Everyone needs to plan for their future, and Roth IRAs are a great way to save for your retirement. There is no immediate tax benefit with a Roth IRA, but you will be eligible for tax-free income after you retire, including on your earnings pre-retirement. With no minimum distributions during your lifetime, you can allow the money to grow until you need it or pass it on to your family tax-free. Roth IRAs are especially good for younger earners who usually have a lower income tax rate than they will when they come to withdraw the funds. With decades still ahead of compound interest, you can make a lot of money if you start paying into a Roth IRA when you are young. Parents can even open an account for their children as there is no minimum age limit.
To help everyone take advantage of these fantastic benefits, here is how to open a Roth IRA account.
1. Check that You are Eligible
The vast majority of people are eligible for a Roth IRA, as long as they have earned declared income that year. There are some gross income limits that would rule you out of eligibility but they are very high ($140,000 a year for individuals, and $208,000.30 for couples in 2021). There are also additional limits to how much you can put into a Roth IRA annually ($6,000 a year plus an additional $1,000 for over fifties.) As long as you are within these limits, you will most likely be eligible for an account. With no age limit and no minimum contribution amount, anyone can get started.
2. Choose a Roth IRA Account Provider
Most investment companies these days offer customers Roth IRAs and if you already have a traditional IRA, your current provider will most likely be able to offer you a Roth. When choosing between different Roth IRA accounts and providers, you need to consider the account fees, the quality of customer service, the type of investments you want, and the cost of trading. The provider is known as the account custodian because they are in custody of your funds and with so many custodians to choose from, you need to do your homework on all of the various options.
3. Complete all the Necessary Paperwork
Most Roth IRA providers have a website where you will be able to at least start the application process and on some, you may be able to do the entire thing. Others will most likely have a customer service representative you can talk to if you need help. In order to secure a Roth IRA, you will need a photo ID, your SSN, a routing number for your bank and the account number of the bank you will be transferring money from. You will also need your employer’s details and the details of your beneficiaries. When applying for a Roth IRA you will need to complete a 5305-R form for the IRS.
4. Choose Your Investments
Once you have opened your account you will then need to decide where you want to invest your money. You can create your own portfolio by choosing from the selections offered by most providers. Alternatively, you can choose a life-cycle or target date which will be specially designed for your age and income level. The third option is to work with a financial adviser, either one who works at your Roth IRA provider or an independent adviser who will be able to help you with your investments.
Once you have decided where your money will be invested, you will then need to decide on your contribution schedule. Some banks will enable you to make automatic monthly payments directly from your bank account into your Roth IRA. Another way is to make one donation a year, providing you don’t exceed the limits explained above. It is important that you check your account statements regularly and that you keep a close eye on the performance of your investments. You may need to buy or sell according to how your account is doing so always stay in tune with what is going on.
A lot of financial experts believe that everyone who is eligible should obtain a Roth IRA. Unlike traditional IRAs, you can start when you are young, to give yourself the maximum profit when you come to retire or you need the money. With the right investment choices, a Roth IRA is an ideal way to set your future up for yourself and your family.
