How to Open a Roth IRA in 3 Steps

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What is a SEP IRA?

A Simplified Employee Pension (SEP) plan can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. Under a SEP, an employer contributes directly to a SEP IRA for all eligible employees (including themselves). A SEP allows for a contribution of up to 25% of each employee’s compensation or $61,000, whichever is less, for 2022. The employee can also make their Traditional IRA contribution to their SEP IRA.

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Where Can I Open a Roth IRA?

Almost all brokerage firms, banks, and investment companies offer Roth IRAs. There are many online brokerages offering Roth IRA accounts, and some are better than others. We put together a list of the best Roth IRA brokers to make the process easier.

3 easy ways to open an IRA

It’s easy to open and fund an IRA. Whether you prefer investing on your own or want personal investment guidance, we have an option to fit your needs.

7. Set up contributions to your Roth IRA

Ever heard the phrase, “Out of sight, out of mind”? You can actually use this principle in your favor! How? By automating your investing. You can set up payroll deductions, automatic bank withdrawals or direct deposits to fund your Roth IRA.

But hold up. There are limits to how much money you can put into IRAs each year. For 2022, you can invest $6,000 in either a traditional IRA or a Roth IRA. If you’re 50 or older and need to catch up, you can add an extra $1,000 for a total of $7,000.3

Setting up automatic IRA contributions will take extra paperwork, but it’s worth the time to make sure you’re putting away money for retirement consistently. And because you never see that money, you won’t even miss it! Plus, you won’t be tempted to use it to pay for new tires or a new pair of jeans.

But don’t go so far with this idea that you never check in on your investments. You’ve got to make sure your investing plan is still on track so you can make changes if you need to.

How to Open a Roth IRA

Opening a Roth IRA doesn’t take a bunch of time or paperwork. It’s just as simple as opening a checking account or contacting a financial advisor. Many banks offer Roth IRAs through an online application. You could also open a brokerage account with an investment firm (online or in person). A brokerage account is an investment account you can open directly through a bank or brokerage firm that lets you buy and sell all kinds of different investments.

Here are the seven steps to open a Roth IRA.

Best for beginner investors eager to learn

Fidelity Investments

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Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but minimum $10 balance for robo-advisor to start investing. Minimum $25,000 balance for Fidelity Personalized Planning & AdviceFees Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go is free for balances under $10,000 (after, $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity Personalized Planning & Advice has a 0.50% advisory feeInvestment vehicles Robo-advisor: Fidelity Go® and Fidelity® Personalized Planning & Advice IRA: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®Investment options Stocks, bonds, ETFs, mutual funds, CDs, options and fractional sharesEducational resources Extensive tools and industry-leading, in-depth research from 20-plus independent providers See our methodology, terms apply.

ProsNo commission fees for stock, ETF, options tradesNo transaction fees for over 3,400 mutual fundsRobo-advisor Fidelity Go (free for balances under $10,000)Hybrid robo service Fidelity Personalized Planning & AdviceLimited-time $100 offerAbundant educational tools and resources24/7 customer serviceOver 100 brick-and-mortar branches across the U.S. for face-to-face supportConsFidelity Go fee is $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000Fidelity Personalized Planning & Advice requires $25,000 minimum balance and has a 0.50% advisory feeSome of Fidelity's mutual funds require reaching specific thresholdsReports of platform outages during heavy trading daysLearn MoreView More

Common questions

When can I access my account?

We’ll send you your account number as soon as your application is completed and approved. You can use your account number to log in and manage your account. 

What are the tax benefits?

With this account, your contributions aren’t tax-deductible – but your earnings grow tax-free and withdrawals can be made tax-free after five years, provided you are age 59½. 

You may be eligible for tax-free withdrawals before age 59½:

  • In case of death or disability.
  • To pay up to $10,000 towards the purchase of a first home.
  • To pay up to $5,000 towards birth or adoption expenses.

While there are no current-year tax benefits, you can contribute to a Roth IRA whatever your age, and you won’t need to take Required Minimum Distributions based on your age.

What are the benefits of a Schwab Roth IRA?

When you open a Roth IRA with Schwab, you get:

  • Investment help and guidance.
  • Retirement planning tools and resources. 
  • 24/7 service and support.
What kinds of investment choices do I have?

