How to Open a Roth IRA: A Simple Step-by-Step Guide

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Retirement planning is a lot like hiking. Both take planning, both have a destination and both rely on the right tools to reach a goal. When you’re on the road to retirement, one of those tools might be a Roth IRA. Learning how to open a Roth IRA can be straightforward, just like setting up a bank account, yet there are important details to understand before you embark on this financial path. Read on to learn more.

What Is a Roth IRA?

A Roth IRA is a special type of individual retirement account that is funded with after-tax contributions. Deposits and earnings grow tax-free within the account, and qualifying withdrawals in retirement are tax-free, as long as the account has been open five years and you’re over age 59 1/2. Although a Roth IRA can offer numerous benefits, it also comes with certain restrictions and qualifications.

Eligibility Requirements for Opening a Roth IRA

If you want to open a Roth IRA you must meet certain eligibility requirements. The good news is, there’s no age limit to set up a Roth IRA, and you can leave your money in your account for as long as you live. With a traditional IRA, you must start withdrawing your money by the time you reach age 73. Here are some key points to know for eligibility requirements:

• You or your spouse must be employed and have income either from a salary, hourly wage or self-employment.
• If you are unemployed, you can still qualify by gaining access to your spouse’s income as long as your spouse meets the employment requirement.
• Your income must fall within certain ranges that are based on your Modified Adjusted Gross Income. The IRS provides extensive tables indicating how much your contribution limit is affected by your income and filing status. For tax year 2025, contributions are not allowed for MAGIs equaling or exceeding $246,000 for joint filers or qualifying surviving spouses. If you’re married and filing separately, the limit falls to just $10,000. For all other filing statuses, the 2025 limit is $165,000.
• There is no age limit to contribute to a Roth IRA.

Modified adjusted gross income is your adjusted gross income (AGI) with a few items added back in. To calculate it, first figure out your AGI, which is your total gross income minus certain deductions. Some of the most common deductions are deductible HSA and IRA contributions, self-employment taxes and student loan interest. Your MAGI adds back in your student loan interest payments plus some lesser-used deductions, such as the foreign housing deduction and excluded savings bond interest.

How To Choose the Right Roth IRA Provider

You can open a Roth IRA at most financial services firms. However, not all are the same. Here are some of the factors to consider when selecting a provider:

• Fees: Some firms charge no fees for their Roth IRAs, while others carry a host of costs, such as account maintenance or setup fees, inactivity fees, and so on. Some firms may also charge you a fee or commission to buy or sell investments within the account.
• Investment options: You’ll want to choose a provider that offers a broad range of investment options. Depending on your needs, that could include stocks, bonds, mutual funds, ETFs, and more.
• Account features: The best providers offer top-notch customer service, good mobile apps, educational resources and portfolio tracking features.

Steps To Open a Roth IRA

The idea of choosing the right stocks, bonds and other investment options for your retirement can be intimidating if you aren’t sure what it all means or how to proceed. But the process of opening a Roth IRA is actually pretty straightforward.

1. Select a Financial Institution or Broker

Nearly all large financial institutions, mutual fund companies, banks and brokerage firms have financial advisors on hand to help you open a Roth IRA, either online or in person. These advisors also offer advice on putting together a diversified retirement portfolio within your Roth IRA.

The most glaring difference between providers is typically the fee structure. Before deciding on a provider, be sure to ask a few questions:

• Does the company offer a range of investment options?
• Does the company provide good customer service to answer your questions, either in-person, online or over the phone?
• Does the company provide a fee schedule?
• Does the company have the kind of information and costs needed to buy and sell investments?

Choosing a Brokerage

A broker is a registered professional whose role is to buy, sell and trade stocks or other securities on behalf of clients. When choosing an online broker to start a Roth IRA, make sure the broker can meet the top priorities on your list. You’ll also want to establish whether the broker is a full-service broker or a discount broker. A discount broker charges lower fees and commissions, but you’ll have to choose your own investments. A full-service broker charges higher fees, which pay for the broker’s investment advice.

