What Is the Minimum Deposit to Open a Traditional IRA Account?
Planning for retirement doesn't happen overnight. It can take decades to build the assets you need for your estimated retirement budget. You contribute to your employer's 401(k) and know the next step in savings is opening an IRA, or individual retirement account. The problem is you don't have $5,000 with which to open a traditional IRA account. The good news is you can set up IRA savings programs and contribute a little at a time.
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Setting Minimums
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The IRS sets no minimum amount required to open an IRA. Once the IRA is open, there is no minimum you are required to contribute annually based on the IRS regulations. While the IRS has no minimum limits, each custodian has its own thresholds for minimums that make opening an IRA cost-effective for the administrative costs associated with the account.
Custodian Requirements
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Financial institutions make money on assets under management. The more complex an investment is, the more administrative costs there may be to file regulatory paperwork with the IRS and other agencies. The result is a wide range of minimum balances for IRA accounts at custodians. A bank may have a minimum of $25 for an IRA savings account, while a mutual fund may require $100 to open the account with an automatic monthly contribution of $25. A money manager may require a minimum of $25,000, which would require transferring money from an existing IRA or 401(k) plan. Check with each custodian for specific investment limits.
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IRA Maximum Contributions
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Once you start contributing to an IRA, you need to make sure you do not overcontribute. Excess contributions into a traditional IRA result in a 6 percent tax penalty paid annually until the excess and its earnings are removed. As of 2010 IRS regulations, the maximum you can contribute to an IRA is $5,000 annually. If you are over the age of 50, you can add $1,000 more as a catch-up contribution. There are also restrictions based on income, marital status and whether you are covered by an employer's retirement plan.
Other Restrictions
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You may not be able to deduct your entire contribution of $5,000 or $6,000 if you are covered by an employer's retirement plan. A single tax filer making between $56,000 to $66,000 can only make a full contribution with a partial deduction. A married couple filing joint returns making between $89,000 and $109,000 are allowed partial deductions. Falling below the threshold allows a full deduction and above it none. There is no income limit for single filers who are not covered by an employer plan. Married couples covered by one spouse's employer have a deduction range between $167,000 and $177,000 in annual income.
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