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A Roth IRA is a type of IRA (individual retirement agreement) which allows individuals to receive certain tax benefits on retirement savings. As opposed to traditional IRAs, contributions to Roth IRAs are not tax deductible, but you will be able withdraw contributions from the account without paying taxes. This page is an introduction on how to open a Roth IRA.
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Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.-
A Roth IRA is a type of IRA (individual retirement agreement) which allows individuals to receive certain tax benefits on retirement savings. As opposed to traditional IRAs, contributions to Roth IRAs are not tax deductible, but you will be able withdraw contributions from the account without paying taxes. This page is an introduction on how to open a Roth IRA.
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Introduction
- Roth IRAs are considered a good option for people who think their income will be higher in retirement, because you don't have to pay taxes when withdrawing contributions from the account, no matter when you withdraw it. You will, however, have to pay taxes on earnings in the account if you withdraw money before a certain age.
Step 1: Requirements and Restrictions
- There are several requirements both to open a Roth IRA and to make contributions to it.
- You can have both a traditional and Roth IRA at the same time.
- In order to be able to make contributions, your income (and your spouse's, if married and filing taxes jointly), must be below a certain limit. The income limit for Roth IRAs are higher than traditional IRAs.
- You can only contribute a certain amount each year to all of your IRAs. The limit for 2009 is $5,000 in contributions.
- IRAs can only be funded with cash or cash equivalents, but you can later choose how to invest it.
- You can contribute to an IRA for a specific tax year until the tax deadline for that year's taxes (which falls in the next year).
Step 2: Where to Open a Roth IRA
- A Roth IRA (like any IRA) can be opened at a financial institution such as a bank, mutual funds company and brokerage.
- Some banks charge a fee to open an IRA.
- While a fee to open one might be acceptable to you, you should avoid any institution that will charge a monthly fee for the account, as this will add up during the many years to come and will deduct from your IRA savings.
- If you open an account at a mutual fund company you can spread your risks across different investments.
- You can also open a Roth IRA at a brokerage firm. At a brokerage firm you can choose your investments.
Step 3: Additional Research
- Use this guide as a starting point for your research. How you decide to save for your retirement will have a significant impact on your life after retirement.
- Research investment strategies as well as details of IRA restrictions and regulations.
- While you should take steps to familiarize yourself with a Roth IRAs and investments in general, you should seek help of a financial adviser before making a final decision.
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