Retirement PlanningIRAsWhy You Need To Learn How To Start a Roth IRA Today...

Why You Need To Learn How To Start a Roth IRA Today (2023)

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Everyone was once in your shoes.  They knew they needed to start saving for retirement, but it was so far away and there are a million good reasons that we can’t start yet.  As a financial planner I would always ask retirees “what is the one piece of advice that you think I need to teach every younger person”?  By far the number one answer was “teach them how to start a Roth IRA as soon as possible”.

When I would follow up and ask why that was the most important lesson they would pass on to a younger generation?  The two answers that always stood out was 

  1. I wish I started to save at a younger age, because it only gets harder to start as time goes on.
  2. Tax free income in retirement is the best thing to have ever happened to me.

Key Takeaways For How to Get Started With a Roth IRA

  • Start Roth IRA for retirement savings.
  • Need earned income, meet income limits.
  • In 2023, contribute up to $6,500 ($7,500 if over 50).
  • Tax-free growth and withdrawals.
  • No required minimum distribution (RMD) from age 72.
  • Control your investments.
  • Consider robo-advisors for beginners.
  • Stay disciplined, diversify.
  • Consult financial advisor for best strategy.
  • Teens can invest.
  • Fund child’s Roth IRA directly or otherwise.
  • Vanguard and Charles Schwab offer diverse Roth IRAs.

How To Start a Roth IRA & What to Know When Starting a Roth

There are a few things to consider to start a Roth IRA. When starting a Roth IRA, you must first ensure you are eligible. You must have earned income from a job or business to be eligible. 

Additionally, your income must fall below a certain amount. The amount changes yearly, so it’s important to check the most current income limits.

Lastly, you need to decide how much you want to contribute. You can contribute up to $6,500 in 2023 ($7,500 if you’re over 50). This is an increase from the limits in 2022 of $6,000 and $6,500

Why Should You Start a Roth IRA?  What Is A Roth IRA?

I won’t bore you with the numbers and big financial terms.  Instead I will ask you to close your eyes and tell me what you want your financial future to look like, what are your financial dreams?.

How much do you need to save to make that a reality?  Are you doing enough today to make that dream a reality?  If you aren’t 100% sure you know those answers – you MUST keep reading.

What Is a Roth IRA?

A Roth IRA is an excellent way to invest for retirement. It offers several advantages over other retirement accounts, including the ability to withdraw tax-free income in retirement.  The simple answer is that a Roth IRA is the answer to how to help you achieve those dreams from two minutes earlier.

A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. 

Contributions to a Roth IRA are made with after-tax dollars, so you won’t get a tax deduction for your contribution.

However, all earnings and withdrawals are tax-free in retirement.

Another great benefit is there is no requirement for you to take a minimum distribution starting at age 72!

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But why a Roth IRA over a regular brokerage account?  There a re a lot of reasons:

Roth IRA vs. Brokerage Account

The words roth ira - individual retirement account - handwritten

There are many different types of retirement accounts that people can use to save for their future. Two of the most popular options are Roth IRA accounts and brokerage accounts. Both of these account types have their unique benefits and drawbacks.

Roth IRA accounts are great for people who want more control over their retirement savings. With a Roth IRA, you can choose how your money is invested and withdraw your money at any time without penalty. However, RA accounts have contribution limits, and you may have to pay federal taxes on your withdrawals.

Brokerage accounts are a good option for people who want to have someone else manage their money. With a brokerage account, you can choose from a variety of investment options, and you can also get help from a financial planner or investment advisor with your investment decisions. However, brokerage accounts typically have higher management fees than IRA accounts.

So, which account is right for you? It depends on your circumstances and investment objectives. For example, an IRA may be the better option if you want more control over your retirement savings, between your investment options and not having to take RMDs in the future. On the other hand, a brokerage account may be the better choice if you want someone else to manage your money and don’t mind having to pay taxes every year AND when you withdraw the funds.

  • Fun fact: 8 out of 10 millionaires invested in their company’s 401(k) according to our National Study of Millionaires.  Using your company’s Roth 401(k) allows you to get the benefits of all worlds!

