How and Where to Open a Roth IRA Account

Daniel Penzing
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Determine if you are eligible for a Roth IRA

People who have a 401(k) or a traditional IRA may be eligible for a Roth IRA. If you have a job, your employer may offer an employer-sponsored retirement plan as a benefit. You can open an account in either type of plan. While the eligibility requirements and contributions limits are the same for either type of account, the accounts work a bit differently.

The accounts differ in the following ways:

With a Roth IRA, you have to contribute a minimum amount every year, and you can make partial contributions if you are an employer but not an employee. With a 401(k) or a traditional IRA, you contribute a minimum amount every year, but you can make partial contributions while you are either an employee or an employer.

With a Roth IRA, contributions come out of your after-tax income. With 401(k) or a traditional IRA, they come out of your before-tax income.

With a Roth IRA, you can only make withdrawals after you reach age 59.5 and after you have taken distributions for a five year period. With 401(k) or traditional IRA, you can make withdrawals whenever you want.

Anybody can open a Roth IRA. You do not need a job or an employer to do so. You will be subject to income limitations, that is, your adjusted gross income will be taken into account when calculating your contribution limit.

Review Important Details about the Type of Account you Want

To Open.

Many financial advisors will recommend that you contribute to a Individual Retirement Account every year. If you can, you should contribute the maximum amount possible as soon as possible.

Why? The sooner you start saving and contributing, the longer you have for your money to grow, while giving you the opportunity to choose where to invest your money.

If you have no idea where to start or even if it’s the right investment for you, you’re not alone.

So in this post, we’re going to take a look at how to open an IRA account, and what you need to know about the different types of accounts.

What is an IRA?

An IRA is a tax-deferred retirement account that allows you to save for your own retirement.

An IRA is an acronym for Individual Retirement Arrangement. You can establish an IRA at a bank, a brokerage house, or with a professional investment advisor.

Your contributions are tax-deductible, as long as your contributions do not exceed the limits set by the IRS.

You can use your IRA savings to obtain the best investing strategies, in order to amass your personal retirement savings.

There are two basic types of IRA’s, which we’ll cover next.

Robo-advisor or a DIY: What's the Best Roth IRA Method for You?

Roth IRAs are really the best way to invest in a taxable account, compared with other account types like a Traditional or SEP IRA. They help to save more money on taxes because of the ability to withdraw funds at any time. They're also an excellent choice for millennials who aren't sure what they'll be doing in the next two decades.

If you're used to working with a robo-advisor, as I'm sure you are, then there's a great chance you're wondering what the best way is to open a Roth IRA account and start taking advantage of the tax savings immediately.

The best way is simply to open your account with your robo-advisor. You're already used to them, and most of them have good Roth IRA accounts. You were probably set up to buy investments within your robo even before you knew that you could open a Roth IRA account.

If you don't use a robo-advisor already though, open a Roth IRA account directly with a brokerage firm. The benefits are obvious:

Tax-Qualified Earnings –If you open a traditional IRA account with a brokerage firm, your earnings will be taxed as ordinary income when you withdraw them during retirement. However, if you keep your Roth IRA, your earnings will be tax-free.

Self-Directed Accounts

There is a catch to using a self-directed IRA. This type of account might not be for everyone, and there are some additional fees involved with maintaining the account. However, if you are uncomfortable with these, you should request a self-directed IRA from a custodian who does not add any additional fees. However, you might have to make a larger contribution to your self-directed account.

Opening a self-directed IRA is much more complicated than opening a taxable brokerage account, which is a financial account in which you can deposit dollars that can be used to buy stocks or bonds. With a brokerage account, you can buy stocks without filling out more paperwork than is required to buy a pizza. A self-directed IRA, however, involves a considerable amount of paperwork, and a lot depends on whether you are investing in a real estate piece or a piece of gold or silver. In fact, some custodians will allow you to buy gold, and most of the time a custodian will allow you to purchase other forms of tangible assets, such as real estate, for your self-directed IRA.

You can open a self-directed IRA with any custodian, but it’s a good idea to become a member of the industry trade groups that exist so that you will be better informed of the intricacies of investing in IRAs than if you just go to your local bank or brokerage.

Robo Advisors

If you’re still searching for the ideal location to open a Roth IRA, we suggest that you consider high-quality robo advisors. They are online account managers that help investors choose and manage an array of investment options. In general, they provide advice and rely upon sophisticated computer programs to handle the rest of the work.

