How to Open a Roth IRA

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Open a Roth individual retirement account, and 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 if 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: Learn if 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 2018, you’ll need to have made less than $135,000 last year if you’re single.

If you are married, you and your spouse’s combined income needs to be under $199,000. 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 $5,500 to your account during a year; that number rises to $6,500 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, which many people don’t have on hand. 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 of 2018. Here’s a short list of our favorites:

Broker Best For Commissions Account Minimum Choose your platform
TD Ameritrade
  • Beginner investors
  • Advanced traders
  • Investors who want portfolio-building advice.
$0 $6.95 for OTC Stocks $0
Get started securely through TD Ameritrade’s website
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

  • Superior technology
  • No account minimum balance
  • Excellent customer support
  • Premier data and news partnerships
  • Slightly higher commissions
  • Can be for more advanced users
Current Promotion

Trade commission–free for 90 days & get up to $2500

Ally Investment
  • Active traders
  • Beginners looking to start trading
  • Low fees
$0 $0
Get started securely through Ally Investment’s website
1 Minute Review

If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions are now $0.

  • Volume discounts available
  • Among the lowest fees in industry
  • Good for every experience level
  • Excellent customer service
  • Lacks physical locations
Current Promotion

$3.95 per stock trade for Active Traders at Ally Invest

  • Mobile traders
  • Traders looking for research and data
  • Investors looking for retirement planning guidance
$0 $0
Get started securely through eTrade’s website
1 Minute Review

E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.

  • Extensive resources
  • Full banking services
  • Easy-to-use platforms
  • Limited access to ETrade Pro
  • Higher commissions than discount brokers
Current Promotion

60 days of commission-free trades with deposit of $10,000 or more

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 thieves and 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 will want to hold more money in bonds because bonds have traditionally been less susceptible to the fluctuations of the market. Stocks have traditionally produced better results in the long run, but they are more likely to decrease in value. Consult with the financial services offered by your Roth IRA provider to determine the best mix for your unique saving situation.

Step 6: Check in 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.

Final thoughts

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. 

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