How to Open Your First Roth IRA
If you’ve undertaken the necessary analysis and have determined that you are qualified for a Roth IRA, and that it is the best retirement vehicle for you, then the next step is to decide where you want to open the account. Part of that decision, however, will involve what sort of investments you’re willing to make, as all providers don’t offer a full spectrum of investment possibilities. If you want to accept more risk, in hopes of greater gains, you will probably find fewer providers able to accommodate you. More conservative investments, however, are widely available. You can open your Roth IRA very easily at a number of banks, mutual fund companies, brokerage firms or insurance companies. Just be certain to ask about all fees and services, as these can vary greatly from one provider to another. All you’ll need is your checkbook and social security number, and you’re on your way to providing for your retirement.
Administration methods of Roth IRAs is fairly uniform, from one provider to another, although charges may vary greatly. Some providers, for example, may waive transaction charges, in the event of early withdrawals, or have no annual administration fee. It’s advisable to sit down with two or three different providers, and carefully compare all aspects of their service and their investment history, before committing.
If you already have an IRA, you may be able to transfer that over to the Roth. However, it’s important to recognize the differences between a Roth and other IRAs. Most IRAs will allow deductions for the contributions you make to the fund, but once you start receiving distribution of the funds, they are taxable. With a ROTH IRA, no deductions are allowed, so you will pay standard income tax on the monies you contribute now. However, once you start receiving distributions, that money is not taxable as income. This is a very important consideration in structuring your IRA, depending upon what your tax bracket is now, and what you expect it to be later.
Selecting the types of investments for your portfolio is dependent on a number of factors.
1. The size of your Roth IRA
2. The time-frame of your investment
3. What other investments you already have
4. Your investing style
Tax law doesn’t set a minimum size for a Roth IRA, but the provider can. If your Roth is a small one, don’t try to get too fancy… just select a simply investment that won’t involve a lot of fees or manipulation. There’s time to get fancy once your fund is larger.