What Do You Need To Start a Roth IRA?

To open an IRA, you’ll need to have earned income from a job or from running a business.   You’ll also need to find a financial institution to open an account with.  The most important thing to remember when opening a Roth IRA is to start saving as early as possible. The sooner you start saving, the more time your money has to grow.

If you’re thinking about investing in a IRA, here are a few tips to get started:

  • Once you have decided to invest in an IRA, there are a few things to consider. First, you need to choose a custodian for your account. This can be a bank, credit union, brokerage firms, investment companies, or even some mutual fund companies.
  • When choosing a place to open your IRA, look for a financial institution with low fees and a good reputation.
  • Third, you must decide what investments you want to hold in your IRA.
  • You should invest in a variety of different assets. These include stocks, bonds, mutual funds with low expense ratios, exchange-traded funds (ETFs), or even alternative investments. This will help to protect you if one particular investment goes down in value.
  • Consider using a Robo-advisor. A Robo-advisor is a great option if you want help investing your money. They can provide investment recommendations based on your goals and risk tolerance.
    • Robo-advisor funds are a great way for beginner IRA investors to get access to advisor-managed funds at a low cost,” says Adam Bergman, founder and CEO of IRA Financial Group.
  • Stay disciplined with your contributions. 
  • Finally, you must ensure you stay within the contribution limits for your IRA.

If you follow these tips, investing in an IRA can be a great way to save for retirement.

How to Start a Roth IRA In 9 Easy Steps

  • Can you start a Roth IRA at any time
  • How much does it take to open up a Roth IRA
  • How much money should I have to start a Roth IRA

Before you Start a Roth IRA

Confirm if you’re eligible – make sure your income qualifies based on your tax filing status.

  • In 2022, as long as your adjusted gross income is less than $129,000 for single filers and $204,000 for married filing jointly, you can contribute the maximum amount to an IRA.
  • In 2023, as long as your adjusted gross income is less than $138,000 for single filers and $218,000 for married filing jointly, you can contribute the maximum amount to an IRA.
2023 IRA CONTRIBUTION LEVELS
YearUnder age 50Age 50+
2022
2023
$6,000
$6,500
$7,000
$7,500
2023 IRA CONTRIBUTION LEVELS

9 Easy Steps to Start a Roth IRA (Guide)

Step 1 – Choose a provider and open your Roth IRA

  • Where is the best place to set up a Roth IRA
  • Finding the best IRA brokers as a ‘do-it-yourself’ investor
  • Finding the best IRA robo-advisors as a ‘manage it for me’ investor
    • “Robo-advisor funds are a great way for beginner Roth IRA investors to get access to advisor-managed funds at a low cost,” says Adam Bergman, founder and CEO of IRA Financial Group.
Couple Meeting with Financial Advisor

Step 2 – Decide Where to Start Your Roth IRA Account

Where to Open Roth IRA

When it comes to saving for retirement, there are a lot of options out there.You need to choose an IRA provider, so where to open a Roth IRA?  

Many different companies offer IRA accounts.  There are many different places where you can start an IRA, but not all of them are created equal.

Here are a few of the most popular, best places to start a Roth IRA:

  • Fidelity Investments: Fidelity is one of the largest investment firms in the world, and they offer a great Roth IRA product. The trade fees are very reasonable, and they have a great selection and range of investment options.
  • Vanguard: Vanguard is another large investment firm that offers a great Roth IRA product. The fees are even lower than Fidelity, and they offer a great selection of investment options.
  • Charles Schwab: Schwab is a full-service investment firm that offers a great Roth IRA product. The fees for trades are reasonable and offer a great selection of investment options.
  • TD Ameritrade: Ameritrade is an online discount broker offering a great Roth IRA product. The fees are very reasonable and offer a great selection of investment options.

Step 3 – Fill out the paperwork or complete an online application

You can open anIRA at most financial institutions, including banks, credit unions, and online brokers. The process is relatively simple and can be done online in just a few minutes.

