How to Automate Retirement Savings With an IRA on an Investing App

Retirement is one of those goals that's easy to put off. It feels far away, today's bills feel urgent, and deciding how much to save and where to invest it can seem overwhelming. That's why one of the most effective retirement strategies has nothing to do with picking the perfect investment. It's simply making saving automatic, so it happens whether or not you remember to do it.

If you have a retirement plan at work, automation is often built in: contributions come straight out of your paycheck. But millions of people don't have access to a workplace plan, including freelancers, gig workers and employees of many small businesses. For them, an individual retirement account, or IRA, is one of the best tools available, and apps like Acorns have made automating one remarkably simple.

A quick refresher on IRAs

An IRA is a tax-advantaged account you open on your own, separate from any employer. There are a few main types. With a traditional IRA, your contributions may be tax-deductible, depending on your income and whether you or your spouse have a workplace plan. Your money grows tax-deferred, and withdrawals in retirement are generally taxed as ordinary income.

A Roth IRA works the other way around. You contribute money you've already paid tax on, so there's no deduction now, but qualified withdrawals in retirement are generally tax-free, including all the growth. Roth IRAs have income limits for contributing directly, so very high earners may not qualify.

A SEP IRA is designed for self-employed people and small business owners, and it can allow much higher contributions based on business income.

All IRAs share some ground rules. The IRS sets annual contribution limits, and taking money out before age 59½ can trigger income taxes and a 10% penalty, though there are exceptions for certain situations. Because those limits and rules change, check irs.gov for the current details.

How Acorns Later works

Acorns Later is Acorns' retirement account, offering traditional, Roth and SEP IRAs. When you set it up, Acorns asks a few questions about your age, income and goals, then recommends an account type and a diversified portfolio of exchange-traded funds suited to your timeline. Younger savers are typically steered toward portfolios with more stocks for long-term growth, while people closer to retirement may see more conservative mixes.

The real power is in the recurring contributions. You can choose an amount and a schedule, such as $50 every payday or $100 a month, and Acorns moves the money automatically. Some people pair this with round-ups in their regular investing account, so their spare change and their retirement savings are both working at the same time.

Why automation works so well

Saving for retirement is a classic example of a goal that rewards consistency far more than perfection. Someone who contributes a modest amount every month for decades will usually end up far ahead of someone who saves in occasional bursts, because each contribution has more time to grow and compound.

Automation also protects you from yourself. When money moves before it ever reaches your checking account, you're far less likely to spend it. You don't have to decide each month whether this is a good time to invest, which removes the temptation to wait for a market dip or skip a month because something else came up. Over time, you simply adjust your spending around what's left, the same way people adjust to a workplace 401(k) contribution.

Comparing your options honestly

Acorns makes retirement saving easy, but it's worth comparing it with alternatives before you commit. Acorns charges a monthly subscription, and Later is included with certain plans. Some brokerages offer IRAs with no account fees at all. If your IRA balance is small, a flat monthly subscription can take a noticeable share of it, so consider how quickly your balance will grow and what other features of the subscription you'll use.

Investment choice is another difference. Acorns uses pre-built portfolios, which is ideal if you'd rather not pick investments yourself. If you want to choose individual funds or stocks, a self-directed brokerage IRA offers more flexibility. Some providers also offer perks such as contribution matches, so it pays to shop around.

Don't overlook your employer's match

If your job does offer a 401(k) or similar plan with a matching contribution, many financial planners suggest contributing at least enough to get the full match before putting money elsewhere. An employer match is part of your compensation, and leaving it unclaimed is like turning down a raise. An IRA can then be a great place for additional savings.

Getting started

The best retirement plan is one you'll actually stick with. Pick an IRA type that fits your tax situation, choose a contribution amount that feels comfortable, and set it to happen automatically. Then plan to raise your contribution whenever you get a raise or pay off a debt. Small, steady steps taken consistently over many years are how most people build a secure retirement.