How to open a Roth IRA
“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.
BLUEPRINT
Published 10:42 a.m. UTC Dec. 19, 2023
Editorial Note: Blueprint may earn a commission from affiliate partner links featured here on our site. This commission does not influence our editors' opinions or evaluations. Please view our full advertiser disclosure policy.
Getty Images
Key points
- Roth IRA contributions are made with after-tax dollars, and withdrawals in retirement are tax-free.
- Roth IRAs have yearly contribution limits as well as income limits.
- After you determine your eligibility for a Roth IRA, select a provider whose offerings align with your goals.
When it comes to saving for retirement, a Roth IRA is a great option available to individuals. It’s an account to which you contribute after-tax dollars. Your earnings grow tax-free, and when you withdraw your money in retirement, you won’t have to pay taxes on them.
But before you can start reaping the benefits of a Roth IRA, you need to know how to open one. We’ll walk you through the basics of opening a Roth IRA so you can start building your retirement nest egg.
Our partners
Datalign Advisory
Connect
Match with a financial advisor from a network of vetted fiduciaries.
Get started
Complete the questionnaire and match with an advisor for a free, no-obligation call.
Wealthramp
Find your match
Connect with fee-only advisors who fit your priorities
Build your wealth
Review your vetted advisor matches and set up a free consultation
J.P. Morgan Personal Advisors
Create a personalized financial plan
Get matched to expert-built portfolios, and receive ongoing advice and annual check-ins to ensure your plan is on track.
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
What is a Roth IRA? And should you open one?
A Roth IRA is a type of individual retirement account. It has certain characteristics that make it unique.
Patrick Marcinko, a certified financial planner and associate financial advisor at Bogart Wealth, identified these characteristics and explained how Roth IRAs work.
The primary feature of a Roth IRA, Marcinko said, is that contributions are made with after-tax dollars. The benefit of making contributions with money you’ve already paid taxes on is that earnings grow tax-free and qualified withdrawals are tax- and penalty-free.
“The main caveat to the tax benefits of Roth IRAs is that the money must remain in the account until the owner reaches age 59½ and the account has been open for at least five years,” Marcinko added.
Roth IRAs have such tremendous tax benefits that the government limits the amount you can contribute to $7,000 per year for 2024.
There is also a $1,000 catch-up contribution for savers who are 50 or older, bringing their contribution limit to $8,000 per year for 2024.
So should you jump on the Roth IRA bandwagon? While a Roth IRA is a fantastic retirement tool, it isn’t a one-size-fits-all solution. The decision to open a Roth IRA depends on several factors:
- Your tax situation: If you expect to be in a higher tax bracket when you retire, tax-free Roth IRA withdrawals could be a big advantage. This feature makes the Roth IRA particularly attractive to younger savers, who are typically in lower tax brackets.
- Your access to funds: You need to be comfortable with the idea that the money you contribute to a Roth IRA is, in effect, locked away until you’re 59½ years old. Sure, you can withdraw the contributions — but not the earnings — anytime tax- and penalty-free. But the aim of the game is to let your money grow.
- Your income: There are income limits for contributing to a Roth IRA. For 2024, you can contribute to a Roth IRA if your modified adjusted gross income is less than $161,000 (single) or $240,000 (married filing jointly).
- Your savings habits: The annual contribution limits — $7,000, or $8,000 if you’re 50 or older — mean you must be diligent and consistent with your savings. If you’re already maxing out your 401(k), a Roth IRA can be another way to boost your tax-advantaged savings.
- Your retirement portfolio: A Roth IRA can help balance to your retirement portfolio, adding tax diversification. Having accounts with different tax treatments can give you flexibility in managing your income and taxes in retirement.
Remember, personal finance is just that: personal. Your friend’s financial plan may not fit your life. And that’s OK. While a Roth IRA can be a phenomenal tool to build wealth, you must ensure it aligns with your financial goals and lifestyle.
How to open a Roth IRA
There are a few simple steps you’ll need to follow if you’re interested in opening a Roth IRA. The process is easy, but it’s important to understand the eligibility requirements for contributing to a Roth IRA and to select a provider that offers low fees and investment options that align with your goals. To help you get started, we’ve outlined the steps for opening a Roth IRA below.
1. Determine your eligibility
To contribute to a Roth IRA, you must have taxable income. That can include wages, salaries, commissions, tips, bonuses or net income from self-employment. Additionally, there are income limits for making contributions to a Roth IRA.
To max out your Roth IRA contribution in 2024, your income must be:
- Below $146,000 if you are a single filer.
- Below $230,000 if you are married filing jointly or a qualifying widower.
Roth IRA contributions start phasing out above those income levels. They will be completely eliminated once your household income reaches:
- $161,000 if you are a single filer.
- $240,000 if you are married filing jointly or a qualifying widower.
2. Choose a provider
When selecting a provider for your Roth IRA, consider the fees associated with the account, such as annual maintenance fees, trading fees and expense ratios.
You will also want to think about investment options, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). Look for a provider with low-cost, diversified investment options that align with your investment goals and risk tolerance.
