How To Open A Roth IRA In 5 Easy Steps for Retirement Saving

Shawn Manaher
Shawn Manaher
Updated on December 2, 2022
how to open a roth ira

You’ve always been told that you had to save for retirement, but what does that mean? How much money do you need for retirement? Can you scrape up a few spare pennies from below your couch and call it a day?

Thankfully, you don’t have to rely on your wallet and your salary to provide for your retirement savings.

Many methods exist to help you save up for retirement, and the Roth IRA is foremost among them. As of 2020, an estimated 35.3% of American households owned a Roth IRA.

Unfortunately, many people do not know how to open a Roth IRA. If you’re one of these people, don’t worry- we have your back.

This article will contain everything you need to know to open a Roth IRA. Read on to help kickstart your retirement investing journey!

How Much Does It Cost To Open A Roth IRA?

Unfortunately, you need money to start a Roth IRA. Despite common assumptions, a Roth IRA is an investing account, not a savings account- you have to make an initial investment to see any results.

Thankfully, many IRA brokers don’t charge any initial fees to open a Roth IRA, so all of your money will go straight to your opening investment.

However, certain providers may require an opening fee, among others; make sure that you check with your broker beforehand to ensure that you are financially prepared to open a Roth IRA.

The IRS does not provide a minimum amount to open a Roth IRA, however, your vendors may have separate requirements.

For example, Fidelity does not have a minimum requirement, while Vanguard requires a minimum of $1,000 to open a new Roth IRA.

There is an upper limit to what you can contribute to your Roth IRA, both initially and annually. If you are under 50 years old, you can deposit up to $6,000 if you earn less than $129,000 per year as a single person- or $204,000 when married and filing jointly.

If you are over 50, this limit increases up to $7,000, with the same income requirements as before.

How To Open A Roth IRA

Despite common misconceptions, opening a Roth IRA is far easier than you might expect. It’s so easy that you can break it down into five smaller, easily-digestible steps:

  1. Determine Your Eligibility
  2. Find Your Company Of Choice
  3. Fill Out The Required Paperwork
  4. Invest Wisely
  5. Make Your Scheduled Contributions

If these five easy steps sound doable to you, you’re already on the right track. Read on to learn how to open a Roth IRA.

Step 1. Determine Your Eligibility

Unfortunately, not everybody is eligible to start a Roth IRA every year. When opening a Roth IRA or even planning to do so, your first step must be to determine that you are eligible in the first place.

The main requirement is that you must earn a recorded income for the year. Remember that a Roth IRA is an investment account; you must input some money to receive any output, particularly a positive one.

If you have not made any income this year, you can not make any contributions to your account- whether initial or annual.

However, a Roth IRA may not be the best choice for everybody. Eligibility for a Roth IRA runs far beyond simply meeting a vendor’s requirements or the ones the IRS sets.

If you face a significant amount of debt, a Roth IRA might not be your best option. Consider using the debt snowball method to get yourself out of any debt except for any applicable mortgages.

Additionally, a Roth IRA should not be your first and only savings method. Ensure that you set up a sizable emergency fund, enough to last you a few months before you consider setting up a future retirement fund.

You don’t need any of these extra measures for a broker to approve your Roth IRA application, but it can further secure your financial situation.

Roth IRA accounts also come with associated income limits and a maximum dollar amount on contributions. These limits are tied directly to your income amount and marital status.

For example, in the 2022 tax year, Roth IRAs feature a phase-out range of $129,000 to $144,000 for an individual. Alternatively, the range is $204,000 to $214,000 for those filing jointly.

The phase-out range refers to limits on any tax credits or deductions as your income reaches a legal limit; in this case, the tax credit is your Roth IRA, as you can withdraw it tax-free in the future.

You also must consider the annual maximum contributions for your Roth IRA. If you are under 50 years old, you can contribute up to $6,000. If you’re over 50, you can contribute up to $7,000.

Additionally, if your income is above the required range, you cannot open a new Roth IRA or contribute to an existing one.

Step 2. Find Your Company Of Choice

If you’ve determined your eligibility and established a savings fund in case of emergencies, you’ve made a great first step.

Your next step should be to determine which company will hold your Roth IRA.

There is not any single company that controls Roth IRAs. Essentially, any company that handles investments will likely offer a Roth IRA account as part of its services. 

If you already have any investment accounts with one company, such as a traditional IRA, consider checking to see if that company also offers Roth IRAs.

However, not every company offers the same Roth IRA. Each company may have its unique fees and investment varieties.

Additionally, no Roth IRA is perfect across the board. One may suit your needs more than another. You can do your due diligence regarding which company best fits your needs, or your accountant or financial advisor may have a strong recommendation.

Typically, companies will not require that you pay any fees to open your Roth IRA, but may require annual or monthly fees. 

Alternatively, your provider may have fees that discourage frequent trading- ask about any related fees if you plan to trade out of your Roth IRA.

As always, you should read a company’s reviews before doing any business with them. Reviews can provide an excellent way to gauge how reliable, friendly, or knowledgeable a company is. If your provider does not have good reviews, consider staying away from them for your Roth IRA.

