How to Open a Roth IRA Account

By Miranda Marquit, on March 26, 2010

You are probably aware of the importance of saving for retirement through some sort of tax-advantaged retirement account. One of the best ways to grow your wealth efficiently is to do so with some sort of investment account that allows you to earn money at a faster rate than a savings account (although there is always the risk of loss with investment). You can do this with the help of a Roth IRA that grows tax free. With a Roth IRA, you put after-tax dollars into an investment account, and when it comes time to withdraw the money, you are not taxed on it.

There are limits, though. While anyone can open any IRA as long as he or she has taxable income, the Roth IRA has a special set of limits. At this point, you can only contribute $5,000 each year to a Roth IRA ($6,000 if you are at least 50), an amount that will be adjusted upward for inflation moving forward. There are also income limits. If you are married filing jointly, you can only contribute the full amount each year if your adjusted gross income (AGI) is less than $166,000. For those who make between $166,000 and $176,000, the contribution limit is phased out. Once you make $176,000 you can no longer contribute to a Roth IRA. For those who are single, the phase out starts at $105,000 AGI and ends at $120,000.

You can have more than one Roth IRA account, but all your disparate accounts will be treated as one account, with your total contribution limited. Your spouse, though, can open his or her own Roth IRA, separate from yours, bringing your total couple contribution possibility to $10,000 a year (or $12,000 if you are over 50).

Opening a Roth IRA Account

If you are eligible to open a Roth IRA account, it is actually fairly easy to get it done. Most online brokers and discount brokers will let you do everything via the Internet, with no need to mail anything in. You can also visit a local brokerage office, or check with your insurance agent or bank representative, and open a Roth IRA in person. My Roth IRA was opened when I was younger and not as knowledgeable; it’s invested in a managed mutual fund and the returns are being eaten at by a 2% annual fee (I’m in the process of seeing what I can do to rectify the situation). My husband’s Roth IRA, on the other hand, invests in a low-cost index fund via an online discount broker. There are a number of institutions now that offer no-fee Roth IRAs.

When you go to open your Roth IRA, whether you do it online or in person, you will need this information:

• Your Social Security Number
• Employment information
• Bank account information
• Money

You should also consider what kind of investments you want in your Roth IRA. Most people invest in stocks through mutual funds and index funds. However, it is possible to use a Roth IRA account to invest in cash, bonds, real estate, commodities and just about anything else. Even Lending Club, of P2P loan fame, offers an IRA account option. Assess your risk tolerance and your asset allocation needs and retirement goals to help you decide what investments should be included in your Roth IRA.

Find out what the minimum deposit requirements at your institution of choice. Some accounts only require that you start with $25, while others have opening deposit requirements of up to $5,000. Most brokers, though, will allow you a lower opening deposit if you set an automatic withdrawal plan so that you are investing the same amount of money every month (most often at least $50 per month). Automating the process is a good way to ensure that you continue making contributions and get into the habit of saving for retirement. In order to reach the $5,000 maximum, you will need to put in $416.66 each month ($500 if you are at least 50 to reach the $6,000).

The whole process of opening a Roth IRA takes about 15 minutes. You answer a few questions, and it’s less painful than filling out a job application or a credit application. It only took about 10 minutes to set up my husband’s account online.

Places to Open a Roth IRA

If you are ready to open a Roth IRA, you should do your research, checking into opening deposits and minimum monthly contributions, fees charged, available investment options, and looking for a reputable company. Here are some of the best places you can go to open a Roth IRA online:

• Scottrade
• TradeKing
• Zecco Trading
• E-Trade

If you’re looking for more options, here’s a list of top discount brokers that you can check out.

Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.

Add Your Question or Comment (6 Comments)

1. brad:

   March 27, 2010 at 5:26 pm

   Thanks for this article. Do you have any ideas if someone starting a roth ira should put in mutual funds, stocks, efts? I know you can’t give advice for each person, but general advice would be helpful. Thanks for your responce.
2. Daddy Paul:

   March 31, 2010 at 8:38 pm

   This is a good read. One slight correction as of now for years 2010 and beyond Roth conversions are not subject to income limits.

   My answer to Brad above is that if you are under 50 I would invest in a mutual fund with a mutual fund company. I like Royce mutual funds Low Price stock fund (RYLPX) but they have a 1K minimum. Gabelli asset fund (GABAX) through Gabelli has a $250 minimum.
3. Stacy:

   April 12, 2010 at 11:19 am

   I agree with Daddy Paul! I’m looking forward to utilizing this information when i open my IRA account.
4. Andy:

   July 18, 2010 at 3:55 pm

   The other good benefit of a Roth IRA is that you can withdraw the principal contributed tax free, unlike a regular IRA. I like Vanguard for it;s simplicity, but for regular traders Zecco or Tradeking are good options
5. red g:

   July 23, 2011 at 9:04 am

   Hello there,
   my current roth ira charges me a 5%commission every month.
   that’s high correct????
   thanks!
6. Pinyo:

   July 23, 2011 at 1:36 pm

   @red – yes, that is very expensive. A reasonable expense is about 1% or less total — e.g., including all trading fees, management expenses and any miscellaneous fees. At 5%, you will not have anything left.