3. Open the account
To open a Roth IRA, you’ll need to provide personal information like your name, address, date of birth and Social Security number. You’ll also need to choose a beneficiary for the account, and that person can be changed at any time. Some providers may require an initial deposit to open the account while others may not.
4. Fund the account
Once your account is open, you can make contributions by transferring money from your bank account or by rolling over funds from another retirement account, such as a traditional IRA or a 401(k). Don’t forget that there is a Roth IRA contribution limit, which is $7,000 in 2024, or $8,000 for people who are 50 or older.
Where can I open a Roth IRA?
Roth IRAs can be opened at various financial institutions, including banks, credit unions, online brokerages and robo-advisors. When choosing a provider for your Roth IRA, consider the fees, investment options and customer service offered by each institution to find the one that best fits your needs.
Differences between a Roth IRA and a Roth 401(k)
Both Roth IRAs and Roth 401(k)s are funded with after-tax dollars and offer tax-free growth and tax-free withdrawals in retirement. But the main differences lie in their contribution limits and employer involvement:
- A Roth IRA has a lower contribution limit and is funded solely by an individual.
- A Roth 401(k) has a higher contribution limit and is employer-sponsored.
The maximum contribution to a Roth 401(k) is $23,000 for 2024 with a catch-up contribution of $7,500 for people who are 50 or older.
A Roth 401(k) is overseen by your company, which selects the broker and may limit your investment options. It may also offer matching contributions.
“A Roth IRA allows your investments to grow for a longer period, offers more investment options and makes early withdrawals easier,” said Robert Reilly, a financial advisor and part of the finance faculty at Providence College School of Business. The maximum contribution to a Roth IRA is $7,000 per year for 2024, or $8,000 if you’re 50 or older.
When it comes to deciding between a Roth IRA and Roth 401(k), it’s important to consider your retirement savings goals and the differences between the accounts. A Roth IRA may be a better option for people who want more control over their investments and have lower incomes. A Roth 401(k) may make more sense for those who want to contribute more to their retirement savings and get matching contributions from their employers.
The good news is you don’t necessarily have to choose one over the other. You can save with both a Roth IRA and a Roth 401(k) as long as you’re qualified to do so and don’t run afoul of the contribution and income limits.
Choosing investments for your Roth IRA
With a 401(k) account, you are limited to the investment funds offered by your employer. But if you have a Roth IRA, you have virtually unlimited freedom to invest your money in the stocks, bonds, ETFs and mutual funds of your choice.
Having so many options can be overwhelming. Index funds are considered among the best investments for a Roth IRA because they offer a simple way to diversify investments. Another popular choice is a target-date fund, which automatically adjusts portfolio holdings and risk based on your age.
To select the right investments, consider factors such as when you’ll need to start drawing from the account and how much risk you can stomach. And be sure to compare fund fees. If you need help, talk to a trusted financial advisor.
After you’ve opened your Roth IRA
Generally speaking, it is best to hold investments for the long term rather than buying and selling as the market rises and falls. But that doesn’t mean you should be entirely hands off.
At least once a year, you should rebalance your portfolio to ensure it continues to match your risk tolerance and investment strategy.
For instance, if you are trying to keep your Roth IRA funded with 60% stocks and 40% bonds, you may find that the stocks have gained more value than your other investments. As a result, at the end of the year, you may find your portfolio has an 80/20 mix of stocks and bonds. You’ll need to sell some stocks and buy more bonds to get back to your original 60/40 goal.
One reason target-date funds are popular is because they do this rebalancing automatically. And if you have a financial advisor managing your account, they will often proactively rebalance your accounts to ensure you don’t have too much of any one type of investment in your portfolio.
Deciding when to open a Roth IRA depends on your personal financial goals and circumstances.
In general, the earlier you start saving for retirement, the better, as it allows your investments to grow over time. However, you may want to prioritize other financial goals, such as paying off high-interest debt or building an emergency fund, before opening a Roth IRA.
It’s also important to consider your current financial situation, including your income, expenses and debt, when deciding when to open a Roth IRA.
You may also want to take advantage of your employer-sponsored retirement plan, such as a 401(k) or 403(b), before opening a Roth IRA to maximize your retirement savings.
Employer matching is a common feature of 401(k) plans but isn’t typically offered for Roth IRAs.
Since a Roth IRA is an individual retirement account, the contributions are made by the account owner, not the employer. However, some employers may offer Roth 401(k)s, which are similar to traditional 401(k)s but with after-tax contributions that can be withdrawn tax-free in retirement.
There’s no minimum amount required by the IRS to open a Roth IRA. But individual providers often set their own account minimums, which can range from as little as $0 to a few thousand dollars. So shop around and find a provider that matches your initial investment budget.
As long as you have earned income, you can contribute to a Roth IRA, regardless of your age. Yes, even if you’re a financially savvy 15-year-old with a part-time gig, a Roth IRA is on the table for you.
While a 15-year-old can’t open a Roth IRA on their own, their parent or guardian can open a custodial Roth IRA on their behalf. This account is managed by an adult until the child reaches a certain age (typically 18 or 21, depending on the state). But the funds belong to the child.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.
