Beginners Guide: How To Open A Roth IRA

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One of the best ways to save money for your retirement is to open a Roth IRA. Some people are intimidated by tax advantaged accounts, but you shouldn’t be.

This article will tell you how to set up a Roth IRA so you can plan for your retirement.

As an IRA (individual retirement account), a Roth has some cool features that make it a great way to fund your retirement and not be penalized by taxes.

Everything You Need To Know About Roth IRAs

Not everyone qualifies to open a Roth IRA, but if you have earned income, you’re good.

With that being said, If you make more than $140,000 as a single person or $208,000 as a married couple filing jointly, you don’t qualify to contribute to a Roth IRA.

But let’s find out exactly what a Roth IRA is and how it works.

What Is a Roth IRA?

A Roth IRA is tax-advantaged individual retirement account named after the late Delaware Sen. William Roth, who championed its creation in 1998.

What makes the Roth IRA different from traditional IRAs is that the Roth version is funded with after-tax dollars and allows the owner to make tax-free withdrawals in retirement.

Here are some key features of a Roth IRA that you should know about.

You cannot deduct contributions to a Roth IRA.

If you satisfy the requirements, qualified distributions are tax-free.

You can make contributions to your Roth IRA after you reach age 70 ½.
You can leave amounts in your Roth IRA as long as you live.

What Are The Advantages Of A Roth IRA?

These accounts come with many advantages. With a Roth IRA, you get to invest after-tax dollars and take tax-free distributions.

Another advantage is that instead of making deductible contributions, which is what you’d expect for a typical account, Roth IRA account holders are allowed to make after-tax contributions. They can then turnaround and withdraw their money tax free in retirement, including on investment gains.

What Are The Disadvantages Of A Roth IRA?

Some disadvantages of Roth IRAs is that you can’t roll them over to a traditional retirement plan.

Another disadvantage is that if you make too much income, you won’t be able to contribute to a Roth IRA. There’s also an annual contribution limit that you must adhere to. Because of that resin, you’ll need other investment options to live comfortably in retirement.

You also aren’t allowed to make tax-deductible contributions to a Roth IRA.

How To Open A Roth IRA

It’s very easy to open a Roth IRA. You can do it online or in person at a bank, mutual fund firm or brokerage.

Open A Roth IRA With Fidelity.

Open An IRA With Vanguard.

How Much Money Can I Make From a Roth IRA?

How much money you can make from a Roth IRA depends on how long you let it grow.

Let’s say you open a Roth IRA with an initial $6,000 investment. With an annual rate of return of about 7%, your money can top $20,000 or more over two decades..

You can make even more money with your Roth IRA with a 8% or 9% average annual return, which can happen.

What Is The 5-Year Roth Rule?

The 5-year Roth rule requires account holders to wait five years before withdrawing any converted balances — contributions or earnings — regardless of your age.

You’ll pay a 10% penalty when you file your tax return if you take money out before five years elapses.

Final Word

A Roth IRA is a tax-advantaged account that allows you to be strategic in how you to contribute your post-tax earnings.

Taking care of yourself financially is the #1 way to live better later in life. If you do so, you can save money on travel, what you pay at the grocery store and other expenses.

Read how to get out of debt right now.

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Keisha Smith

Keisha Smith is a Contributing Writer who attended college at Southern University A&M College in Baton Rouge. She is currently writing a book on south Louisiana culture.