How to Start an IRA Early

This will look a lot better at retirement than empty pockets.

It is common knowledge that the earlier an Individual Retirement Account (IRA) is started, the better. However, many people don't get started until years after finishing college. While student loans, credit card debt and the hassle of moving and finding employment can easily distract recent graduates, it is important
to start an IRA as early as possible to take advantage of compounding. As little as four to eight years of difference can lead to a $700,000 difference by retirement.

Instructions

1. Decide on a plan of attack. Most IRA and Roth IRA funds have a minimum starting point of $1,000, although you have the option of investing in an IRA through a discount broker. Discount brokers will have much lower or no minimums, but often require additional fees for maintaining the account and a weaker selection of investments to choose from to make up your IRA portfolio. Decide whether you are going to save the $1,000 up front for an IRA or open one through a discount broker and use that to get up over $1,000.

2. Plan a budget to get the money you need to invest in the IRA. If you currently have a job that offers enough spare income, save up. If not, look for a part time job or even donating plasma at a local center for $30 to 50 a week. Make your plan to get to $1,000 as quickly as possible and follow it.

3. Make a monthly budget plan so you continue to contribute toward your retirement account. Early investments matter. For example, according to the Dinkytown IRA Calculator, a person who starts at 30 with $2,000 and invests $5,000 a year to age 65 will still have $55,000 less than a person who starts at 18 with $1,000 and invests $2,000 a year, despite having invested $81,000 less.

4. Roll over your IRA to a bigger broker who offers more investment options and a smaller (or no) transaction fees. This will give you the tools and options to really make your retirement account grow.

5. Stay on budget. Keep the contributions going into your IRA, and over time you'll be amazed at the power of compounding.

Tips & Warnings

• Don't think more money later can make up for missed early years, because it won't.

References

• Get Rich Slowly: How to Start a Roth IRA (and Where to Do It)
• Mint.com: 5 Ways to Start Investing with $1,000 or Less

Resources

• Zecco: Discount Broker IRA Options
• First Trade: IRAs Starting at $500
• Dinky Town: IRA Calculator