How to Open Roth IRA Accounts

Research investment options before you open a Roth IRA.

Research investment options before you open a Roth IRA.

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.

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.

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.

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.

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.


  • If you open an IRA at a bank or credit union, you can only invest in CDs or money market accounts. If you choose a brokerage firm, you can invest in mutual funds, stocks or bonds. If you feel educated enough, you can open your Roth IRA through an online brokerage. You pay fewer fees and can change your portfolio any time this way.
  • Mutual funds are generally a safer option for the beginning investor because they are easier to understand, but stocks tend to perform better over the long-term. Money market accounts and CDs are not risky, but have lower rate of returns. Use a discount broker to invest in stocks, a fund company for mutual funds and a bank for money market accounts or CDs.
  • With one exception, you have to earn money in order to open a Roth IRA. You cannot only receive income from investments or other unearned sources, like gifts. You must be paid in salary, wages, tips or bonuses. The exception is for non-working spouses. Non-employed spouses can used earned income from the employed spouse to open and fund a Roth IRA. The contribution limits are generally the same for the non-working spouse.
  • Roth is designed to be for your retirement, but you can withdraw the contributions any time, without a penalty. You don’t have to pay back what you withdraw, either, as you do with a 401k. You, however, cannot withdraw the earnings penalty-free. You pay taxes on those, plus a 10 percent penalty.


  • For 2010, you cannot open a Roth at all if your adjusted income limit is greater than $120,000 if you are single or $177,000 if you are married and file a joint tax return.

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About the Author

Laura Agadoni has been writing professionally since 1983. Her feature stories on area businesses, human interest and health and fitness appear in her local newspaper. She has also written and edited for a grassroots outreach effort and has been published in "Clean Eating" magazine and in "Dimensions" magazine, a CUNA Mutual publication. Agadoni has a Bachelor of Arts in communications from California State University-Fullerton.

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