Before choosing a broker, you might want to ask these questions first:

• Is the broker licensed in your state?
• Has the broker received any serious complaints from investors?
• What is the broker’s education and professional experience?
• How does the broker get paid? By commission? Based on a percentage? Does the broker get paid more for selling his or her own firm’s products?
• What is the total cost of doing business with the broker?

Before you open a Roth IRA with a broker, you’ll also want to thoroughly understand what you’re getting into by finding out the following:

• What is in the broker agreement and what are its terms and conditions?
• Does the broker understand your financial goals and how much you can invest?
• Who makes the decisions about what you buy and sell?

Choosing a Robo-Advisor

A robo-advisor is a digital platform that provides algorithm-driven financial planning services with little to no human interaction. A typical robo-advisor uses an online survey to collect information from clients about their financial situations and goals. That data is then used to make investment decisions on behalf of the client.

Robo-advisors have low starting deposits and offer portfolio management, easy account setup and attentive customer service. You can be a novice and still use a robo-advisor.

2. Provide Necessary Personal Information

Most brokerages and banks have the resources to complete your Roth IRA application online or in person. To start your Roth IRA, you’ll need the following:

• Name, address and contact information
• A driver’s license or other form of photo ID
• Your Social Security number
• Your bank’s routing number and your checking or savings account number so you can transfer money directly to your new account
• The amount of money you want to invest
• The name and address of your employer
• The name, address and Social Security number of your plan beneficiary

As part of the application process, you will also have to fill out a 5305-R form for the Internal Revenue Service.

3. Fund the Account

The bank, broker or other financial institution will determine the minimum deposit to start your Roth IRA. For that reason, one of the first decisions you’ll need to make is how much you can comfortably make as your first deposit.

As an example, Vanguard requires a minimum deposit of $1,000 to open a Roth IRA. Vanguard also charges $20 for each mutual fund in the account but will waive that fee if you have at least $50,000 in qualifying assets.

Fidelity, on the other hand, does not have a minimum initial deposit or annual fees. Discount broker Ally Invest also has no minimum initial deposit for stocks and ETFs.

4. Choose Your Investments

With a Roth IRA, you can choose your investments, including exchange-traded funds, stocks, Treasuries, bonds, CDs and more. No matter which type of investment you choose, a Roth IRA generates earnings that are completely tax-free whenever you decide to withdraw them, provided you’ve reached the age of 59 1/2 and waited five years since your first contribution.

There are several types of investors, and most people shift from one type to another over time. Just because you’re a day trader today doesn’t mean you won’t become a long-term investor at some point. The primary types of investors are as follows:

• Day trader: As the name implies, a day trader buys and sells securities in a single day. As a day trader, you might buy and then sell a security on the same day, or sell short and then buy a security on the same day.
• Long-term investor: A long-term investor will intend to hold a security or other asset for at least a year and usually longer.
• Mutual fund investor: A mutual fund investor specializes in — you guessed it — mutual funds. For many people, this is the ideal route to go as mutual funds are easily managed.
• A forex trader: If you decide to skip the stock market and instead look into a foreign currency exchange, you’ll be what’s called a forex trader. Forex is a global market where currency is bought and sold. You have to know what you’re doing, however, as forex trading can be risky.
• Municipal bond investor: Municipal bond investors dabble in debt securities issued by states, cities, towns, counties and U.S. territories to finance projects such as schools and highways. These are typically low-risk investments, provided you buy them from a reliable company or directly from a government entity.
• Alternative markets investor: Alternative market investors look to grow their money by investing in real estate, hedge funds, water rights, commodities, precious resources and other assets that lie outside traditional financial markets.

While there are dozens of investment choices, the way you choose investments comes down to your investment goals and risk tolerance. Younger investors tend to take on more risk because they have the time to make up for any losses. As a general rule, the older you are the less risk you’ll want to take on.

