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How To Open A Roth IRA

It's not that difficult to open a roth ira.

And if you've decided that the benefits of a Roth IRA are just too good to pass up, then you're ready to set up your account.

First, read Roth IRA Fees before opening your Roth IRA.

It covers the most important aspect of your retirement savings plan...

Keeping your costs as low as possible.

Once you've done that, take the following steps...

1) Investment Preparation

Make sure you're ready to open a Roth IRA right now.

Starting a Roth IRA is a long-term commitment. It's not something that should be done with little or no deliberation.

If the money you plan to invest in your Roth IRA is money you plan on needing by the end of this year, then consider building a more solid financial foundation before you open a Roth IRA.

For instance, make sure you have at least six months of living expenses set aside in your savings or money market account.

If you have any high-interest debt, pay that off first.

Debt in the form of a modest fixed-rate mortgage is okay, but debt in the form of credit cards can be a major hindrance to your financial goals.

So make sure you pay off those credit cards!

Once you're on a firm financial footing, you're finally ready to open a Roth IRA.

2) Find A Discount Brokerage Firm

Once you've made the decision to open a Roth IRA, your next step is to select the financial institution where you'll open your account.

Countless options are at your disposal, including both the traditional bricks-and-mortar firms as well as their online counterparts (although most bricks-and-mortar firms have their own online services).

I highly recommend setting your account up online.


Because most online brokerage services are significantly less expensive than full-service, walk-in-the-door financial institutions where an employee must be paid to help you.

All these brokers do anyway is fill out the same online information you fill out on the Internet, so you might as well do it yourself and save some money.

I'll go out on a limb and assume that since you're reading this online, you already know how to surf the web. So don't worry... opening a Roth IRA account online is no harder than that!

Choosing what firm you use is the hardest part of the process, and no one firm is right for everybody.

Each discount broker has a different schedule of fees, different trading costs, and minimum initial and recurring investment amounts.

You have to do some research to find out which one best meets your own individual needs.

For example, if you trade a lot, choosing the discount broker with the lowest trading commissions makes sense.

However, if you trade very little, you might accept a higher trading cost if doing so means a lower threshold for your initial and recurring investments.

Doesn't that make sense?

In your research, here are some questions you might consider...

  • Is a minimum initial investment required to open a Roth IRA?
  • Is there a minimum amount for subsequent contributions?
  • Are any fees associated with the account?
  • Are automatic bank draft contributions available?
  • Is free automatic reinvestment of dividends available?

Before you open a Roth IRA, consider questions like these and choose the options which best fit your individual needs.

Here's a few examples of discount brokers, followed by a link to a more comprehensive list...

Roth-IRA fee: $30 Annual Fee
Charge per trade: $0.00-$4.50
Minimum Initial Investment: None
Free Automatic Reinvestment of Dividends: Yes
Zecco charges a $30 annual fee to maintain a Roth IRA, but this cost is more than offset if you maintain a balance of $25,000+ or if you plan on making more than 25 trades per month.

While we don't personally recommend making 25 or more trades per month within any brokerage account (much less a Roth IRA), we realize this is a strategy you might want to explore. If so, visit the Zecco website for more information on the actual pricing structure... It varies depending on your average balance and trading activity.

Read our full Zecco Roth IRA review >>>

Roth-IRA fee: No
Charge per trade: $4.95
Minimum Initial Investment: None
Free Automatic Reinvestment of Dividends: Yes
TradeKing only charges $4.95 per trade on stocks and ETFs. They also offer free automatic reinvestment of dividends, which is great for your Roth IRA account.

From what I hear, the customer service is excellent. However, TradeKing does charge a $50 termination fee if you close out or transfer your Roth IRA somewhere else, but this is a one-time fee which only applies if you move the entire balance of your account.

Visit TradeKing For More Information >>>

Roth-IRA fee: No
Charge per trade: Varies
Minimum Initial Investment: None
Free Automatic Reinvestment of Dividends: Yes
Sharebuilder offers three (3) different pricing structures to choose from, so your commissions vary from $0 to $4 for automatic investments, all the way up to $9.95 per trade for real-time individual security purchases. The advantage of Sharebuilder is its automatic investment program. The program allows you to set up a plan to purchase a set dollar amount of stock on a monthly basis.

For instance, let's say you buy $25 dollars of Coca-Cola (KO) stock on a once-a-month basis. If Coca-Cola is trading at $50 per share, Sharebuilder would enable you to buy half a share per month.

This is great news if you have a small amount of money to invest. You can build a diversified portfolio without wasting the majority of your annual contribution on trading fees.

It's also great for dollar cost averaging...

Visit Sharebuilder For More Information >>>

The above options are just three to consider, but don't think they're your only options.

Realize before you open a Roth IRA, you have a wide range of choices...

Read The Best Roth IRA Brokers to find the best online discount broker for your Roth IRA.

3) Fill Out The Application

Once you choose your online discount broker, simply follow the steps on the broker's site in order to open a Roth IRA.

When prompted, check the account option for "open a Roth IRA."

When you do, you'll be asked to fill out an application.

The application process for an Individual Retirement Account (IRA) is easy.

Most brokers allow you to fill out the application online, and then require you to mail or fax a signed copy afterward (just follow the instructions they provide).

In the meantime, you need to have some basic information at your fingertips...

  • Your Social Security number
  • Your bank account number
  • Your bank account routing number
  • Your current employment information
  • Your initial investment amount

Once you gather this information, simply follow the onscreen instructions to complete the application.

4) Your Initial Investment

At this point, with your application complete, you'll be prompted to make an initial contribution to your Roth IRA.

Unless you use a wire transfer, this process may take up to 3 to 4 business days since the discount broker needs to contact your bank and set up the bank draft process.

Once the funds transfer properly, your money will most likely go into a money market account where it will earn interest until you make your first investment.

5) Automatic Investments?

While you wait for your initial contribution to transfer, take some time and explore the discount broker's online trading site.

Familiarize yourself with the different areas of the site and the availability of options at your disposal.

I highly recommend setting up an option whereby you can automatically deduct monthly or weekly contributions from your bank account.

This is a relatively painless way to fund your Roth IRA over the course of a year.

Also, if you're a buy-and-hold investor of dividend-paying stocks, you might want to choose an option for free automatic reinvestment of dividends.

This allows you to buy fractional shares of a company's stock whenever a quarterly dividend is paid.

Done right, this strategy leads to compounding investment returns that significantly increase your account's performance.

In short, take the time to gain familiarity with your discount broker's web site... That way, when it comes time to invest, you're ready to pull the trigger.

6) Start Investing

Assuming you've already chosen an investment strategy which fits your needs, the process is now complete.

Once your initial contribution shows up as "available" in your online account, you're ready to start investing!

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