How to Open Roth IRA Accounts

Research investment options before you open a Roth IRA.
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If you are young and want to get into investing, consider a Roth IRA. Opening a Roth IRA isn’t difficult to do, and it’s a smart money move. Any money you put in grows tax-free, and you won’t have to pay taxes when you cash out during your golden years. If you are like most people and like gifts, open a Roth IRA – it’s essentially a gift from Uncle Sam, says Erin Burt, a Kiplinger.com contributing editor.

Step 1

Decide where you want to open your Roth IRA account – at a bank, credit union, brokerage or mutual fund company. Some mutual fund companies let you open Roth IRAs online, and you can set up automatic contributions if you like. Many people find this to be the most painless way to contribute.

Step 2

Research whether you want to invest your Roth IRA funds in stocks, bonds, mutual funds, CDs, money market accounts or real estate. If you aren’t sure, think about mutual funds. That way you are letting pros decide for you, and a financial professional handles your money, typically spreading your funds across many different investments, balancing out your portfolio and decreasing risk.

Step 3

Contact the financial institution where you want to open your IRA before the April 15 tax deadline so you can contribute the maximum for the last year and another $5,000 (the limit for 2010) for the current year.

Step 4

Take some risk if you are young. Stocks perform better over the long term. The longer your time frame, the more risk you can take because you have more time to recover any losses. The further you are from retirement, the more risk you can take. But, whatever your age, you should have an asset allocation plan. This involves dividing your investments into different categories, such as stocks, bonds and cash.

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