How To Open a Roth IRA Account: Investing for Retirement

Consider Investing in Roth IRA Plans to Build Your Retirement Funds

Couple investing in an IRA

There are many ways to save for retirement. One of the most flexible plans the government has created for this purpose is the Roth IRA. Anyone can put up to $5,000 a year (if you're over 50 the amount is higher) into a Roth IRA, and the sooner you start investing in one, the better off you'll be come retirement. 

Unlike a 401K plan that has stiff penalties if you withdraw the money before retirement age, you can take out the money you have invested (but not the interest it has earned) at any time without penalty. If the investor waits until age 59 ½, the entire amount can be withdrawn without ever paying a penny in tax to the IRS.

But before investing in this fund there are a few things you should keep in mind:

You must have income from a job. This means that you can only deposit monies that you make from working for an employer. If you earn extra money through gifts, selling personal items or performing services these funds cannot be contributed to a Roth IRA. Also, you cannot put away more than your yearly income.

It is income contingent. Contributing to a Roth IRA is contingent on your income. Those who make less can deposit more money. And the ability to place funds in this account is disallowed at a certain annual income level. Below are the income limits for a Roth IRA:

  • If you file a tax return with the status of “Married Filing Jointly" and make less than $169,000 modified AGI you can contribute up to $5,000 or $6,000 if over 50 per year. Once you make over $169,000 a year you will begin to be able to contribute less and less until you reach the ceiling of $179,000.
  • If you file a tax return with the status of “Single”, Head Of Household” or “Married Filing Separately” and make less than $122,000 modified AGI you can contribute up to $5,000 or $6,000 if over 50 per year. Once you make over $107,000 a year you will begin to be able to contribute less and less until you reach the ceiling of $122,000. Note: For these rules to apply when you have filed a return under “Married Filing Separately” you cannot have lived with your spouse during the year in question.
  • If at any time you did live with your spouse or you participate in an employee sponsored 401K and file under this status, the rules are different. If that is the case and you make $0 you can contribute up to $5,000 or $6,000 if over 50. Once you make over $0 a year you will begin to be able to contribute less and less until you reach the ceiling of $10,000.

Start investing as soon as you can. If you plan on earning more than the allowable yearly income later on in the course of your career, you should open a Roth IRA as soon as possible. If you start investing in the account when you are young, say early 20's, the window of time to contribute will stay open longer. When you have reached the maximum allowed annual income you will no longer be able to contribute. You can, however, begin to invest in a Traditional IRA, where there are no income limitations, contributions are tax deductible, and the funds can be spent on more investment opportunities.

Roth IRAs are a smart investment. If you're ready to start investing in this flexible account, and building your retirement funds, here's what you need to do.

Figure out where you are going to get the money. Not everyone has money sitting around waiting to invest. However, you don't need to invest a large amount of money at once or even invest the full $5000 each year. You can open a Roth IRA account with a small amount of money and then add to the total every month.

Select a Roth IRA provider. There are many places you can go to open a Roth IRA. Check out some of these plans and options:

  • Banks - Many banks offer Roth IRA accounts with only minimal fees. Also, banks are usually the best place to invest if you only have a small amount of money to begin with because their minimum investment amount is usually lower than other providers. The downside to a bank is that when it comes time to choose how the money in your account gets invested, the bank may not have as many options as other providers.
  • Mutual Fund Companies - These companies allow you to open up a Roth IRA and then choose which of their mutual funds you would like to invest your money in. If you are diligent in keeping up with how the funds are performing, you can switch your money from one fund to another easily. Most people choose mutual fund companies to handle their Roth IRAs.
  • Brokerage Firms - Brokerage firms, even online brokers and discount brokerages, offer what are called self-directed IRAs because you can choose exactly how you want the money to be invested. Basically, you choose your own investment portfolio. This option is good for those who are very savvy in the investment world.

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Find out about any fees up front. Before choosing a provider, find out what IRA fees are associated with your account. Some providers charge start-up fees, annual maintenance fees, fees for withdrawing your money or fees to transfer your money to another account. Compare the fees of several providers before you choose to invest.

Choose a beneficiary for your account. Usually there will be a form that the provider gives you when you open your account asking for a beneficiary. You have the opportunity to choose exactly who gets the account in the event that you die while it is still open.

You can invest in a variety of ways. You do not have to choose one option for your investment. You may purchase stocks, CDs, and mutual funds as well as real estate to yield your retirement funds.

Get professional help. When you are young, you may be inclined to higher risk stocks. This also increases the risk of losing your money. Investing in a mutual fund will alleviate this problem. These are stocks that are put in the hands of trained stockbrokers, maximizing the chance for a profit.

You can find the companies that manage these funds online. They offer low start up prices to cater to a more diverse consumer base. This coupled with the fact that they encourage clients to utilize the website for depositing funds makes this the way to go for mutual fund investing.

Make sure the account works for you. When you open a Roth IRA you can get the money withdrawn from your bank account every month. This will create a routine monthly payment towards your retirement fund.

Many providers offer the option of directly withdrawing money from a bank account, so that you can have them withdraw a set amount each time you get paid. Another option to consider is investing your tax refund as soon as you get it. Then continue to make monthly payments until you've reached the yearly investment limit.

Investing for retirement can never start too soon. Check out Roth IRA options and start making a retirement plan that works for you!


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