5 Things you Need to Open an E-trade Account

One of the most lucrative paths to getting rich is investing.  You can invest in a variety of markets such as real estate, bonds, a lawnmower to start a landscaping business, a friend’s brilliant social media idea, etc.  However, the most common way to invest – especially with smaller amounts of money – is in the stock market.  Unfortunately, the thought of stocks can be overwhelming and intimidating.  However, what’s the best way to get over your fears and learn the ropes?  Jump in and start doing it!

Last week I opened an E-trade account.  My very first investment account was an E-trade account about 10 years ago, but I moved it over to TD Ameritrade about 6 years ago due to lower trade fees and an incentive bonus for opening a new account.  When deciding which brokerage to go with I investigated fees (they are both $10 per trade) and ultimately couldn’t see any blatant financial incentive to choose one over the other.  Therefore, I decided to go with E-trade purely to have both sets of tools at my disposal and so that I could provide insight into pros and cons of both to the Saving to be Rich readers.  Note:  There is up to a $500 incentive for opening an account with either of them, but I am not opening with enough money to qualify.  Go here to figure out if you do.

Information you will need to open a brokerage account

1.  Social Security #

This is pretty standard when opening anything that has potential income ramifications.  The brokerage will report your trading activity to the IRS and therefore needs your social security number on hand.

2.  Spouse’s Social Security #

Even if you are opening an account solely under your name, or are separated from your spouse, you will be required to provide his/her social security number.  Unless specifically addressed in your will, all funds revert to your spouse upon your death so their social security number is required.  Any earnings also affect their taxes (potentially), so be prepared to have it available.

3.  Decide type of account ownership

You have a few choices when opening an account.

• Individual – Only you own it and can make trades.
• Joint – Two people own it equally and can both make trades.   Within joint, you can choose:

~Joint Tenants with Rights of Survivorship (JTWRS) – meaning your spouse doesn’t have to wait for probate court to get access to the money if you die.

~Tenants in Common – meaning the money goes to the estate so must wait for probate upon death.

~Community Property – specifically required in certain states.

I chose JTWRS because I don’t want to have probate involved upon either of our deaths, but I am not a tax advisor, so there may be more appealing alternatives for you.

• Custodial – You manage it on behalf someone else, usually a minor.
• Individual Retirement – Typically an IRA that has different tax implications than the others.  This can be Traditional IRA or Roth IRA.  If I were to open one I recommend Roth IRA if you qualify for it, because I assume I will be in a higher tax bracket upon retirement than I am now.

4.  Type of Trading

I must admit that I am not very familiar with the variety of trading options.  I chose a cash account as the most traditional investing account and did not choose options or margin account.  Those can be upgrades in the future should we get to that point, but based upon my limited understanding of each, they are basically means of buying stock with “credit” instead of having cash on hand.  It is riskier and I don’t recommend buying material goods on credit, so am applying that same principal to investing until I understand it more fully.

5.  Money

Most importantly you will need money.  I chose to open my account with $2,000 to avoid any fees.  It was easy to set up an electronic transfer from my checking account.  To do so, you will need your bank routing number and checking account number.  It then takes about 5 days to fund.  I recommend adding this external account to your E-trade account once it’s funded so you can make direct deposits and money transfers in the future easily without the need for stamp or envelope expenses and delays.

All told it took me about 20 minutes to set the account up including setting up the funding transfer from my bank.  I was particularly impressed to receive a phone call from E-trade (a real live person!) welcoming me to E-trade and asking if I had any questions or needed any help getting started.  I didn’t, but thought it was a very nice customer service touch.

Anything intimidating in that list?  Any questions not answered?

**List Post assignment from Day #2  of 31 Days to Building a Better Blog