So, you’re ready to start investing in a Roth IRA.
We’re here to walk you through this process! Keep in mind, there are 3 steps you’ll need to take to get your Roth IRA up and working for you.
- Opening the account
- Contributing funds
- Investing that money
For starters, you’re going to want to pick a low-cost custodian. Here are some low-cost options:
Follow the links above to navigate directly to the pages on each website where you open your Roth IRA.
Step 1: Open the account
Most firms will have a DIY option (choose this). They usually offer other options where they invest your money for you, but we don’t recommend this, as the fees attached can eat up otherwise comparable returns.
Step 2: Fund the account
While the account types themselves don’t typically have minimums required to get started, the mutual funds themselves sometimes do. For Vanguard, this is usually $1,000+, Charles Schwab is $100 or less, and Fidelity doesn’t have a minimum.
You can contribute your money using a wire transfer from your bank account. If you want to forego remembering to do this every month, setting up automatic contributions can be a great way to meet your goals, and can sometimes even reduce account fees.
Step 3: Select your funds.
If you don’t know what you’re doing, don’t have a financial mentor to guide you, or if you don’t want to think about your asset allocation for a long time, Target Date Retirement Funds can be a great option. If you select this option, you should choose the year closest to when you might expect to retire (62 – 67 years old). They will automatically adjust the stocks-to-bonds ratio over time to account for your retirement approaching.
To watch a sample video of opening up an account for Vanguard & Fidelity, follow the links below:
Vanguard: How to Open a Roth IRA
Vanguard: How to Buy Mutual Funds
Vanguard: How Do I Buy Funds with a Check? (Mail-In Option)
Fidelity: How to Open a Roth IRA
How to Invest in Your Fidelity Roth IRA
What’s the difference between a Roth IRA and a [Traditional] IRA?
These words simply describe WHEN your money is taxed.
When you contribute to a Roth IRA, you’re doing so with money you’ve already paid taxes on (or are going to pay taxes on this year), and when you take it out in retirement, your withdrawals are tax-free.
When you contribute to a Traditional IRA, you can reduce your tax liability now, but this money will be taxed when you take it out in retirement.
Depending on whether or not you foresee your tax liability being higher now or later in life, you can strategize which accounts you use. However, since we can’t know for sure what our tax system is going to look like in 30+ years, it’s a good idea to have a mix of Roth and Traditional (this applies to IRAs, 401k’s, 403b’s, and anywhere else that gives you the option between the two types of taxation on your retirement accounts).
Last of all – don’t be afraid to call customer service. They have people working who are eager to help walk you through this!