To open an IRA, you’ll need to provide some personal information, including your name, address, Social Security number, and date of birth. You’ll also need to choose a beneficiary for your account. This is the person who will receive the account balance when you die.

Step 4 – Once you’ve opened your account, you’ll need to make contributions. 

You can make contributions for the current year at any time up until the tax filing deadline (April 15 for most people). You can also make contributions for the previous year up until the tax filing deadline.

The easiest way to make contributions is to set up automatic transfers from your checking or savings account

Step 5 – Decide what type of investor you are and your risk tolerance

If you’re thinking about starting a Roth IRA, an important step is to determine your risk tolerance. How much risk are you willing to take with your investment? This will help you decide what type of investments to make within your IRA.

There are two types of investors, those who are willing to take on more risk for the chance of a higher return and those who would rather play it safe. Your risk tolerance will largely dictate how you approach retirement savings.

Step 6 – Choose how you want to invest using an asset allocation model that fits you.

asset allocation concept graph on whiteboard

There are many different ways to invest your money, and it can be difficult to decide which method is right for you. One important factor to consider is your asset allocation, or how you distribute your assets (such as cash, stocks, and bonds) among different investment types.

Your asset allocation should be based on your investment goals, risk tolerance, and time horizon. For example, if you are saving for retirement, you will likely want a different asset allocation than if you were saving for a short-term goal, such as a down payment on a house.

Your asset allocation should also be reviewed and rebalanced on a regular basis, as your goals, risk tolerance, and time horizon may change over time.

If you are not sure how to start, there are many resources available to help you determine an appropriate asset allocation for your situation. Once you have determined your asset allocation, you can then start to look for specific investments that fit within that allocation.

There are many different ways to invest your Roth IRA money, so it’s important to find an investment that aligns with your goals and risk tolerance.

Step 7 – Choose specific investments within your Roth IRA.

There are many different ways to invest your IRA. You can choose to invest in stocks, bonds, mutual funds, and other investment vehicles.  You will want to consider your investment goals, risk tolerance, and time horizon. You will also want to research the different investment options available to you.

Step 8 – Once you have chosen your investments, you will need to monitor your account.

You will want to rebalance your portfolio as needed and make sure that your investments are performing well. You may also need to make changes to your investments as your goals or risk tolerance changes.

What Investments Should You Put In Your Roth IRA

The easy part about opening up the Roth IRA is done, but many people then get stuck on step 6. Knowing the best way to open a Roth IRA and deciding how they want select to invest and choosing investments for the long term.

When choosing the best investments for your Roth IRA, there is no one-size-fits-all.

But one thing to keep in mind about a Roth IRA is it is a long term investment strategy that will ultimately provide you tax free income in retirement.  So keep that in mind when deciding which types of investments to put in the account.

What do I mean by that?  

You want to invest the high growth, more aggressive portions of your overall portfolio in your Roth IRA.  Even more actively traded investments.  It is less advantageous for you to invest in more conservative or income producing investments in your ROTH IRA.

Why?

It is simple.  The larger the Roth IRA grows, the more of an advantage the tax free strategy is being taken advantage of!!!

There are many different investments to choose from when starting a Roth IRA. The best investments for an IRA will vary depending on your circumstances, but some general guidelines can help you choose the right investments for your Roth IRA.

  • There are many different types of investments that you can put into a Roth IRA. You can choose stocks, bonds, mutual funds, ETFs, and even real estate. The best investments for anIRA are those that will grow over time and provide you with a good return on your investment.
  • When choosing investments for anIRA, you should first decide how you want to invest. Are you looking for growth, income, or both? Once you know your investment goals, you can then select the best investments for your Roth IRA.
  • For growth, you may want to invest in stocks or mutual funds. These types of investments can provide you with the potential for high returns. However, they also come with the risk of losses.
  • If you are looking for income, you may want to invest in bonds or real estate. These types of investments provide you with a steady stream of income, but they may not provide the same potential for growth as stocks and mutual funds.
  • No matter what your investment goals are, you should always choose investments that you feel comfortable with and that you can hold for the long term. This will help you maximize the benefits of a Roth IRA and reach your financial goals.
  • You should consult a financial advisor to get more specific advice on which investments are best for your IRA. A financial advisor can help you assess your investment goals, risk tolerance, and time horizon to develop a personalized investment plan for your IRA.

