Just about everyone is surprised, when I explain how easy the process is. Turns out, you can start a Roth IRA in about 20 minutes. Even if you don’t know a thing about investing.
The purpose of this post is to detail the process out for those just getting started.
How do I start a Roth IRA? | Before You Begin
Before starting, go through the following mini checklist to determine if starting a Roth IRA is best for you:
- Do you have outstanding high interest debt such as credit card debt? If you still have high-interest debt, it’s best to pay that off before investing.
- Do you have a small cash reserve? The goal is to have at least $1,000 set aside for emergencies before investing.
- Can you still contribute to an employer match in your 401(k)? Your employer match is the highest returning investment there is. Maximize that first, and then move onto a Roth IRA.
- Do you qualify for a Roth IRA? The big exception is for those who have an incomes over $100,000. Most everyone else, is eligible.
How do I start a Roth IRA? | What You Need
To make the process as easy as possible, have everything by your side before you begin. You will need the following:
- 20 Minutes
- Some money but not much
- Social Security #
- Bank Account Information (A copy of your check will work)
How do I start a Roth IRA? | The Four Step Process
- Go to Sharebuilder. (There other options out there besides Sharebuilder to start a Roth IRA. In my opinion, for the majority of young adults Sharebuilder is a fine choice. )
- Sign up for a Roth IRA account
- Choose the $4 investment plan. Link your bank account information so you can automate your investing.
- For your investment, choose a low expense target retirement ETF that corresponds with your target retirement date. Vanguard’s funds are a good place to start. You can change this later on. The goal now is to get started.
That’s it. You just opened a Roth IRA in less than 20 minutes.
How do I start a Roth IRA? | What’s Next?
The hardest part mentally is over. You committed to saving for you future. It should feel pretty good. The rest is easy.
Above, I recommended a Target Retirement Fund for your allocation. The goal was to get you started, not to overwhelm you. For 80% of you, this allocation and diversification is perfect. (I invest in the Vanguard 2050 retirement fund myself) However, some might need a few adjustments to this allocation. Therefore, pick up an investment book such as the Boglehead’s Guide to Investing to make sure you’re on the right track.
Last, I find it helpful to have an investment policy statement. This is a single document that you can refer to about asset allocation and rebalancing.
Photo by: Rennett Stowe