How to Open a Roth IRA

Opening a Roth IRA is one of the best moves you can make to level up your retirement savings. We like to think of it as the rock star of retirement accounts—and for good reasons!

A Roth IRA (Individual Retirement Account) is an investing account that lets you save up to a certain amount each year for retirement. With a Roth IRA, you invest after-tax dollars now so you can make tax-free withdrawals for retirement after the age of 59 1/2.¹

Imagine not having to worry about income taxes when you retire—we’re talking less stress and more money in your pocket. Now that’s a sweet deal!

Plus, unlike traditional 401(k)s or IRAs, Roth IRAs have no required minimum distributions (RMDs), so you don’t have to start taking withdrawals at a certain age. You can let that money keep growing until you actually need it!

So, how do you get started? It’s actually pretty simple. Let’s take a look at five steps to open a Roth IRA:

1. Find out if you’re eligible and ready.
2. Decide how to manage the account.
3. Fill out the forms.
4. Choose investments within your Roth IRA.
5. Set up contributions to your Roth IRA.

First things first: Before you jump on the Roth IRA bandwagon, you want to make sure your finances are in the right place.

There are two other important financial goals you should tackle first. One, if you have any debt (other than a mortgage), you should focus on paying it off before you begin investing. And two, you should build a full emergency fund worth 3–6 months of your typical expenses. Prioritizing those money goals ahead of retirement investing will lay an important foundation for the rest of your life!

You should also wait to invest in a Roth IRA until you’ve taken full advantage of any 401(k) match your company offers. Once you’ve done that—and you’re debt-free with an emergency fund—you’re ready for a Roth IRA.

Roth IRA Income Limits

If you’re ready to open a Roth IRA, make sure you don’t exceed the income limits to contribute to one.

In 2024, if your adjusted gross income (AGI) is between $146,000 and $161,000 for single filers or between $230,000 and $240,000 for married couples filing jointly, you can only contribute a reduced amount to a Roth IRA.²

Once your AGI is above $161,000 as a single filer or $240,000 if you’re married filing jointly, you won’t be able to contribute to a Roth IRA at all.³

Roth IRA Contribution Limits

We love a good Roth IRA, but unfortunately, contribution limits aren’t high on the list of Roth IRA perks. In fact, For 2024, the total amount you can contribute to either a traditional or Roth IRA is $7,000 ($8,000 if you’re 50 or older).⁴

If you’re considering rolling over your 401(k) to a Roth IRA, though, we have good news! Rolling over your money doesn’t count toward your contribution limit. Just be sure to check with your financial advisor about how rolling over your retirement fund can affect taxes. 

Next, you’ll need to decide how to manage your Roth IRA. Specifically, you need to decide who will manage it. You basically have two options: You can manage everything yourself (not a great idea!), or you can work with a financial advisor or investment professional.

Market chaos, inflation, your future—work with a pro to navigate this stuff.

Hear us on this: Even if you feel confident enough to go the DIY route with your Roth IRA and manage the investments on your own, you should still get some advice from an investment professional. They’ll walk you through the process of setting up your retirement account and help you pick the best individual investments. You’ll probably also have questions that a search engine or an online chatbot can’t answer.

And if you’re worried about not being in control of your money, don’t be. A good investment pro will provide you with guidance and advice, but they’ll ultimately leave the decisions up to you.

Our SmartVestor program can connect you with an investment pro who can help you make sense of your investing options. 

Regardless of whether you work with a pro or sign up on your own, you’ll have some paperwork (or online forms) to fill out to open your Roth account. Make sure you’ve got all the information below handy once you’re ready to fill out the forms:

• Your driver’s license or other government-issued form of photo ID
• Your Social Security number
• Your bank’s routing number and your checking or savings account number
• Your employer’s name and address

You’ll also choose a beneficiary (or beneficiaries) who will inherit your Roth IRA when you die. You’ll need their name, Social Security number and date of birth too.

Once you’ve opened your account, your next step is to choose what to invest in. That’s because your Roth IRA is not an investment in and of itself—it only holds your investments and protects them from income and capital gains taxes.

You can put all kinds of different investments into your Roth IRA, but there’s one type in particular we always recommend—mutual funds.

The great thing about mutual funds is they allow you to spread your investments across a lot of companies, which lowers your risk while still letting your money grow (that’s called diversification). If you put all your eggs in one basket, like with single stocks or cryptocurrency, at some point you’ll end up with a mess on your hands.

Here are some other benefits of mutual funds:

• Mutual funds allow you to use the power of the stock market’s long history of growth without taking on the risk of single-stock investing. The stock market historically has an annual average rate of return between 10–12%.⁵
• Mutual funds are managed by teams of investment pros who make sure the mutual fund performs at the highest level possible. They live and breathe this stuff!
• If you decide to work with a pro to open your Roth IRA and help you choose your mutual funds, the advisory fees pay for your pro’s time and expert advice—not just at the time you open your account but for as long as you invest in your Roth IRA.

To help diversify your portfolio even further, you should spread your investments evenly (25% each) across four types of mutual funds: growth, growth and income, aggressive growth, and international.

 

Keep in mind that investing for retirement is a marathon, not a sprint. Instead of chasing quick returns, you should buy shares of mutual funds and hold them for a long time.

Some years, you’ll see giant returns on your investments, and in other years, you might see negative returns. But keep this in mind: The stock market is a lot like a roller coaster—the only people who get hurt are the ones who try to jump off the ride before it’s over.

People who become millionaires through investing in mutual funds don’t overreact to whatever happens to their investments in any particular year. They don’t pull their money out when the market starts to decline. Instead, they stay focused and keep investing month after month, year after year—no matter what’s happening in the stock market.

Ever heard the phrase, “Out of sight, out of mind”? You can actually use this principle in your favor when it comes to your investing strategy. Yep. It’s called automating your investing, and it’s when you set up payroll deductions, automatic bank withdrawals or direct deposits to fund your Roth IRA.

We recommend investing 15% of your gross income into retirement (after you’ve paid of debt and saved an emergency fund, of course).

Remember, though: There are limits to how much money you can put into IRAs each year. Again, for 2024, you can invest $7,000 in either a traditional IRA or a Roth IRA. If you’re 50 or older and need to catch up, you can add an extra $1,000 for a total of $8,000.⁶

Setting up automatic IRA contributions is a small extra step that’ll make it so much easier for you to save money for retirement consistently. And because you never see that money, you won’t even miss it! Plus, you won’t be tempted to use it to pay for concert tickets or a new pair of jeans.

But don’t go so far with this idea that you never check in on your investments. You’ve got to make sure your investing plan is still on track so you can make changes if you need to.