How Much Will My Ira Be Worth In 20 Years

I can say with a 99% degree of confidence that the answer is “more than it is worth today

To get a more accurate estimate of how much your IRA will be worth in 20 years, you can use a retirement calculator. Simply input how much you have saved so far, your current age, your expected retirement age, and your expected annual return. The calculator will then give you a more specific estimate of how much your IRA will be worth in 20 years.

In general, the earlier you start saving for retirement, the more time your money has to grow. Therefore, if you haven’t started saving yet, it’s never too late to start. The sooner you start, the more time your money has to grow, and the more comfortable your retirement will be.

Advantages of saving early
Source: Kitces.com

Mutual funds allow you to use the power of the stock market’s long history of growth without taking on the risk of single stock investing.

Step 9 – Set Up a Contribution Schedule

After you’ve opened and started a Roth IRA, you will want to make sure you contribute to it on an ongoing basis.

  • Should I max out my Roth IRA every year
  • How much should I put in my Roth IRA monthly
  • Should you max out Roth IRA in January

If you are able to max out your Roth IRA every year, you should do so. This will allow you to take advantage of the tax benefits associated with the account. If you are not able to max out the account every year, you should still contribute as much as you can each month. The sooner you start contributing, the more time your money will have to grow.

Once you’ve chosen your investments, it’s time to start saving. A good way to do this is to set up a regular investment plan, whereby you automatically invest a fixed amount of money each month. This will help you to stay disciplined and avoid making impulsive decisions with your money.

Contribute on board with arrows

There are a few things to consider when deciding how much to contribute to your IRA each month. 

  • First, you need to make sure that you are contributing enough to take advantage of the tax benefits associated with the account. 
  • Second, you need to make sure that you are not contributing so much that you will have difficulty meeting your other financial obligations. 
  • Finally, you need to make sure that you are contributing enough to reach your retirement goals.

The best way to determine how much you should contribute to your Roth IRA each month is to speak with a financial advisor. They will be able to help you figure out how much you need to contribute to reach your specific retirement goals.

Making regular contributions to your Roth IRA account is the best way to ensure that it grows over time. By doing this, you’ll be on your way to a bright future.

Finally, remember to review your investment portfolio on a regular basis and rebalance it as necessary. This will ensure that your investments remain well- diversified and continue to meet your long-term financial goals.

Why You Should Start A Roth IRA For Your Kids

You have now heard of Roth IRAs and how they can be beneficial for retirement savings, but did you know that you can open an IRA for your child? If you are looking for a way to start saving for your child’s future, a Roth IRA may be a good option.

Can I Start a Roth IRA for My Child?  

Why Roth IRAs Are Ideal For Kids?

Teens counting savings

There are a few things to consider before opening an IRA for your child. First, you will need to have earned income from a job in order for your child to be eligible to open an IRA. If your child is under the age of 18, you will need to open a custodial account on their behalf. Second, you will need to decide how much you want to contribute to the account each year.

  • The contribution limit for 2022 is $6,000.
  • The contribution limit for 2023 is $6,500.

Once you have opened an IRA for your child, the money that you contribute will grow tax-free. This means that when your child withdraws the money in retirement, they will not have to pay any taxes on the growth. Additionally, if your child decides to use the money for qualified expenses before retirement, they can do so without paying any taxes penalties.

There are many reasons to consider opening a Roth IRA for your child. The tax-free growth and ability to withdraw the money for qualified expenses before retirement are just two of the reasons. If you are looking for a way to start saving for your child’s future, a Roth IRA may be a good option

The Rule of 72

The Rule of 72 is a simple way to determine how long an investment will take to double, given a fixed annual rate of return. You divide 72 by the annual rate of return, and the result is the number of years it will take for the investment to double.