A couple of other things to consider:

• When choosing your investments, gauge how comfortable you are with risk, regardless of your age. Stocks tend to go up and down — sometimes dramatically. If that makes you uneasy, you might want to put most of your money in something less volatile.
• If you diversify your portfolio, make sure you understand the risk and return on each investment. Risk gauges the safety of the money you’ve invested whereas return gauges how fast and high your money will grow.

Although a diversified portfolio doesn’t guarantee you’ll make a good return on your investments, it does improve your chances. Here are a couple of reasons why:

1. Diversifying your portfolio means that you aren’t dependent on any one type of investment to reach your retirement goals, meaning your risk is spread more evenly.
2. High-performing assets can counterbalance losses or stagnation from underperforming assets.

As much as you’d like to guarantee smooth sailing into retirement with a winning investment formula, the fact is there’s no perfect mixture of stocks, bonds, securities, commodities, cash and alternative investments. The investments that work best for you change at different times in your life, depending on how long you have to invest and your ability to tolerate risk.

Roth IRA Contribution Limits and Deadlines

You can start a Roth IRA as long as you meet the employment and income requirements, but there are income limits based on your adjusted gross income, or AGI. Income limits vary depending on your marital and filing status. Because Roth IRA contribution limits are also dependent on your marital status, it’s a good idea to check which category you fall into before opening your IRA.

You should also research how special circumstances might affect your Roth IRA, such as the disability or death of the account holder.

The current contribution limits are as follows, per IRS tables:

Roth IRA Filing Status for 2025

Take note that the contribution limit gradually decreases as the MAGI approaches the upper limit of the phase-out range until it reaches $0, indicating that no contribution is allowed beyond these limits.

The deadline for making Roth contributions is the tax-filing deadline of the following year.

If you exceed the contribution limits, you’ll face penalties. Per the IRS, if you don’t withdraw excess contributions by the due date of your tax return, you’ll owe a 6% excise tax each year that the money remains in the account. You can withdraw the excess amount before the due date of your return penalty-free as long as you withdraw any associated earnings on that excess contribution. The earnings you withdraw, however, will be fully taxable.

To track your contributions across multiple Roth IRAs, implement some type of financial tracking system. You can use various software tools or simply created a spreadsheet on your own that includes the following information:

• date of contribution
• name of financial institution
• account number
• amount of contribution
• total contribution amount

Your total contribution amount should be set up so that it incorporates all of your Roth IRA contributions across all institutions. This can help ensure that you don’t exceed the annual contribution limit.

Tax Benefits of a Roth IRA

The main reason to open a Roth IRA is to take advantage of its numerous tax breaks. While you won’t get a deduction on your contributions, like you would with a traditional IRA, your money within the account grows tax-free. Best of all, when you withdraw the money in retirement, you can take out both your contributions and your earnings completely tax-free. You also have the ability to withdraw your contributions tax-free at any time as well.

Since you don’t have to pay tax on your distributions, the IRS doesn’t require you to take any minimum distributions after age 73, as you would have to with a traditional IRA.

• Contributions can be withdrawn at any time with no taxes or penalties
• Earnings can be withdrawn without penalty after age 59 1/2 and if you have had a Roth IRA open for at least five years

Why Opening a Roth IRA Is a Smart Move for Your Future

If you start early, contribute regularly to a Roth IRA, and invest it properly, you can end up with a sizable nest egg by the time you retire. You won’t have to pay taxes on your income and gains along the way, and your distributions in retirement are completely tax-free as well. To maximize its potential, contribute the maximum allowable amount every year if you can, which is $7,000 for 2025 ($8,000 if you’re 50 or older).

As you have many options when contributing to a retirement account, you might want to speak with a fiduciary financial advisor to make sure you strike the right balance between Roth IRAs, traditional IRAs and other types of retirement plans.

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