How and Where to Open a Roth IRA

Opening a Roth IRA is a smart way to supercharge your retirement savings. Here's how to get started.

Wondering how to open a Roth IRA? Among individual retirement accounts, the Roth IRA stands out because of its special tax advantages over a traditional IRA. Instead of providing tax breaks at the time of deposit, Roth IRAs allow account holders to receive benefits completely tax-free after retirement which promotes financial independence.

Roth IRAs were created to give working people a greater incentive to save for their post-retirement years. Opening up a Roth IRA is easy and convenient even for those who have little to no previous experience with investment and financial planning.

Before you go and ask a financial advisor how to open a Roth IRA, this concise guide can help you out.

Determining Eligibility

There are income limits that determine both eligibilities for a Roth IRA and the amounts that can be contributed by those who are eligible.

Those who file individual tax returns are only allowed to make the maximum allowable contribution if their earned income is $107,000 or less, while married couples filing jointly face a $169,000 limit.

The maximum contributions to Roth IRAs for 2021 are $6,000 per year for those under the age of 50 and $7,000 per year for those 50 and older.

For those whose incomes fall between $107,001 and $122,000 annually for individuals and $169,001 and $179,000 for couples, Roth IRA contributions are still allowable on a gradually decreasing scale.

One stipulation is that all money contributed to this type of individual retirement account must come from income earned through employment, i.e. wages, salary, employee profit-sharing, etc.

Roth IRA Types of Providers

Roth IRAs are offered through banks and credit unions, brokers, and mutual fund companies. IRAs opened through banks or credit unions usually have no fees or minimum deposit requirements.

On the other hand, the return on investment they can offer is limited by the fact that banks generally put the Roth IRA funds into certificates of deposit (CDs) or money market accounts, which do not have the potential for big profits (or for that matter, big losses) that are found with investments in the stock market.

Brokerage firms will allow individuals to start investing in individual stocks, which gives this kind of investment a sort of boom-or-bust feel. But for anyone confident in their ability to pick winners, this can be an attractive option. Brokerage firms generally don’t have minimum deposit requirements, but they do charge relatively high fees to cover account management costs.

Mutual fund companies give Roth IRA holders a chance to choose from an assortment of mutual stock funds that spread investment across a number of stocks. This tends to reduce risk but it also may not deliver the high-end rewards of individual stocks well chosen. Minimum initial deposit requirements of $1,000 or more are common with mutual funds, and the fees charged will vary based on how much is kept in the account.

The final choice of a provider is entirely up to the individual, based on what kind of return they hope to get on their investments; how much risk they are willing to assume; how much money they are willing to deposit in their account in the beginning; and how much they are willing to pay for fees on a monthly or yearly basis.

Opening the Roth IRA

Similar to HSA accounts, to open a Roth IRA at a bank or credit union, is simply a matter of going in, filling out the paperwork, and getting the account started once eligibility has been established.

A Google search combined with the personal investigation can turn up discount brokerage firms and mutual fund companies offering good deals and favorable terms.

Once a provider is chosen, an application form can be filled out online and submitted by email. Any required upfront fees and deposits should also be included with the application, which will be approved if income requirements are met.

Account holders can arrange to have money deducted from their bank accounts electronically and deposited into their Roth IRA investments automatically if they so choose.

After account holders have chosen their investments, the only thing left to do is sit back and watch as their account continues to grow over the years, knowing that they will eventually get every penny of the money that accumulates once they reach the age of retirement.

What Investment Brokers To Use?

If you are interested in buying starting a 401K then you can consider a no-fee IRA at TD Ameritrade, Fidelity or Vanguard. It is a great option as they have no fees at all.

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Or if you are interested in a service that will manage the buying and selling of index funds for you and automate the process, Robinhood and Acorns are both great options as Robinhood lets you buy/sell stocks for free.

All you do is set up an account, choose your risk tolerance, and deposit your funds. Their service will automate the rest!

Better yet, if you join Robinhood through this link you can get free stocks like Apple, Ford, or Sprint when you join. The value of the free share may be anywhere between $2.50 and $225 and fluctuates based on market movements. You’ve got nothing to lose. I told you this was easy!

I hope you learned how to open a Roth IRA in 2022 — you can learn more about retirement and investing in our investing wiki; here's to your early retirement!

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Brian Meiggs
Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of Smarts, a personal finance site helping you easily explore your best money options. He helps readers follow the smart money in order to increase their earning potential and start building wealth for the future. He regularly writes about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Business Insider, Yahoo! Finance, NASDAQ, Discover, and more.
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