retirement fund gets you closer to financial security, so keep funding those IRAs.

Want to learn more about building a significant retirement nest egg… even if you don’t have a ton of money to contribute? You’ll find dozens savings secrets, wealth-building strategies, and pitfall-avoiding plans in my book Retirement 101.