How Much is Needed to Start an IRA Account?

IRAs are great ways to invest for retirement. They are flexible in contribution amounts as well as investments a person can select within them. The Internal Revenue Service recognizes them as Individual Retirement Agreements, which allow money to grow tax deferred or tax free, depending on whether it is a traditional or Roth IRA, respectively. Both traditional and Roth IRAs have the same minimum requirements.

Identification

An IRA is an Individual Retirement Agreement, which gives individuals tax benefits when saving for retirement. It is often referred to as an Individual Retirement Account.

Minimum Requirement

The minimum investment into an IRA depends on the investment vehicle. Savings IRAs might have a $10 minimum, whereas most mutual funds have a minimum of $25 or $50.

Maximum Contribution

The most a person can contribute is $5,000--$6,000 for those older than 50--in one year to an IRA. This can be done in lump sum or installments and can be done as late as April 15 for the previous tax-year contribution.

Tax Deduction

Traditional IRAs receive a tax deduction against adjusted gross income in the year the contribution was made. Roth IRAs do not.

Saving What You Can

Many people shy away from making small payments into an IRA because they don't think that will make a difference. The reality is that $25 per month equals $300 per year with compound interest--it all helps.

Roth Versus Traditional

Roth IRAs differ from traditional IRAs in that they grow tax free and get no deduction for contributions, as traditional IRAs do. Minimum contributions work the same way for both.

Resources

• The Motley Fool: All About IRAs