For example, if you expect your investment to grow at an annual rate of 6%, it will take 12 years for it to double (72/6 = 12).

The Rule of 72 is a quick and easy way to estimate how your investment will grow, but it’s not exact. It’s based on the assumption that your investment will grow at a constant rate, which is rarely the case in the real world.

How Teens Can Start Investing Through a Roth IRA

Teen Girl Saving Money

Investing may seem like an adult activity, but it’s actually a great way for teenagers to start building their financial future. One of the best ways to invest is through a Roth IRA.

Does your teen have a summer job? Do you own a business and can hire them?  Time to start a Roth IRA for your teen then!

If you’re a teenager with a summer job, you may be thinking about how to spend your hard-earned money. While buying the latest gadgets or going on shopping sprees may be tempting, there’s a better way to use your money: investing.

If you are a teenager and have started working a summer job, it may be a good idea to start investing in an IRA. 

A teen is subject to the same IRA contribution rules as adults, as long as they have earned income they will be eligible to contribute.  Investing in a Roth IRA is a great way to start saving for anyone at any age.

How to Open an IRA For a Child, And How To Fund It? 

The best way to fund an IRA for your child is to have them contribute to it directly from their paycheck. This way, the money will go into their Roth IRA before they have a chance to spend it.

If you are not sure how to set up a Roth IRA for your child, you can talk to a financial advisor. They can help you set up the account and choose the best way to fund it.

Here’s how to start a Roth IRA for your child:

Step 1: Find a bank or brokerage firm that offers IRAs.

Step 2: Open an account. You’ll need your child’s Social Security number.

Step 3: Choose how you’ll fund the account. You can make annual contributions or set up automatic transfers from your own bank account.

Step 4: Start saving! The sooner you start, the more time your money will have to grow.

Where Do I Start A Roth IRA? Vanguard Roth IRA

A Vanguard Roth IRA is a great option for investors, one of the best places to open Roth IRA. There are many benefits to investing in a Vanguard Roth IRA. The account is easy to set up, and Vanguard has a great customer service team that can help you with any questions. 

Another benefit of a Vanguard Roth IRA is that it offers a wide variety of investment options; there are typically low or no annual fees. You can invest in low-cost index funds, stocks, bonds, mutual funds, and ETFs. This allows you to diversify your portfolio and tailor it to your specific investment goals. 

Additionally, Vanguard is a well-respected and reputable investment firm, so you can be confident that your money is in good hands.

Overall, a Vanguard Roth IRA is a great option for anyone looking to invest for the long term. In addition, it offers a variety of benefits that make it a wise choice for novice and experienced investors.

Charles Schwab Roth IRA: How To Start Roth IRA

Another one of the best places to open a Roth IRA is at Charles Schwab. Charles Schwab is one of the most popular financial service companies in the United States. They offer various products and services, including a Roth IRA. 

The Charles Schwab Roth IRA has several features that make it a great choice for investors. First, there are typically low to no account fees. This is unusual for a financial company, but you can keep more of your money in the account. 

Second, Charles Schwab offers various investment options, including stocks, bonds, ETFs, index funds, and mutual funds. 

Overall, the Charles Schwab Roth IRA is a great choice for investors. The lack of fees and a wide variety of investment options make it a good option for people who want to save for retirement.

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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.

Conclusion

To start a Roth IRA, you will need to save money for retirement and open an account with a financial institution. You will also need to choose how you want to invest your money. There are many different ways to invest in a Roth IRA, so you will need to research the options and decide which is best for you. You can start contributing to your Roth IRA as soon as you have opened the account and have the money to contribute.

Michael Ryan
Michael Ryanhttps://michaelryanmoney.com/
Who Am I? I'm Michael Ryan, a retired financial planner turned personal financial coach. And author and found of blog. My advice is backed by decades of hands-on experience in finance and recognition in esteemed publications like US News & World Report, Business Insider, and Yahoo Finance. 'here'. Find answers to your financial questions, from budgeting to investing and retirement planning, on my blog michaelryanmoney.com. My mission is to democratize financial literacy for all.