Do yourself a big favor and don’t open a new IRA this year. Don’t get me wrong. If you can fund a deductible IRA this year, it’s probably a good idea to do so. But even if you should fund an IRA, you should not open up a new one. Have I confused you? Sorry. Let me explain myself.
IRA Funding Options
Whenever you are instructed to fund an IRA, you have three choices. Option one is not to do it. While this is an option, it’s usually not a good one. Using deductible IRAs to grow your retirement savings is just about the smartest route to go for most everyone.
Option two is to add money to an existing IRA. Unless this is the first year you’ve funded an IRA, it’s probably a good idea to put new money in old IRA investments rather than constantly create new IRA accounts each year which is option number three.
What’s Wrong with Opening a New IRA Each Year?
Nothing is wrong with it if you love wasting your time and creating a chaotic financial situation. But assuming you have better things to do with your time than waste it and assuming you want to keep your financial situation manageable, you should probably just deposit your current year IRA contribution into your existing IRA account.
If you open a new IRA every year over the next 20 years, you’ll have 20 different IRA accounts. That means it’ll be increasing difficult to track your investments – or even know where all your money is over the years. It’s much more time efficient and effective to have one IRA account in one place. It’s easier to know where you stand and make changes when necessary.
What If Your Existing IRA Investment Stink?
If you IRA investments aren’t’ performing well, move them to different investments or custodians. You can do that without incurring any tax or reporting responsibilities. It’s as easy as pie.
If all of your IRA money is in CD’s you’ll have to open a new IRA every time you fund your retirement account. But because IRAs are long-term investments, bank CDs are rarely a good choice. Annuities have the same problem and are even worse IRA investments for most people.
Are your IRAs invested appropriately? Why not get a second opinion? I’m glad to take a look and give you my take.
How are you funding your IRA this year? Are you going to open up a new one? Are you going to fund an old account?