How Much Money Do You Need to Start an IRA?
Understand the practical financial requirements for starting an IRA, from the official account minimums to the actual cost of purchasing investments.
An Individual Retirement Arrangement (IRA) is a tax-advantaged investment account designed to help individuals save for the future. These accounts are a common tool for building retirement savings outside of an employer-sponsored plan. Understanding the financial requirements to open and fund an IRA is an important step in retirement planning.
The Official vs. Practical Minimum Investment
There is a difference between official rules and the practical realities of opening an IRA. The Internal Revenue Service (IRS) does not mandate any minimum dollar amount to open an account. Officially, you can start an IRA with a $0 balance, which allows for flexibility for savers at all income levels.
Financial institutions that offer IRAs, such as brokerage firms and banks, determine the practical minimums. To attract customers, many major firms have eliminated initial deposit requirements, allowing you to open an account with no money down. You can open the IRA and fund it at a later date when you are ready.
A distinction exists between opening the account and purchasing investments within it. While the IRA itself may have a $0 opening requirement, specific investments you choose to hold in the account can have their own minimum purchase amounts. For example, some mutual funds require a minimum initial investment that could be $1,000 or more. This is a requirement of the fund company, not the brokerage holding your IRA.
In contrast, other investments offer more flexibility. Exchange-Traded Funds (ETFs) and individual stocks, for instance, can be purchased for the price of a single share. This allows investors to begin with a much smaller amount of capital after opening their no-minimum IRA.
Understanding IRA Contribution Limits
The IRS sets annual limits on how much money you are permitted to contribute across all your IRAs, whether they are Traditional or Roth. These limits are designed to control the extent of the tax advantages that individuals can receive through these accounts.
For the 2025 tax year, the maximum contribution limit is $7,000 for individuals under the age of 50. It is not a required minimum; you can contribute any amount up to this ceiling.
To help individuals nearing retirement boost their savings, the IRS allows for “catch-up” contributions. Individuals who are age 50 or older can contribute an additional $1,000 per year, bringing their total maximum annual contribution for 2025 to $8,000. This provision recognizes the shorter time horizon for older savers. Beginning in 2025, a new provision under the SECURE 2.0 Act allows for a higher catch-up contribution for individuals aged 60 through 63.
These contribution limits are tied to your taxable compensation for the year. You can only contribute up to the maximum limit or 100% of your earned income, whichever is less. For example, if your total income for the year was $4,000, your maximum IRA contribution for that year would also be $4,000.
Associated Costs and Fees
Beyond the initial investment, various costs can be associated with maintaining an IRA, which can differ significantly between financial institutions. While many brokerages advertise no-fee IRAs, this often refers specifically to the absence of an annual account maintenance fee. These fees, which can be a flat rate charged yearly, are becoming less common but are important to verify before opening an account.
A more frequent cost is trading commissions or fees, which are charged when you buy or sell investments within your account. Many online brokers now offer commission-free trading for stocks and ETFs. However, fees may still apply for other transactions, such as buying mutual funds or options, and broker-assisted trades almost always incur a service charge.
Another cost comes from the investments themselves, particularly mutual funds and ETFs, in the form of expense ratios. This is not a fee charged by the brokerage but an annual operational cost charged by the fund manager, expressed as a percentage of your investment. For example, an expense ratio of 0.50% means you will pay $5 in fees for every $1,000 invested in that fund for the year.
Some institutions may also charge fees for services like outgoing account transfers or account termination. An outgoing transfer fee, often in the range of $50 to $100, might be charged if you decide to move your IRA to another provider. Reviewing a brokerage’s complete fee schedule is important to understand the full cost of an IRA.