Depending on the type of retirement savings account you open, your initial contribution can be as little as $100, though some employer-sponsored plans require no upfront investments. The many different plan types offer investors flexibility in saving for retirement by allowing them to make regular contributions. Banks and discount investment houses tend to offer the most flexible terms for individual retirement accounts, while larger investment brokerages may require a large upfront investment.
Individuals with earned income who are under the age of 70 1/2 can contribute annually to a traditional IRA. These contributions are tax deductible up to the annual contribution limit -- $5,000 for individuals under age 50 or $6,000 for individuals over age 50 in 2012. Penalties apply for early withdrawals. Traditional IRA earnings will be taxed at the time of withdrawal. Depending on the financial institution or investment brokerage that holds the account, initial investments can range from $100 to $2,500.
The Roth IRA offers tax benefits to individual investors, although these benefits are not realized until the time of distribution. Contribution limits are the same as with traditional IRAs, but contributions made to a Roth account are not tax deductible in the year the contributions were made. Some -- but not all -- early withdrawals will be penalized, but earnings and contributions aren't taxed at the time of distribution. As with a traditional IRA, the initial investment requirements depend on the financial institution maintaining the account. They can range from no minimum deposit to a minimum of $2,500.
Simplified Employee Pension IRA
For small-business owners with few or no employees, a Simplified Employee Pension IRA may be the most cost-effective option. More commonly known as a SEP IRA, these plans allow small businesses to establish retirement benefits for their employees without the upfront costs of more traditional employer retirement accounts. Contributions to these accounts are made by the employer and require no initial investment by the employee. Employees who participate in this plan are still eligible to open their own traditional or Roth IRAs.
Employer plans offer workers the opportunity to maximize tax saving benefits without any upfront investments. All contributions are deducted directly from an employee's paycheck. These plans include 401(k), 403(b) and thrift savings plans. Depending upon company policies, employee contributions can be matched dollar for dollar or as a percentage of each employee dollar invested up to the typical matching ceiling of 6 percent. Contributions to these plans are considered pretax, meaning they lower the overall amount of income considered as taxable by the IRS and the state. Participation in these plans may limit what the individual can contribute to traditional or Roth IRAs.
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