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IRA Investing: How to Start a Roth IRA

It isn't entirely difficult to start a Roth IRA, even if you are completely new to the world of investing.  There are a number of providers and companies that are available to help you open your Roth IRA.  If you would like to begin IRA investing with a Roth IRA,  you'll need to determine if you meet the Roth IRA eligibility requirements.

An IRA provider will not determine whether or not you meet the IRA qualifications for opening a Roth IRA, they will only assist you with opening the account.  It is your responsibility to determine whether or not you are eligible.  Once you've determined your IRA eligibility, then you would want to decide whether or not a Roth IRA is your best option.  If it is, you'd then determine what type of investment is best for your Roth IRA, and select a provider.

Roth IRA Eligibility

In order to make Roth IRA contributions, you need to meet income requirements.  Specifically, if you are a single individual, you must make less than $110,000 annually, while a married couple filing jointly must make under $165,000 annually in order to have Roth IRA eligibility.

If you already have a Traditional IRA you may be eligible to convert it into a Roth IRA.   There are several IRA eligibility rules pertaining to conversions- some include:

  • Before 2008, you're not able to have your IRA rollover from an employer plan into a Roth IRA.  (You may be able to have your employer IRA rolled into a Traditional IRA and then convert the Traditional IRA into a Roth IRA, however!)
  • If you file "married filing separately", before the year 2010, you are probably not eligible for a Traditional IRA to Roth IRA conversion.
  • If your modified adjusted income as a single person is greater than $100,000, before the year 2010, you are probably not eligible for conversion.

Is the Roth IRA Best For You?

Many financial advisors will tell you if you're unsure about what type of investment to use, go with the Roth IRA- it's usually your best option! 

If you are planning to leave your money in your Roth IRA until you are 59.5 years old- the Roth IRA is a great option.  Additionally, if you withdraw the IRA contributions you've made before that age, the withdrawal is tax-free, so if you believe you may need to access the money you are contributing before you are 59.5 years, the Roth iRA is a great option.  (You cannot withdraw the earnings the IRA contributions have generated without penalty before you are 59.5 years and the money has been in the account for a minimum of 5 years).

Investment Type

While there is no minimum size for a Roth IRA as far as the tax laws are concerned, the providers usually set minimum opening amounts.  Because every provider is different and has different IRA qualifications, if one tells you your initial deposit is too small, just try another provider!

Consider your time frame when IRA investing.  If you have a long term goal for investing (you're young and have many years before you retire, for example) you might want to consider higher risk investments since you'll have longer to recover if you lose some money.  The closer you get to retirement age though, the less risk you'll want to take.

You'll want to use your Roth IRA to diversify your portfolio if possible.  If you already have savings, CD's or other investment types, try to mix it up a little with your Roth IRA investments.