Choose from stocks, bonds, ETFs, mutual funds, CDs, and more. Schwab also offers professional portfolio management solutions that can make investing even easier. As a Schwab client, you can speak with a Schwab investment professional who can help you decide which investments are right for you. Just give us a call at 866-855-5635. We’re here and happy to help.

How much can I contribute each year?

You can contribute $6,000 for the tax year 2021 and $6,000 for the tax year 2022 ($7,000 for tax year 2021 and $7,000 for year 2022 if you are at least age 50) or up to 100% of earned income, whichever is less. Income limits apply

What are the eligibility requirements to open a Roth IRA?

There are income limitations to open a Roth IRA account. If you file as a single person and your Modified Adjusted Gross income (MAGI) is above $140,000 for tax year 2021 and $144,000 for tax year 2022 or if you file jointly and you have a combined MAGI above $208,000 for tax year 2021 and $214,000 for tax year 2022, you may not be eligible to start a Roth IRA. See the Roth IRA contribution limits for more information.

Roth or Traditional IRA—what’s the difference?

A key consideration is whether it makes more financial sense to take advantage of immediate tax benefits or enjoy tax-free withdrawals in retirement. With a Traditional IRA, you may get immediate tax benefits, but you’ll have to pay ordinary income tax on your contributions and earnings when you take money out in retirement. With a Roth IRA, there are no immediate tax benefits, but contributions and earnings grow tax-free. All withdrawals can be taken out tax-free and penalty-free providing you’re 59½ or older and you have met the minimum account holding period (currently five years).

Compare a Roth vs. Traditional IRA

Can anyone open a Roth IRA?

Only people below a certain income level can open and contribute to a Roth IRA. This is different from traditional IRAs, where anyone can contribute regardless of how much money they earn.

Given the income limits that come with Roth IRAs, high-earners may not be eligible to open or contribute to a Roth IRA. (There is a loophole to this, however, for high-earners to make contributions indirectly through a backdoor Roth IRA.) Here are the specific income thresholds for 2021:

  • Married filing jointly or qualifying widow(er): Not eligible if your modified adjusted gross income is $208,000 or more
  • Single, head of household or married filing separately (and you didn't live with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $140,000 or more
  • Married filing separately (if you lived with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $10,000 or more

Roth IRA Rules

Early WithdrawalsBefore age 59 1/2 are subject to a 10% penalty in addition to any ordinary income tax that may be due

Eligibility

To contribute, you must earn income. There are no age limits.

Income Limits

2021 If you are single, $125,000 or less If you file jointly, $198,000 or less 2022 If you are single, $129,000 or less If you file jointly, $204,000 or less

Contributions

Are not tax deductible

Maximum Contributions

2021 and 2022 Up to age 50: $6,000 Age 50+: $7,000 Non-income-earning spouse: $6,000 (into a separate IRA)

Earnings

Grow tax-free

Distributions

Free from federal income tax when: – The Roth IRA account has been open for at least 5 years -You are age 59 1/2 or older

Required Minimum Distributions

Are never required

How Much Money Do I Need to Open a Roth IRA?

The minimum amount to open a Roth IRA varies depending on the financial institution. But many, particularly online brokers, don’t require a minimum amount of money to open an account.

2. Choose your provider

There are many institutions that offer IRAs, including banks, credit unions, online brokerages, mutual fund companies, and financial-planning firms. 

When deciding which to go with, consider the types of investments they offer. Are you looking for a target-date fund? Stocks and bonds? ETFs? Every institution will offer something a little different, so make sure you choose one that aligns with your goals.

You should also consider the fees an institution charges — be they maintenance fees, trading commissions or transaction fees. Knowing a provider’s required minimum balance is important, too.

Just want the most affordable option? Search for providers who offer no transaction fees, low commissions, and a variety of low-cost investment vehicles, like index funds, for example. Some institutions may even offer sign-up bonuses if you’re rolling over a large account balance.

After you’ve opened your account

Once your account is up and running, you can begin funding the account and investing for retirement. You will also want to set up a regular contribution schedule to ensure your retirement goals stay on track. 

