Baruch Brown’s accountant advised him to open an Individual Retirement Account (IRA) for tax purposes. He may as well have told him to jump over the moon. Baruch was a smart and talented ABA therapist but far from financially savvy. When he asked his accountant for further details, however, he wasn’t forthcoming. “Speak to your financial adviser,” the CPA mumbled before hanging up.

But the financial advisers he called all focused on managing large accounts, not the $6,000 Baruch planned to deposit into a new IRA.

What steps could he follow on his own to open a retirement account and lower his taxes?

Do it yourself

It’s impossible to be an expert in or even knowledgeable about all aspects of life, so what’s a person to do if they have no idea where to start? Thankfully, technology keeps making many things easier, and most people can now manage basic investments on their own. In fact, opening an IRA, moving money into the account, and then investing the cash can be done in 15 minutes or less!

Step 1: Choose a Brokerage Company

Step one is choosing which bank or brokerage company to open the account with. An IRA is a type of investment holding account, and virtually every bank and investment brokerage company is glad to have a customer open one. I personally favor Fidelity Investments for its fantastic customer service, strong technology platform, and lack of fees and account minimums. Fidelity also has a broad lineup of excellent no- or low-fee investments options which can be selected (see below). But you can do very well with Vanguard, Schwab, Robinhood, and dozens of other providers too, many of which offer similar advantages.

Step 2: Open the Account(s)

Opening an IRA online is the simplest option, but most companies will send paper or PDF documents at your request. As with any financial account, IRA application forms request basic identification, addresses, and disclosure acknowledgements. Keep in mind that IRAs are always for an individual; there’s no option of a joint account. A couple needs to open two separate IRAs, one for each spouse, to maximize their tax-saving potential.

Traditional or Roth?

One question that will arise at this point is whether to open a traditional or Roth IRA. While all IRAs are tax-advantaged holding accounts, there are some distinctions in how these tax benefits are structured. Deposits into traditional IRAs are tax-deferred—no tax is owed on the contribution principal or earnings until they are withdrawn. Roth IRAs, on the other hand, are funded with after-tax money, but all withdrawals that follow IRA rules are permanently tax-free. Keep in mind that Roth IRAs are limited to individuals earning less than $140,000 and couples earning less than $208,000 in 2021.

So which IRA type to choose? Accountants tend to favor traditional IRAs, which have no income limitations and offer immediate tax discounts and perhaps increased eligibility for various social programs. Traditional IRAs also make sense for those who expect to have much lower tax rates in the future, after retirement. But if there is no compelling benefit to lowering your current taxable income, the Roth offers much more flexibility and the unique promise of permanent tax-free growth. There are benefits to both types of IRAs, and some split their retirement contributions between both types if their income limits allow them to.

Step 3: Deposit Earned Income

Once the IRA is opened, it’s time to put money into it. For 2021, individuals up to age 50 can contribute up to $6,000, which can be split between a traditional and Roth account, totaling $12,000 for a couple. Those over 50 can deposit $7,000. Note to make IRA contributions you need to have earned income (salary or business earnings). Therefore, most kids and students can’t fund IRAs. Married students and homemakers, however, who file tax returns jointly with a working spouse can count their partner’s income in order to fund their own accounts.

Step 4: Select simple, solid investments

One of the big benefits of IRAs is that investments grow within these accounts tax-deferred, and even tax-free in the case of Roth IRAs. But what to invest in? IRA funds can be invested into virtually any type of asset, stocks, bonds, cash, real estate, etc., but the best option for the vast majority of IRA investors is a well-diversified low-cost mutual fund portfolio. As I’ve written in this column before, there are mutual funds today that offer simple but all-in-one portfolios . Known as target date funds or target risk funds, all the major investment shops offer them now. They are tried and tested.

Step 5: Follow Withdrawal Rules

Speak to a professional before removing money from a retirement account. Early withdrawals from IRAs are penalized—money withdrawn before age 59.5 is hit with a 10% tax penalty on top of any other taxes owed. There are multiple penalty loopholes too, such as early withdrawals made for qualified higher education or medical bills. First-time home buyers and new parents can make small penalty-free withdrawals, though taxes still apply. Also, Roth IRA principal can be withdrawn at any time without tax or penalty, and “rolling over” IRA money directly from one retirement account to another is also generally tax- and penalty free. Homework is required here.

Perfect is the Enemy of Good

Once an IRA is set up, it can easily be used annually. Just transfer in that year’s allowed contribution and invest it in the same fund selected previously. It really doesn’t have to be difficult, and most people can follow this process on their own. The investment companies (Fidelity, Schwab, Vanguard, etc.) can also help with basic site navigation and questions. Some people will still choose to seek out a financial adviser who can help with smaller amounts—they do exist and are well worth their modest fees if the alternative is getting bogged down or making silly errors. The main thing is getting a savings and investment system up and running. Any good but imperfect solution is always better than nothing.