Are you looking to open a Roth IRA to let your money grow tax-free? Roth IRAs are individual retirement accounts that let you save for retirement with after-tax dollars. Since taxes are paid on contributions before they’re placed in the account, withdrawals from a Roth IRA can be made tax-free at a later date — making them good savings options for individuals who expect to be in a higher tax bracket in the future.
And since the IRS has increased contribution limits on Roth IRAs for 2024, you can save even more than in previous years. In 2023, the maximum amount you could contribute to a Roth IRA was $6,500, with an extra $1,000 per year in "catch-up" contributions for adults ages 50 and over. In 2024, however, you can contribute up to $7,000, as well as an extra $1,000 in catch-up contributions.
Sound appealing? Here’s how to open a Roth IRA in five simple steps.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Make sure you're eligible to open a Roth IRA
The first step in opening a Roth IRA is determining if you’re eligible. In order to be eligible for a Roth IRA, you’ll need to have earned income, and this income must be within certain limits.
In 2024, in order to contribute the maximum amount to your Roth IRA ($7,000 or $8,000 if you are 50 or older), your income must be no more than $146,000 for single filers or $230,000 for those married filing jointly.
If your income exceeds this, your contribution limit will begin to phase out until it disappears. The phase-out range for single filers is between $146,000 and $161,000, and $230,000 and $240,000 for those married filing jointly.
If you make more than this, you could potentially benefit from using a backdoor Roth IRA, where you convert a traditional IRA to a Roth. Or consider qualifying for Roth IRA contributions by lowering your income.
2. Choose a provider
Now you’ll need to choose where to open an account. Roth IRA accounts can be opened through a number of places, including mutual fund firms, full-service brokerages and financial planning firms. You can open a Roth IRA account at almost all investment companies. If you’re planning on picking your own investments, opening a Roth IRA at an online broker is a good choice. On the other hand, if you’re more of a hands-off investor, consider a robo-advisor.
When searching for Roth IRA providers, it's important to compare minimum investment requirements and maintenance fees, if any. Also consider whether or not the company offers the types of investments you’re looking for (mutual funds, ETFs, etc.), how much it costs to trade and if the account offers any additional tools like a retirement calculator.
3. Fill out the paperwork
After choosing a provider, it's time to apply. In many cases, you can complete a Roth IRA application online, but you'll need to gather some paperwork in order to do so. Here's what you'll need to have on hand during the sign-up process.
- Driver's license, photo ID or passport
- Social Security number
- Bank routing number
- Checking or savings account number to transfer money to the account
- Proof of employment
- Name, address and SSN of the plan beneficiary
4. Choose investments
Next, you’ll need to choose the investments for your Roth IRA. You can choose to do this all by yourself or have an advisor do it for you. If you choose to do it yourself, you’ll need to decide on an appropriate asset allocation, based on your comfort level with risk and your time horizon to retirement.
Choose how much money you’ll put towards riskier investments and how much you’ll keep relatively more safe. You can also invest in a target-date retirement fund for a simple way to maintain diversification and risk levels.
5. Set up a contribution schedule
Instead of paying in one lump sum, you can fit regular contribution payments into your budget by setting up monthly transfers from your checking or savings account to your Roth IRA. As mentioned above, the Roth IRA contribution limit for 2024 is $7,000 (or $8,000 if you're older than 50), which works out to be around $583 a month. If you can't afford this much each month, it stills pays off to contribute what you can.
Pros and cons of a Roth IRA
| Pros | Cons |
|---|---|
| Tax-free growth | No upfront tax break for contributing |
| No required minimum distributions (RMDs) | Income limits for making contributions |
| Contributions can be withdrawn any time, tax- and penalty-free | Earnings withdrawals before age 59 ½ may be subject to penalties |
| Tax flexibility in retirement | Ease of early withdrawals might be tempting |
| Pass down money in a Roth IRA tax-free to your heirs | Contribution limit of 7,000 (or $8,000 if you're older than 50) |
Related Content
-
How Much Does It Cost to Be a Grandparent in 2024?How much does it cost to be a grandparent? On average, grandparents spend almost $4,000 a year on their grandkids.
-
Where To Put Your Money As Interest Rates DropEarning 5% returns on your money is slowly coming to an end. Even so, there are places to put your money that still make sense.
-
Where To Put Your Money As Interest Rates Drop
Earning 5% returns on your money is slowly coming to an end. Even so, there are places to put your money that still make sense.
-
Wealth Is More Than Just Your Money: How to Manage It AllIn addition to handling your financial wealth, consider ways to manage your non-financial assets: health, knowledge, time and relationships.
-
You're 60 Years Old With $1 Million Saved: Can You Retire?The answer depends on several factors. The key is to create a plan that combines all aspects of retirement — income, taxes, health care and legacy planning.
-
Are You a Danger When You Drive?You might be shaking your head no, but read on for the five things that most of us have at some point done, or are doing, that could cause an accident.
-
CPI Report Points to Gradual Pace for Rate Cuts: What the Experts Are SayingCPI Inflation surprised to the upside last month but the disinflation trend remains on track.
-
Look Out for Scams and Price Gouging Amid Hurricanes, Officials WarnStorm fraud and price gouging are a real threat in the wake of a natural disaster. Victims of hurricanes Helene and Milton are being urged to stay on the lookout for rogue traders.
-
Social Security Tax Limit Jumps 4.4% for 2025Social Security The Social Security Administration has announced significant changes affecting millions as we approach a new year.
-
Social Security COLA Is 2.5% for 2025: What to KnowThe 2025 Social Security COLA, tax wage cap and how much you need to earn to qualify for SS credits has been announced by the Social Security Administration.
