How to Open a Roth IRA

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Contributor, Benzinga
November 18, 2020

Open a Roth individual retirement account. Within minutes, you’ve given yourself a great way to build for the future and save more money for retirement.

Many Americans use a Roth IRA to supplement their employer-sponsored 401(k) account, and a Roth IRA can be a great tool to start a retirement savings fund if you are self-employed or in college.

Step 1: Decide whether you need a Roth IRA vs. a traditional IRA.

Before you think about opening your Roth IRA, you need to make sure that a Roth IRA is better for your unique savings goals than a traditional IRA.

The difference between a Roth IRA and a traditional IRA is relatively simple and has to do with when you pay taxes on your account contributions. When you open a traditional IRA, you will not have to pay taxes on your annual contributions.

However, you will have to pay taxes when you withdraw the money during retirement. A Roth IRA is the opposite — you must report your account contributions when filing your federal taxes and you need to pay taxes on your contributions. However, when you withdraw your savings during retirement, you won’t be taxed again, meaning that your money can essentially grow tax-free.

For most younger investors, a Roth IRA is a superior choice because as you gain more experience in your field, your tax bracket will likely rise. If you anticipate being in a lower tax bracket during retirement than you are now, you may want to consider a traditional IRA.

Step 2: Find out whether you qualify.

You’ll be wasting your time researching IRA providers if you or you and your spouse together make too much to qualify.

Though the exact income limits change annually, for 2021, you’ll need to make less than $140,000 if you’re single.

If you are married, you and your spouse’s combined income needs to be under $208,000. There are also some other limitations that mean you can only contribute a partial amount.

It’s also important to remember that you can only contribute a limited amount of money to your IRA annually as well. If you’re under the age of 50, you can contribute a maximum of $6,000 to your account during a year; that number rises to $7,000 if you’re 50 or older.

Step 3: Choose a provider.

From E-Trade to Vanguard, almost every financial institution offers its account holders the option of opening a Roth IRA. Your job is to research a breadth of providers and choose the one that’s right for you.

Each provider has its own list of pros and cons, and you’ll want to weigh factors like account minimums, customer service options, selection of stocks, bonds, commissions and account maintenance fees.

For example, Vanguard offers a massive range of commission-free, high-performing mutual funds, but you’ll need $3,000 on hand to buy into most of them. Do your due diligence and read up on a number of providers until you find one that clicks with your needs.

No idea where to start? Check out Benzinga's roundup of our favorite Roth IRA providers. Here's a short list of our favorites:

Step 4: Open an account online.

Once you’ve chosen a provider, it’s time to open your account. The specific steps you’ll need to take will depend upon the provider you’ve chosen, but the process is usually very simple and straightforward. Most banks and brokerage firms have digitized the Roth IRA process, so you can likely open your account from the comfort of your home or office.

You’ll need to provide your full name, address, Social Security number and banking information before you can open an account. Remember to use a secured Wi-Fi network when setting up your IRA — you don’t want criminals to gain access to your sensitive banking data.

Step 5: Make your first contribution.

Now comes the exciting part — making your first buy! First, you’ll need to decide what you want to invest in. Most people’s IRA is composed of a mixture of both stocks and bonds for the safety that comes along with diversification. Your portfolio composition will largely depend upon how many years you have left to save for retirement.

As a general rule, older consumers may want to hold more conservative investments not susceptible to the fluctuations of the market. Stocks have traditionally produced better results in the long run, but they are more likely to be volatile. Consult with the financial services offered by your Roth IRA provider to determine the best mix for your unique saving situation.

Step 6: Check on your account.

After you make your first contribution, you’ll probably want to set up a contribution schedule to ensure that you’re putting in the maximum amount of money allowed by law.

Be sure to check in on your investments at least once a year, and don’t be afraid to rebalance your account if your financial or long-term retirement goals change.

Open a Roth IRA Today

One thing that makes a Roth IRA unique is the fact that nearly everyone can benefit from opening one. Roth IRAs allow you to watch your investments grow over time, and you won’t have to worry about tax payments once you enter your golden years. 

Frequently Asked Questions


What are the IRA limits for 2021?


Check them out!

  • The IRA contribution limit is $6,000.
  • The IRA catch-up contribution limit will remain $1,000 for those age 50 and older.
  • 401(k) participants with incomes below $76,000 ($125,000 for couples) are additionally eligible to make traditional IRA contributions.
  • The Roth IRA income limit is $140,000 for individuals and $208,000 for couples.
  • The saver’s credit income limit is $33,000 for individuals and $66,000 for couples.

Use these IRA rules to determine your retirement savings goals for 2021.


What's the overall benefit of a Roth IRA?


A Roth IRA allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you’ve already paid taxes on the money you invest. In return for no upfront tax break, your money grows tax free, and when you withdraw when you retire, you pay more taxes.