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. And since the IRS has increased contribution limits on Roth IRAs for 2024, you can save even more than in previous years.
Here’s how to open a Roth IRA in five simple steps.
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 an earned income, and this income must be within certain limits.
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.
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.
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 retirement calculators.
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. 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.
Related Content
-
Seven Steps Couples Should Take Before Blending Their FinancesGetting on the same page now can ensure you remain successful throughout your relationship.
-
Charitable Remainder Trust: The Stretch IRA AlternativeThe SECURE Act killed the stretch IRA, but a properly constructed charitable remainder trust can deliver similar benefits, with some caveats.
-
403(b) Contribution Limits for 2024retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
-
SEP IRA Contribution Limits for 2024SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
-
Roth IRA Contribution Limits for 2024Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024simple IRA The maximum amount workers at small businesses can contribute to a SIMPLE IRA increased by $500 for 2024.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2024retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
-
Four Tips for Renting Out Your Home on Airbnbreal estate Here's what you should know before listing your home on Airbnb.
-
Five Ways to a Cheap Last-Minute VacationTravel Procrastinator? No matter. You can pull off a fun and memorable getaway on a moment's notice — without breaking the bank.
