How to Open a Roth IRA

A Roth Individual Retirement Account, or Roth IRA, is one of the most powerful retirement saving vehicles available. It provides a non-taxable form of revenue on any investment made once you reach retirement age, beginning at age 59 1/2. Using this tax sheltered retirement tool can save you as much as 50 percent on the final balance of your Roth IRA account, so opening one for yourself is definitely in your best interest. Learn how to open one here.

Instructions

Difficulty: Easy

1. Determine if you qualify for a Roth IRA. Roth IRAs are fairly simple because income is the only factor to consider. For 2008, the top income is $101,000 for single filers and $159,000 for joint filers. Some exceptions and partial contributions can be made if you are slightly over these salary limits.
2. Determine which investment management company in which you wish to do business. Many companies are available, such as Vanguard, Fidelity, Charles Schwab, etc.
3. Determine how you wish to enroll in a Roth IRA: via the web, over the telephone with a customer service representative, or regular postal mail? Since you are likely new to investing, the most efficient and reassuring method would be to call the 800 number to speak to a real person to guide you through the entire process.
4. Enroll in the Roth IRA management company you have chosen based upon your needs, goals, and costs you found acceptable after performing your research.
5. Complete any paperwork that is required, along with the amount of funds you intend to invest and mail to the investment manager. For 2008, the maximum available contribution is $5,000. Most Roth IRAs can also be opened online without any paper transfer, which would require a wire or ACH money transfer via the web.
6. Determine what type of companies or assets you want to buy as an investment. This can be mutual funds, individual stocks, ETFs, bonds, CDs, Money Markets, or even Real Estate. If you are new to investing or do not feel comfortable making your own investments, consider an index fund that contains a collection of stocks. For example, the S&P 500 Index has a collection of 500 stocks that trade under the name Spyders (ticker symbol: SPY) as an ETF.
7. Sit back and watch your investments grow tax free over the course of your lifetime.

Tips & Warnings

• Unless you are knowledgeable about the financial world, it is best to consult with a someone who follows the financial world's developments or with the advisers located at your investment management company. A simple call asking for help will always yield an understanding voice.
• If you are 50 or older, an accelerated retirement plan is available to you. This would allow you to to invest an additional $1000 per contribution year.
• Money can be withdrawn for certain pre-approved expenses, such as a first time home purchase, medical expenses or tuition fees. Other expenses may qualify, but it is important you receive confirmation with your investment management company prior to withdrawing funds.
• Withdrawing funds prematurely can result in substantial penalties, which the IRS sets at 10 percent of the amount if you withdraw money before the age of 59 1/2 and the expense is not approved.
• If the money you intend to invest could potentially be required in the short term (1 to 5 years) for a major purchase, consider the possibility of paying any early withdrawal penalties before funding the Roth IRA account.