Your MoneyOnFIRE plan has already determined the best IRA strategy for your situation — whether that is a direct Roth contribution, a Traditional deductible IRA, or a backdoor Roth conversion. The decision is made. This article walks through how to open the account, fund it, and choose investments so you can check this step off your action list.
How to Open an IRA
Opening an IRA takes about 15 minutes online. Here is the process, start to finish:
- Pick a brokerage. Schwab, Fidelity, and Vanguard are the standard choices for low-cost index investing. All three offer $0 commissions on ETFs and mutual funds, no account minimums for IRAs, and straightforward online interfaces. There is no meaningful difference between them for most investors — pick whichever you prefer.
- Open the account type your plan recommends. Your action checklist specifies Traditional IRA or Roth IRA. Select that account type during the application. You will need your Social Security number, employer information, and a bank account for funding.
- Link your bank account. Set up an electronic funds transfer (ACH) from your checking account so you can move money into the IRA.
- Fund it. Your action card shows the contribution amounts and timeline your plan calculated. You can transfer the annual limit as a lump sum or set up automatic monthly transfers to spread it across the year. The current annual IRA contribution limit is $7,000 ($8,000 if you are 50 or older).
Choosing Your Investments
This is where an IRA differs from a 401(k). In a 401(k), you are limited to whatever menu your employer selected — often a dozen or so funds, some with high fees. In an IRA, you have access to the entire market. You can buy any ETF, index fund, or mutual fund available at your brokerage. That freedom means you can build a portfolio with some of the lowest expense ratios available — typically 0.01% to 0.05%, compared to 0.50% or more in many 401(k) plans.
Three approaches work well. Pick the one that matches how much you want to think about this:
Option 1: A Single Target-Date Index Fund
The simplest choice. A target-date fund holds a diversified mix of U.S. stocks, international stocks, and bonds, and automatically shifts toward more conservative allocations as your target year approaches. You buy one fund and never think about rebalancing.
- Vanguard Target Retirement funds (e.g., VLXVX for 2065)
- Fidelity Freedom Index funds (e.g., FIJHX for 2065)
Option 2: A Three-Fund Portfolio
If you want more control over your allocation, the Bogleheads three-fund portfolio is the gold standard for simplicity and diversification. It uses three broad index funds:
| Asset Class | Vanguard | Fidelity | Schwab | Allocation |
|---|---|---|---|---|
| Total U.S. Stock | VTI | FSKAX | SWTSX | 60% |
| Total International | VXUS | FTIHX | SWISX | 30% |
| Total Bond | BND | FXNAX | SCHZ | 10% |
A 60/30/10 split is a common starting point. Adjust to your risk tolerance — younger investors often hold less in bonds, while those closer to FI may hold more.
Option 3: A Single Total U.S. Stock Fund
If you want maximum simplicity and are comfortable with an all-equity position, a single total U.S. stock market fund covers roughly 3,500 companies in one holding. Use VTI (Vanguard), FSKAX (Fidelity), or SWTSX (Schwab). Expense ratios are 0.01% to 0.03% — effectively free. This is a reasonable choice for someone decades from FI who plans to add bonds later.
If Your Plan Recommends a Backdoor Roth
If your income is above the Roth IRA contribution limits, your action checklist will show a backdoor Roth strategy. This is a two-step process that is legal, well-established, and widely used:
- Contribute to a Traditional IRA. Make a non-deductible contribution of up to $7,000 ($8,000 if 50+). There are no income limits on non-deductible Traditional IRA contributions.
- Convert to Roth IRA immediately. At most brokerages, this is a few clicks — look for "Convert to Roth" or "Roth Conversion" in your account options. Since the contribution was non-deductible and you are converting before any growth accrues, the taxable amount should be zero or close to it.
- Invest the converted funds. After the conversion settles (usually 1-2 business days), invest the money in your Roth IRA using one of the approaches above.
Pro-Rata Warning
If you have existing pre-tax balances in any Traditional, SEP, or SIMPLE IRA, the IRS pro-rata rule will treat a portion of your conversion as taxable — even if this specific contribution was non-deductible. The fix: roll those pre-tax IRA balances into your employer 401(k) before doing the backdoor conversion. Your MoneyOnFIRE plan may have already flagged this as a separate action step.
Deadlines
You can make IRA contributions for a given tax year until April 15 of the following year. For the 2026 tax year, that means you have until April 15, 2027. After that date, the contribution space for that year is gone permanently — there is no way to go back and make prior-year contributions once the deadline passes.
If you are making a backdoor Roth contribution, the contribution and the conversion can happen in different calendar years. But the contribution itself must be designated for a specific tax year and made before that year's April 15 deadline.
The Most Common IRA Mistake
Contributing but Not Investing
When you transfer money into an IRA, it lands in a cash or money market position. It stays there until you explicitly buy investments. This is the single most common IRA mistake — people assume that transferring money into the account means it is invested. It is not. An IRA holding only cash earns minimal returns and misses years of market growth. After every contribution, log in, confirm the funds have settled, and purchase your chosen index fund or target-date fund.
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