Set up your contribution schedule 

You already know the contribution ceilings for a Roth IRA, so now it’s time to set up a contribution schedule to ensure you max those limits out, if possible. 

“​​The key is to maximize one’s annual contributions,” Bergman says. “Whether you make weekly, monthly, or yearly annual IRA contributions, the objective should be to make the highest amount of annual IRA contributions.”

You can technically contribute to your account (for a single-tax year) anytime before or on tax filing day. So for this year, you’d have until April 15, 2023, to max out your 2022 Roth IRA contributions. Keep this date in mind, and then work backward, determining when you can contribute (and how much each time) based on your budget and household contribution limit.

How To Start A Roth IRA FAQ

As a beginner, you’ll naturally have questions about the nuts and bolts of how a Roth IRA works. It’s also important to get informed so you know how to make your investments work to your advantage. Here are some frequently asked questions (FAQ) posed by beginners, along with the answers.

How Much Money Do You Need To Start A Roth IRA?

While brokers won’t charge you a fee to open a Roth IRA, almost all of them require a minimum investment. (As they should — with no money in your account, you’ll have nothing to grow.) The minimum contribution amount will depend on what type of investments will be associated with your account. Some mutual funds will have a minimum investment of around $1,000, while other investment types can get started with just a few dollars. Although you won’t need to pay this upfront, you should also be prepared to pay commission on any trades that are made.

Where Is The Best Place To Open A Roth IRA?

The best place to open a Roth IRA depends on a variety of factors. NerdWallet rounded up a list of the best accounts, which you’ll find below. This list was selected based on factors such as investment selection, customer support, account fees, and account minimums, to name a few.

Best For Investors Who Prefer To Be Hands-Off

  • Betterment IRA

  • SoFi Automated Investing

  • Ellevest

  • Schwab Intelligent Portfolios

  • Fidelity Go

  • Schwab Intelligent Portfolios Premium

Best For Investors Who Prefer To Be Hands-On

  • You Invest by J.P. Morgan

  • Firstrade

  • TD Ameritrade IRA

  • Ally Invest IRA

  • Merrill Edge IRA

  • Charles Schwab IRA

  • E*TRADE IRA

  • Fidelity IRA

What Types Of Investments Should Be In Your Roth IRA?

Remember: your Roth IRA account is just the holding place of your investments. The account is not an investment in itself. Rather, it indicates how the taxes on your investments will be structured.

This means that you can hold virtually any type of investment in your Roth IRA. Once you open and put money into your account, you’ll need to decide what that money should be invested in. Experts recommend a mix of mutual funds. They offer low investment minimums, are less risky than single stocks, and are managed by experts who spend their careers studying the market.

What Is A Good Age To Start A Roth IRA?

The longer you can leave your Roth IRA untouched, the more time your money will have to grow. Five years’ worth of Roth IRA investing early on in someone’s career could be turned into several hundred thousands of dollars down the line. With this in mind, starting as early as possible should be common sense. No matter your age, you should learn how to start a Roth IRA today.

Are Roth IRAs Insured?

Roth IRAs are insured, to a certain extent. The Federal Deposit Insurance Corporation (FDIC) provides coverage for up to $250,000 in any type of IRA account.

This means that if you have $300,000 total saved across your IRA accounts, $50,000 of it is uninsured.

Can You Lose Money In A Roth IRA?

Yes, you can lose money in a Roth IRA. However, these losses can be mitigated with patience and control. Your investments will fluctuate along with the market, so if the market nosedives, then so can your investments. However, market fluctuations balance out over time. Patience is the key. The surest way to take a direct hit on your Roth IRA is by making an early withdrawal. If you take money out of your Roth IRA too early, you will get taxed on that income, plus another tax penalty of 10 percent. The longer you can leave your investment untouched, the less likely you are to lose money.

Can You Transfer A 401(k) To A Roth IRA?

Yes, you can transfer a 401(k) to a Roth IRA. Let’s say you contributed income to a 401(k) account through your employer, but then you change employers. If you were to withdraw your savings, you would get heavily penalized with taxes for making an early withdrawal. Instead, protect your savings by rolling them over to a Roth IRA account. There is more to be said on this strategy, so be sure to check out our rollover IRA guide, so that you can do it the right way.

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