Minimum Deposit Required for a Roth IRA
Opening a Roth IRA to save for retirement allows an investor to withdraw earnings from the account on a tax-free basis once reaching age 59 1/2, if the account has been open for a minimum of five years. The minimum deposit to open a Roth IRA will vary depending on where the account is opened. Some banks require as little as $50 or $100, while a mutual fund or annuity may require at least $1,000 with monthly contributions automatically drafted from your bank account.
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Types
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Roth IRAs can be invested many different ways. People wanting a conservative investment might consider a certificate of deposit or money-market account. An investor who is more comfortable with taking some risks could invest in a mutual fund. More experienced investors can choose to invest in individual stocks, bonds or exchange traded funds. Regardless of the investment type, all Roth IRAs offer the benefit of tax-free distributions.
Investment Amounts
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Investors with only a small amount to start would probably consider opening a Roth in a money-market account. Most major banks will open the account for a $100 deposit without requiring additional automatic deposits. Some mutual fund companies require a $500 minimum in addition to automatic monthly deposits. Other mutual fund companies will open an account with an automatic monthly deposit of $50. If an investor fails to continue deposits until the minimum account balance is reached, the account can be closed.
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Benefits
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If an investor only has a small amount of money with which to start a Roth IRA, the benefit of dollar cost averaging can work in his favor. By purchasing small amounts of a stock or mutual fund over time, he will benefit from downturns in the market by acquiring more shares than when the price per share is higher. The benefit of owning a Roth IRA instead of a traditional IRA is that if an investor has sufficient assets to meet expenses in retirement, there is not a required distribution that must be taken on an annual basis. Contributions to a Roth IRA can be withdrawn without penalty since the funds are "after-tax" funds.
Considerations
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Before opening a Roth IRA, meet with a qualified adviser who can help determine if a Roth IRA is suitable for your investment needs. The Roth IRA has many advantages to a traditional IRA, but there are circumstances where a traditional IRA may be more appropriate.
Warning
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Distributions of earnings from a Roth IRA that is less than five years old or prior to the owner reaching age 59 1/2 are subject to penalties from the IRS. There are provisions in the tax code that allow penalty-free early withdrawals. It is best to consult with an accountant before taking distributions from a Roth IRA.
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References
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