How to Open a Roth IRA

In the decade or so since their introduction, people have come to realize the awesome power of the Roth IRA. They allow individuals to save money for their retirement and let it grow tax free. Yes, that's right tax free. Roth IRA's are retirement accounts that are maintained by registered financial institutions, but created and directed entirely by you, the investor. These accounts can contain any number of investments including CDs, stocks, bonds, mutual funds, even real estate.

You can open a Roth IRA at a brokerage firm (such as Charles Schwab, E-Trade, TD Ameritrade), a Mutual Fund Company (exp. Janus, Fidelity, Vanguard), Banking Institution (Wachovia, Bank of America, or Washington Mutual) or diversified financial company (Citigroup, ING). These accounts can be opened in person, via telephone, or even online. It pays to do your research to find out each companies specific rules surrounding opening a Roth IRA, and what the associated fees will be. And much of this can be done right from your computer as many firms allow you to open a Roth IRA through their website in just a few minutes.

As you are investigating where to open your Roth IRA note all the various fees that a company may charge. Yearly maintenance fees, account set up charges, and annual fees based on the total value of your Roth IRA are all common fees associated with maintaining a Roth IRA. Do you best to keep account fees to a minimum as they will eat away at your yearly rate of return. If fees of some sort are required, make sure that you have the option to pay these fees from funds separate from your Roth IRA, again this preserve your yearly rate of return from being slowly eaten away by fees.

Once you open your Roth IRA, you'll probably have to make an initial deposit, typically $500 or $1,000, though many companies will waive that requirement if you set up an automatic withdrawal program from a checking or savings account. This is a great way to not only fund your Roth IRA, but to take advantage of dollar cost averaging, the concept that regular periodic investments will outperform attempts to buy at the lowest price. Setting up a system like this is a great way to put your retirement on "Autopilot", set it up and forget about it. Bear in mind that the yearly contribution limit to a Roth IRA is $5,000 (for tax year 2008 and 2009)

If you have decided to grab your retirement bull by the horns, opening a Roth IRA is a great way to start. Ask friends and colleagues for recommendations of where they maintain their retirement accounts, and by all means, take advantage of this important tool for retirement.