How to Set Up a Roth IRA

Few other retirement vehicles have the power of the Roth IRA, and their popularity over the last decade has grown as more people have taken advantage of this potent way to save for retirement. Roth IRA's are retirement accounts that are maintained by financial institutions, but are set up and directed entirely by you, the investor. These accounts can contain any number of investments; stocks, bonds, mutual funds, even real estate or precious metals.

Roth IRA's can be set up at a brokerage firm (Charles Schwab, E-Trade, TD Waterhouse), Mutual Fund Company (Janus, Fidelity), Banking Institution (Bank of America, Washington Mutual, Wells Faro) or diversified financial company (AIG, Pacific Life, Mass Mutual). These accounts can be set up by in person, via telephone, or online. Do some research into each of these various companies, and the many other companies out there by visiting their websites and comparing what choices each will offer. Company websites are increasingly comprehensive and often you can set up your Roth IRA account online in just a few minutes.

When researching where to set up your Roth IRA account be sure to compare all the various fees and charges that a company may charge. Yearly maintenance fees, account set up charges, and annual fees based on the dollar value of assets held are all common charges. Keep account fees and charges to a minimum as they will erode your yearly return. If you do have to pay fees, most companies have an option that you can pay these fees from outside of your Roth IRA account. Also check to see what investment options each company offers, what their minimum balance to open an account is, and other pertinent information.

Upon setting up your Roth IRA account, you will likely need to fund it with a minimum balance, often at least $500 or $1,000. Make sure that you have enough money in a checking or savings account to be able to make this initial funding of the account. Many companies will have the option to set up regular and periodic electronic transfers into your Roth IRA account from a checking or savings account. This is often the best bet for investors who want to set up an account, but don't have enough for a large initial deposit, since many companies will allow you to set a Roth IRA with as little as a $50 electronic monthly transfer.

Remember that your Roth IRA won't create a tax benefit in the year you make a contribution, so even though you contribute up to $4,000 (the maximum amount for 2007), you won't get any tax benefit that year. But when you retire all funds that you remove are not taxed. Since all money is withdrawn tax free upon retirement, Roth IRA's have the potential to yield tremendous tax-free returns over long periods of time. So get started, do some research, and begin saving for your retirement.