How and Where to Open a Roth IRA

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If you’re considering opening an IRA, and have heard that opening a Roth IRA in particular is the way to go, NerdWallet lays out how to select the right Roth IRA provider, then get started signing up if it’s the right retirement planning decision for you.

Roth IRA is short for a Roth Individual Retirement Arrangement, and it is a tax-advantaged savings account that you can sign up for – independently of any employer or group plan – to help save for retirement without having to get taxed as much as you would otherwise.

Where to Open an IRA Account

NerdWallet’s Top Picks for IRA Accounts:

Best Overall Value IRA

  • Great research, analysis software, and best in industry customer service at reasonable prices ($9.99 per stock trade)
  • Free trades for 60 days
  • 2,500+ No Transaction Fee Mutual Funds
  • Free research reports about individual stocks
  • Free no-obligation consultation with a registered investment advisor (RIA)
  • Free analysis software with screeners and alerts
  • Free access to Level II quotes, allowing investors to gauge market depth and liquidity, not just last trade price
  • Top rated by SmartMoney, Investor’s Business Daily, Barron’s, and others
  • Mobile app for iPad, iPhone, and Android
  • 24/7 customer service
  • Check writing & Debit Card
  • Free automated phone trades
  • Over 100 physical locations
  • Read the full NerdWallet review
Best IRA for Inexpensive Stock Trading

  • Only $4.95/stock trade
  • No minimum deposit
  • Free research reports
  • Free realtime data
  • Free analysis software
  • Free automated phone trades
  • Mobile access
  • Check writing & debit card
  • Asset classes include stocks, bonds, options, forex, ETFs, and mutual funds
  • Read the full NerdWallet review of TradeKing
Best IRA for Beginners

  • No Fees, No Minimums
  • Purchase low cost index funds for as low as $500
  • Basic tools, trading platform, and investment research included
  • 1,300+ No Transaction Fee Mutual Funds
  • Barron’s says “Terrific research hub”
  • Free research reports
  • Free realtime data
  • Mobile access
  • 24/7 customer service
  • Check writing & debit card
  • Physical locations
  • Reasonable price of $9.99 per stock trade
  • Asset classes include stocks, bonds, futures, options, forex, ETFs, and mutual funds
Best IRA for Options Traders
  • Barron’s says: “Terrific tools for options traders”
  • User-friendly options trading platform with extensive tools
  • Two flexible commissions plans for option trading allow both frequent and infrequent traders to tailor the plan to their own needs
  • Free research reports
  • Free realtime data
  • Free analysis software
  • Mobile access
  • Check writing & debit card
  • Asset classes include stocks, bonds, options, ETFs, and mutual funds
  • Stock trades are only $4.75
Best IRA for No-Fee Mutual Funds

  • Offers the most No Foreign Transaction Fee Mutual Funds (4,500+)
  • Free streaming quotes
  • Free broker access
  • Free realtime data
  • Free analysis software
  • Advanced trading platforms
  • Mobile access
  • Free automated phone trades
  • Check writing
  • Stock trades are $8.95
  • Assets classes include stocks, mutual funds, bonds, futures, ETFs, and options
Best IRA for Index Funds

  • Excellent selection of very low cost index funds
  • Average expense ratio is 83% less than the industry average
  • Offers 120 Vanguard funds and 52 Vanguard ETFs
  • Not ideal for those who want to trade stocks ($20 per stock trade)

 

When is a Roth a Good Idea?

Roth IRA is different from a traditional IRA in that instead of getting a tax break upfront on the money put into the plan, you receive the tax break down the road – so the money you withdraw during retirement is withdrawn tax free.  If your tax rate goes up, a Roth would have been preferable, while if you tax rate goes down, a Traditional would have been the better choice.

Opening a Roth IRA thus makes a lot of sense for those who have the longest time to save and expect their tax rates to go up over time as a result of their career trajectory – young people beginning to save for retirement – because their money can grow tax-free for a long time.

How to Open a Roth IRA Step-By-Step

1. First, select the Roth IRA provider you would like. 

NerdWallet recommends either E*TRADE, TD Ameritrade, OptionsXpress by Schwab, or Scottrade among others.

2. Second, determine how much you can afford to contribute this year. 

The maximum contribution in 2013 is $5,500 if you are under 50 and $6,500 if you are over 50.

3. Third, Open and fund the account.

Once you’ve selected an account from the above options, get your bank account information ready or write a check so you can get your post-income-tax money sent to fund your new account.  Also have your additional personal information handy so you can sign up for the new account online in one sitting.

4. Fourth, Set Your Future Saving Goals

Come up with a goal for future years’ contributions so you can keep the savings building up over time.  Studies show that the psychology of making a financial commitment to yourself in advance is more likely to help you save more.  Planning ahead goes a long way!

5. Last, Don’t Forget To Contribute Next Year

Saving year after year is truly the best way to save enough for retirement.  Set yourself a calendar a year out so you don’t forget to contribute annually, as well as to monitor how your investments are doing over time.

Why you should open an IRA Account at all?  

Why open an IRA, whether it be a Roth or another kind?  It’s all about tax-advantaged savings and the magic of compounded returns over time.

NerdWallet recommends saving as much as you can as young as you can to get the most out of your tax-advantaged retirement options available to you now.

 

Written by Susan Lyon

  • Bolts88

    What about Fidelity?

    • Maxime Rieman

      Fidelity is a reasonable option as well.