While opening a Roth IRA isn't rocket science, it does require serious thought and consideration. Before you rush to the bank or purchase a Roth IRA online, it's important to know how much you want to invest, how comfortable you are with risk, how many investment options you want and which providers will be the best choice for you.
Check your eligibility. Make sure your income meets the requirements set for the year in which you are applying for the IRA. These limits change on a yearly basis and are determined by whether you file your taxes as a single or jointly.
Decide how much you’ll invest. There are no minimum legal amounts for opening a Roth IRA, but financial institutions often set minimum investment limits. If a financial institution is not willing to work with you because your amount is too low, visit other providers.
Decide how much risk you are comfortable with. If you are comfortable with risking losses to have a chance for higher returns in the future, choose a higher risk investment; if you’re young, it will have years to bounce back if the market takes a downturn. If you’re lucky enough to be retiring early or prefer security, it may be wiser to invest more prudently and settle for a lower return to protect your savings.
Consider the time investment. Some investments can be ignored for a long time, but others need to be checked in on frequently. Determine how much time you are willing to put into your investments.
Choose the best IRA provider for you. Banks, mutual-fund companies, insurance companies and brokerage firms all provide IRAs. Ask each provider what fees they charge and what their minimum investment amounts are. Remember that banks are likely to accept small accounts but unlikely to offer as many investment options as mutual-fund companies or brokerage firms. If you want to design your own portfolio, brokerage firms and mutual-fund companies offer a wide variety of options. If you want to invest in annuities, insurance firms are the way to go.
Visit your chosen provider to fill out paperwork. Take your social security number, bank account information and employment information such as address and phone number with you.
Elect your beneficiary. When you visit your IRA provider, you will have the option to decide who will receive your IRA if you die. The default option on most IRA forms elects your spouse as beneficiary. Consult an estate-planning professional if you are unsure who would be the best beneficiary.
Keep your records in order. Store records someplace handy so you’ll have them ready when you need to complete your tax return or make changes to your investments.
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