How to Open a Roth IRA

Opening a Roth IRA can be easy if you follow these steps.

It’s a good idea to plan for retirement as early as you can, and opening a Roth IRA is one way to start. What is an IRA? It’s an individual retirement plan that offers important tax advantages designed to save you money.

Don’t confuse a Roth IRA with a traditional IRA — they’re different types of accounts. Learn what a Roth IRA is, how to open one and some rules you need to know. Next, figure out the best time to retire.

Roth IRA Rules

Although a Roth IRA’s rules are similar to a traditional IRA’s, there are a few differences. Take these into account before you make a decision to open a Roth IRA. All of the distribution qualifications for different types of IRAs are listed on the IRS website.

Here are the Roth IRA rules you should know before opening an account:

  • You must designate the account as a Roth IRA when you open it.
  • No age limit exists for making contributions to your account — you can make contributions to your Roth IRA even after you reach age 70.5.
  • Contributions are not tax-deductible.
  • You can keep a balance in your account for your entire life.
  • Qualified distributions are tax-free. For instance, you won’t be taxed if you take distributions after you reach 59.5 or become disabled.

Learn: Roth IRA vs. Traditional IRA — Here’s How to Pick the Best Retirement Plan for You

Choose a Roth IRA Provider

Once you’re ready to open an account, you’ll need to select a Roth IRA provider. Do your homework and find a reputable one. Consider going with one of the discount brokerages or a company recognized for its top-notch financial advisors. Well-known companies that offer Roth IRAs include Vanguard, Fidelity, Charles Schwab, E*Trade and Alliant.

Gather the Necessary Documents

Have the appropriate documents on hand when you open your Roth IRA. Although each institution has its own requirements, you’ll generally need your Social Security number, a valid ID and your beneficiary’s name and date of birth.

Make Your First Deposit

The amount of money you’ll need to fund your account depends on the provider you chose. Vanguard and Charles Schwab require a minimum of $1,000, but Wells Fargo requires only $100.

You can make contributions to your Roth IRA account by linking it to another one of your accounts or by asking your employer to set up direct deposit. In addition, you can have your tax refund routed to your Roth IRA.

Know Your Contribution Limits

Roth IRA contribution limit depends on your tax filing status. Refer to the IRS Roth IRA comparison chart to determine yours. For 2017, the maximum contribution amount is $5,500 for individuals under the age of 50 and $6,500 for those over 50.

Your Social Security benefits might not cover all your living expenses when you retire. A Roth IRA could provide you with financial security and might even enable you to splurge on a few things.

Up Next: How to Find the Best Roth IRA

About the Author

Alicia Bodine is a New Jersey-based writer specializing in finance, travel, gardening and education. With more than 13 years of experience, her work has appeared in, Livestrong, eHow, USA TODAY, GlobalPost, and wiseGEEK.