If you decide that contributing to a Roth IRA should be a part of your retirement savings plan, you can open one to help meet your financial goals through a bank, stockbroker, mutual fund provider, life insurance company, or other type of financial institution that supports this type of account.
A Roth individual retirement account (IRA) is a retirement account that allows you to invest after-tax retirement savings. Earnings held in a Roth IRA are tax-free if withdrawn under certain conditions, such as being at least age 59½ and having the account open for at least five years.
If you want to open a Roth IRA, find out where and how to choose the right financial institution to meet your needs.
- A Roth IRA is a type of individual retirement account that allows you to contribute after-tax income and grow it without having to pay taxes on the earnings upon withdrawal.
- You can open a Roth IRA through a bank, stockbroker, mutual fund provider, or life insurance company, among other financial institutions.
- Knowing what level of account management, customer service, and fees you’re comfortable with will help you decide what kind of Roth IRA provider works best.
- The steps for opening an account, once you’ve found a preferred provider, are similar to opening a new banking or brokerage account.
Where To Open a Roth IRA
When it comes time to open a Roth IRA, you’ll have a few different options. Generally, you can set up a Roth IRA through a:
- Credit union
- Life insurance company
- Mutual fund provider
- Stockbroker or brokerage firm
While these are some more-general locations where you can open a Roth IRA, it’s best to narrow your search by finding a financial institution that offers the style of account management you’re looking for. The following are the three main options you are likely to come across.
If you choose a self-directed Roth IRA, that means you’ll be calling all the shots. Self-directed IRAs are a lot more work for the account holder, as the holder is the one who will select and manage all the investments in the Roth IRA. Because of this, a self-managed account is better for someone who is experienced with investing.
Contributing to an IRA but failing to select investments that will help that money grow is a potential downfall of this option. The upside to self-directed retirement accounts is that they tend to have lower fees than other management options.
If a low fee is what you’re after, but you’re not quite ready to do all the work involved in selecting investments from scratch, a robo-advisor may be a better fit. Robo-advisors tend to have lower fees than professionally managed accounts, because they rely on technology rather than people to provide advice. This option employs algorithms instead of human intervention to help you decide what your best investment choices are.
With a robo-advisor, you’ll be given portfolio options to choose from that suit a variety of different risk levels and life stages. For example, a robo-advisor may offer a portfolio designed for someone in their 20s who is willing to take a decent amount of risk, or one geared toward a client in their 50s who is preparing to retire and wants to play it safe with their Roth IRA.
Both Betterment and Wealthfront are popular examples of robo-advisors.
For the least amount of effort, but the highest cost, you can choose to work with a dedicated portfolio manager who will select and manage the investments in your IRA. They will base your investments on your unique needs and financial goals.
Fidelity is an example of a financial services firm that gives you either the option of paying for your Roth IRA account to be professionally managed or choosing a self-directed account.
How To Decide Where To Open a Roth IRA
Deciding where to open a Roth IRA is important, as financial institutions offer a spectrum of account management services and can have varying levels of customer service and product offerings.
Not sure exactly what you’re looking for? Here are a few important factors to keep in mind when deciding where to open a Roth IRA.
How They Approach Risk
Your risk tolerance level is something that’s very important to keep in mind when investing. If you’re going to choose a firm that will help manage your investments, you need to make sure it understands this about you. Even if you decide to go with a robo-advisor, you should confirm that their product offerings meet your preferred risk level.
Investing isn’t a guarantee and it’s always possible to lose money—so you don’t want to feel forced to exceed your risk tolerance. If you are accepting of taking on more risk, then you may want to work with a fund manager to make investment choices. Do some digging into each Roth IRA provider you’re considering and its portfolio offerings to see if they align with your risk tolerance level.
How Much Investment Guidance You Want
People more familiar with investing who want to manage their own investments are going to want to choose an IRA provider that allows for a do-it-yourself approach. That way, they have the option to allocate their investments in the account as they see fit among mutual funds, stocks, bonds, or another type of investment instrument.
Conversely, if someone wants help choosing their investments, they likely will find a robo-advisor or professional account management services more suitable.
Customer Service Options
Investing in a Roth IRA and complying with relevant rules can be complicated, so it’s understandable if you need some help. How you like to communicate with your account service provider is important.
If you prefer receiving help in person, choose a provider that has a branch location near you and that offers this option. If you like the ease and convenience of online chat or email support, make sure you choose a tech-friendly provider. If you want to work with the same contact person every time you need support, confirm this is possible at the brokerage of your choice before you open a Roth IRA there.
What Fees They Charge
All IRA providers charge some fees, so take note of how often you should expect to encounter these costs with each provider you’re considering. For example, some IRA providers may charge a flat annual fee for their services, whereas others may break down fees per transaction or trade.
Some Roth IRA providers may continue to charge for customer service after you surpass their limit for free customer service calls.
Crunch the numbers to determine what it will cost you to open and maintain your Roth IRA with each potential provider.
Questions To Ask Yourself
Before choosing where to open a Roth IRA, it’s a good idea to shop around. While researching different options for account management, see if you can find answers to the following questions to gain some valuable insight into each IRA provider:
- Are there required fees for opening and maintaining the Roth IRA?
- Is there a minimum initial investment amount?
- Does my Roth IRA need to maintain a minimum balance?
- How is customer service offered (phone, in person, online chat, etc.) and when is it available?
- How long have they been in business, and what are their credentials?
Opening a Roth IRA
Once you choose the financial institution through which you want to establish your Roth IRA, it can walk you through the specific steps required to open an account. That said, you can generally expect to complete a process that looks like the following:
Step 1. Submit Documentation and Personal Information
To open your IRA account, the provider will require you to submit certain personal and financial information, such as:
- Social Security number
- Driver’s license number
- Employer’s name and address
- Statement information for assets or cash you plan to transfer
- Beneficiary information
Step 2. Make an Initial Deposit
Your Roth IRA financial institution may or may not request an initial deposit. If it requires one, you’ll need to transfer funds to complete the application process.
Step 3. Set Up a Recurring Deposit
Saving enough for retirement generally requires more than one deposit. While it’s unlikely you’ll be required to set up a recurring deposit, at this stage, you’ll probably want to do so to ensure that money is regularly deposited into your IRA over time. You can choose to make these recurring deposits directly from your paycheck or from your bank account.
Step 4. Choose Your Investments
If you didn’t go the professionally managed brokerage account route, now is when you have to sit down and choose the investments you want to make.
Once you’ve decided where, opening a Roth IRA shouldn’t take too long. For instance, at TD Ameritrade, opening a Roth IRA is only supposed to take 15 minutes.
Frequently Asked Questions (FAQs)
Where is the best place to open a Roth IRA?
The best place to open your Roth IRA depends on your unique financial needs and preferences. Before making a decision, do your research and comparison shop to see who can provide the type of service you’re looking for with the lowest fees.
When can you withdraw from a Roth IRA?
You can withdraw from a Roth IRA whenever you’d like, but you’ll have to pay taxes on the earnings unless you follow the IRS’ withdrawal rules, which includes being at least 59½ years old. One perk of a Roth IRA is that you aren’t required to withdraw your money later if you don’t want to—unlike a traditional IRA. You can choose to leave the entire Roth IRA account to an heir upon your passing.