Robo advisors are available both directly through investment firms and brokerage companies and through third-party online brokerages. Some of the most prominent robo advisors include:

  • Wealthfront
  • Betterment
  • Schwab Intelligent Portfolios
  • Ellevest
  • Personal Capital
  • What Types of Investors are robo advisors Designed for?

These advisors are designed for a broad range of investors. They are great for beginners who aren’t familiar with investment terminology. Even experienced investors may need a little help figuring out the best place to open a Roth IRA. After all, there are plenty of nuances and layers.

Benefits of Investing with Robo Advisors

The biggest benefit of robo advisors is the level of attention they give you. They do all of the work and provide all of the planning. They are extremely convenient for investors who don’t have the time, money, or drive to manage their own portfolios.

Decide where to open the Best Roth IRA Account for You

Open your Roth IRA

Opening a Roth IRA account can be a daunting process, especially for first-time investors who haven’t navigated the system before. Every big financial decision deserves a thoughtful approach and a game plan to help you achieve your goals.

Your plan needs to include:
1. A list of accounts (brokerage, savings, retirement, etc.) that you currently have.
2. An idea of your financial goals.
3. A tolerance for risk.

The level of education available to you. Perhaps there is a family member willing to walk you through the opened Roth IRA account online process.
As with any financial goal, you should start by sitting down and writing them down. Then you can start taking steps to identify the exact type of investment that matches your risk tolerance and goals.

Set up Your Contribution Schedule

Once you have decided which Roth IRA brokerage account you will be opening, you should decide what type of portfolio you want to have.

This is determined partly by how aggressive you want to be and which types of securities you are most comfortable investing in. Usually, aggressive portfolios have higher risk because they are invested in larger and more volatile companies.

One of the best pieces of advice we can offer to new investors is to make their contributions on a regular basis.

The earlier you start your contributions, the sooner you have time to ride out potential downturns and take advantage of longer-term growth. (Of course, that doesn’t mean you shouldn’t “time the market”: If you think the economy is going to be in a downturn and you don’t want to risk having your IRA balance decided by the stock market, take some of your money out of riskier stock market investments and put it into a money market account until the economy improves.) Every month always seems like the perfect time to start contributing for new investors, but you should start putting money aside for your retirement as soon as you start your first full-time job.

If you're starting late, just take it a little bit at a time.

If you start with small contributions and can remember to deposit them consistently, you'll be way ahead of the game.

Make your Investment Choices

The investment options for your Roth IRA are limited, but you have options. You can invest in stocks or mutual funds, and you can also choose to invest in CDs.

Some people don’t like to invest in CDs, but they can be a good choice for you. With a Roth IRA CD, you’re entrusting your money to a financial institution that promises to hold your money for a specific time period. In exchange for this commitment, you receive a guaranteed rate of interest. With a traditional IRA, on the other hand, you invest in a brokerage account directly, and when the account owner pays you interest, it comes from the profit of your investments, not the bank.

In a Roth IRA CD, a bank is also the account owner, but you don’t put your money into stocks or mutual funds. Your money is deposited into a Certificate of Deposit that is protected by FDIC insurance. You usually receive the interest rate of your CD based on the terms of your contract, and this rate is tied to a specific term when you agree to open the CD. In general, CDs offer a lower rate of interest but are safer than stock market investments.

Master Your Retirement Savings With a Roth IRA

A Roth IRA is a type of retirement account that offers tax benefits. In a Roth IRA, your contributions are made with after-tax dollars, which means you won’t receive a tax deduction for your contribution. What you will get for your contribution is tremendous flexibility when you withdraw your contributions and earnings down the road.

Taxes can be a big worry for seniors. How will you manage your taxes when you retire? With a Roth IRA, you can afford to pay the taxes upfront on your retirement savings. That means that you’ll never have to worry about paying higher taxes on your savings down the road. It’s very helpful for those who might find themselves in a higher tax bracket later in life.

With the money you put in, you’ll be betting on your own future. So, your money may grow better than other accounts. You have all the money you put in at your fingertips, so there’s no need to worry about investments in the stock market. Plus, there’s something exciting about placing your bets on your future, knowing that you’ll be the one who is pushing the buttons.

But that isn’t all … you have to open the account and choose the right investment.