You also must determine how involved you want to be in your Roth IRA. Some providers will feature automatic advisors to make investments on your behalf, while others expect you to do your research yourself or feature brokers to help you make investment decisions.

Here are some of the best options, regardless of which form of investment you prefer.

Best Roth IRA Companies For Hands-Off Investors

  • Fidelity Go
  • Schwab Intelligent Portfolios
  • SoFi Automated Investing
  • Vanguard Digital Advisor
  • Betterment

Best Roth IRA Companies For Hands-On Investors

  • Fidelity IRA
  • Charles Schwab
  • TD Ameritrade
  • Ally Invest IRA
  • You Invest by J.P. Morgan

Step 3. Fill Out The Required Paperwork

Filling out paperwork might not be the most exciting thing, but unfortunately, it is a fact that we must deal with. Some studies show that almost 50% of people dislike doing paperwork.

Thankfully, many investment companies have entirely converted their offices to paperless workspaces, giving their customers the ease of online applications. 

With an online application, you minimize extraneous time and detail wasted on a paper application and functionally negate issues such as papercuts.

Most accounts will allow you to name a beneficiary. If you pass on, your beneficiary will get all the benefits and rights to your Roth IRA savings.

If you do not name a beneficiary, your IRA becomes part of your estate, and a judge will divide it among your heirs. 

If you want your heirs to share your money, you do not need to add a beneficiary to your Roth IRA. However, if you want all of the available finances to go to one person, you must add a beneficiary.

However, the paperwork for your Roth IRA will require more than just your signature, the date, and your name in print.

Typically, your broker or provider will outline what information or documents you will need to open your Roth IRA, but it’s always good to be prepared in advance. Here’s what information you need to start a Roth IRA.

What Do I Need To Start A Roth IRA?

Thankfully, the information that you need to start your Roth IRA is not anything particular. If you have filled out a tax form, such as a W9, the requirements are very much the same.

Ultimately, much of the information is the same as opening any account, from a traditional IRA to an Amazon account. Here are the financial and identification documents that you will need:

  • Your Social Security Number
  • Your government-issued ID card, such as a driver’s license
  • Your bank account routing number
  • Any applicable checking and savings account numbers
  • The name and address of your employer
  • Similar information for your beneficiary

Once you have gathered all of this information, you are ready to fill out your Roth IRA paperwork.

Step 4. Invest Wisely

The hardest part of starting a Roth IRA is deciding on your initial investments. A Roth IRA is an investment account, but the account itself is not your investment; it merely holds all of the investments you make and reduces the impact of income taxes.

Your Roth IRA will not sit idly and gain value; you must make investment choices to grow your wealth, and therefore, your retirement savings.

Oftentimes, your Roth IRA funds will not go directly into one source. Investors typically choose a mixture of investments, including stocks, ETFs, and bonds.

Some providers and financial advisors recommend a variety of mutual funds for your Roth IRA to help spread your investments. 

By expanding your portfolio, you reduce risk while increasing your odds of success- if one of your stocks or mutual funds tanks, you have plenty of others that can still make money.

A series of professional investors manage these mutual funds. Their entire job is to increase their client’s earnings via their investments, so you can rest assured that your finances are in good hands.

Additionally, by utilizing mutual funds, you can take advantage of up-front commissions to cover any initial fees and financial advisor costs.

You may choose to pick all of your investments yourself to ensure maximum control over your financial status, but there are other options.

Certain providers, such as Fidelity Go or Vanguard Digital Advisor, have automated processes to either help you decide on your investments or choose them for you. Professionals call these processes “Robo-advisors.”

If you want to make your contributions and otherwise let your Roth IRA sit with minimal interference, these automated providers may be your best bet.

Other investment providers offer a more hands-on approach and may have a broker assist you in your investment decisions. 

Alternatively, if you have a trusted personal financial advisor, such as an accountant, they may have advice and investment recommendations that you want to follow.

Whether it is your provider’s broker or a trusted family accountant, a financial advisor who knows your investment goals can help set up investments for a Roth IRA that will keep you financially comfortable whenever you choose to retire.

Step 5. Make Your Scheduled Contributions

Once you have finished your paperwork and chosen your investments, you have completed the hard part of opening your Roth IRA. All you have to do now is make your payments on time.

Many providers offer several ways to make payments on your Roth IRA. If you favor traditional banking methods, you can go to your bank and physically transfer cash from your wallet or bank account to your Roth IRA. 

Additionally, your bank may support linking your Roth IRA to your bank account. When you do so, you can request that your bank transfers your funds from your bank account directly to your Roth IRA via phone, app, or an in-person visit.

In the modern computer era, many banks and IRA providers alike offer automated transfers so that you can make your regular contributions without having to worry about falling behind your schedule or overdrawing your account.

Your bank may support an automatic monthly transfer from your bank account to your Roth IRA. Many investors opt to deposit a percentage of their monthly income, making higher investments as their incomes increase.

However, the IRS caps contributions on an annual level. If you would prefer to make one large deposit per year, the option is available, but your bank may institute higher fees for the larger sum of cash.

Shawn Manaher

Shawn Manaher

Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author.

He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.

He loves to share his personal finance tips and money management wisdom with others to help them find financial freedom.
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