How to Start a Roth IRA: A Guide for Beginners (2024)

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• You can open a Roth IRA at banks, credit unions, online brokerages, and through robo-advisors.
• Diversify your Roth IRA portfolio with stocks, bonds, ETFs, and mutual funds.
• Choose both hands-on and hands-off methods for managing your Roth IRA.

The best way to secure a comfortable retirement and sustain decades of lasting wealth is with curated savings accounts designed specifically for growing retirement funds. Individual retirement arrangements (IRAs) are among the most powerful retirement savings vehicles.

There are several types of IRAs, but a Roth IRA stands out for its robust tax advantages, withdrawal flexibility, and high earning potential. The best Roth IRA accounts are available through online brokerages, banks, and other financial institutions.

Are you considering starting a Roth IRA to reach your retirement goals? Here's how to get started.

Preparing to open a Roth IRA

A Roth IRA is one of the best retirement plans for long-term wealth building. It is funded with post-tax income — money on which you've already paid income taxes. Because of this, withdrawals in retirement are not subject to taxes. This makes these accounts a smart option if you expect to be in a higher tax bracket during retirement than you are today. Unlike traditional IRAs, Roth IRA contributions are not tax-deductible.

Determine your eligibility

While there are no age requirements for opening a Roth IRA, you must have earned income within the year to contribute. Contributing to an IRA from a young age is a great way to gradually increase your savings with long-term investment opportunities and the power of compound interest.

Roth IRA contributions have income limits. For single tax filers in 2024, your modified adjusted gross income (MAGI) must be below $161,000. If you're married and filing jointly, your combined MAGI must be under $240,000.

Higher earners are not eligible to open a Roth IRA and should consider a traditional IRA instead.

Read more on Roth vs. traditional IRAs »

Decide how much to contribute

You can contribute up to $7,000 to a Roth IRA in 2024. If you're 50 or older, you can contribute an additional catch-up contribution of $1,000.

A few IRA providers offer an IRA match (typically between 1-3%), which works similarly to a 401(k) employer-match contribution. The brokerage or bank will match up to a set percentage for every dollar you contribute toward your Roth IRA. IRA-match contributions don't count toward your annual limit.

Gather necessary documents

Make sure you have the following documentation and information to open a Roth IRA:

• A copy of your government-issued ID, such as a driver's license or passport
• Your personal information, including your name, phone number, address, date of birth, and Social Security number
• Details on your beneficiaries or whom you'd like to inherit the account when you die
• Your preferred contribution method
• Banking information (if you want to fund the account with an electronic transfer) or information on your other 401(k) or IRAs (if you're doing a rollover)

Choosing the right financial institutions

Types of financial institutions

The first step to opening a Roth IRA is to choose what type of institution you'll open your IRA through. There are many options to choose from, including:

• Banks: Most banks offer traditional and Roth IRAs to their customers. Sometimes, banks require you to have an existing checking or savings account before you can open an IRA with them. Having your IRA and bank account on the same platform makes contributing retirement savings simple. However, you may not get access to as many investment opportunities or trading features.
• Credit unions: Opening a Roth IRA through a credit union is only recommended for pre-retirees looking to invest a significant portion of their retirement savings into high-yield CDs. However, credit union IRAs are more limited regarding investment options and brokerage services.
• Online brokerage: Suitable for passive or active investing strategies. Brokerages offer full-service management and may have a wider selection of investments. If you want the most economical option, consider looking for brokers with low or no account fees and various commission- and fee-free investment options.
• Robo-advisors: Generally best for a hands-off investing approach. The best robo-advisors come with low management fees, risk-based investment options, automatic portfolio balancing, and other perks. Robo-advisors can often be managed using an online dashboard.

Factors to consider

Not all IRA accounts are built the same. Some IRA offerings are objectively better than others. Don't open your Roth IRA with the first financial institution you stumble across. Instead, review factors such as:

• Fees and commissions
• Investment options
• Customer service
• Account minimums
• Investment strategies
• Trustworthiness

Avoid basing your decision entirely on fees or commissions. While choosing an affordable solution is important, other factors should also play a role, including your level of tech-savvy, your investment know-how, the institution's investing minimums, and the service it's known for.

"Consider the overall service you'll be receiving," says Heather Welsh, CFP and senior vice president of wealth planning at Sequoia Financial Group. "While robo-advisors are generally inexpensive, your level of comfort with technology might suggest taking a different direction and talking with your bank or financial advisor."

Opening your Roth IRA account

Online vs. in-person account opening

Opening an account is usually pretty simple and can often be done easily online or through your brokerage. The exact process will vary.

"How you open an account will depend on your selected IRA provider or advisor," Welsh says. "If you take the do-it-yourself approach, you can likely do it online. If you work with a bank or advisor, you will be provided with forms to open the account, either electronically or in hard copy, depending on their processes and your preferences."

Whether you're doing the opening process online or in person, make sure you have all the necessary documentation and information.

Funding your account

Once your IRA has been established, you can begin making contributions. You can do this via rollover, check, or electronic payment. In some cases, you may be able to link your bank account and directly transfer funds.

"As a general rule, I'd say the more you can add to your retirement funds, the better off you'll be in the future," says Scott Staton, RICP and founder of Staton Financial Group.

Remember that you can't contribute more than the annual IRS limit.

Rolling over funds into a Roth IRA

If you opt to roll funds over from a 401(k) or another retirement, you'll also have some forms to fill out there. The best rollover IRAs send the money directly to your new IRA account. Others may send you a check, which you'll then need to deposit into the new IRA yourself. Typically, the whole process takes anywhere from two to four weeks.

If you roll over funds to a traditional IRA, you won't need to pay taxes on the funds until you start making withdrawals. If you roll over funds to a Roth IRA, though, you'll owe taxes on the rolled-over amount when you file your annual returns.

If you receive the rollover check directly, make sure to deposit it quickly. If you fail to deposit your rollover funds within 60 days, it will qualify as a withdrawal and could mean a penalty if you are not of retirement age.

Selecting investments for your Roth IRA

Types of investments

After you've funded your account, you can begin investing.

"One important thing to understand is, an IRA isn't an investment, nor does it pay a particular rate of return," Staton says. "What determines the rate of return and level of risk of an IRA are the investment choices you make within it."

There are many investment options, including:

• Stocks: Stocks allow you to purchase ownership shares of publicly traded companies.
• Bonds: Bonds are debt securities that offer money to investors and, often, the government. They're one of the lowest-risk investments you can make.
• Mutual funds: Mutual funds are investment pools made up of many different investments. They're managed professionally, and individual consumers can buy shares in the fund.
• Index funds: Index fundsare stock portfolios that aim to match the returns of a specific market index, such as the S&P 500.
• ETFs: Exchange Traded Funds, or ETFs, are baskets of securities that track an index, like the S&P 500 — similar to index funds. These can be traded throughout the day on the stock market.
• Target-date funds: Target-date funds operate with a certain retirement year in mind. As you approach that date, the investments shift, reducing your risk and exposure to loss.

You don't have to choose just one type of investment. You can — and should — diversify your portfolio with investments in several types of securities. Portfolio diversification reduces your exposure to risk. One way to easily diversify your portfolio is with low-cost ETFs.

Risk tolerance and investment horizon

Understanding how risk and volatility affect your investment portfolio is crucial to reaching your investment goals and protecting your savings. Riskier asset classes are appealing because they offer the potential for higher returns. You can review the historical returns of different asset classes to see the level of risk and volatility involved.

A general rule of thumb is that you should gradually invest in less risky investments as you near retirement age. Investing in a Roth IRA is no different. Younger investors, such as those in their 20s and 30s, have more time to recover from any significant losses than investors in their 50s.

Your personal preference, retirement goals, and estimated age of retirement may also affect the level of risk you take on in your portfolio. Consult a financial advisor to help you allocate your Roth IRA assets according to your needs.

Managing your Roth IRA

Similar to any investment account, Roth IRAs require ongoing review and management to ensure that you're on track to meet your retirement goals. You can manage your Roth IRA by regularly monitoring your portfolio's investments and rebalancing as you see fit. Since retirement saving is a long-term investment strategy, this doesn't mean checking every day — once or twice a year should be enough. Otherwise, you may get distracted (or scared) by natural fluctuations in the market.

Some people use a Roth IRA as a tax-advantaged savings account or emergency fund since you can withdraw your original contributions (not including the growth) penalty-free at any time. However, it's best practice to leave the funds in your account alone for as long as possible to build long-term wealth and get the maximum benefit of compound interest.

If you're unsure or need guidance, talk to a financial advisor or Certified Financial Planner. They can provide advice personalized to your exact goals and finances.

Roth IRA FAQs