A Roth IRA is a type of Individual Retirement Account that carries several similarities to the Traditional IRA. The main difference is that its contributed funds are NOT tax-deductible while your qualified IRA withdrawals are free from tax. Similar to other retirement accounts, distributions that do not meet the IRS stipulations and rules may be subject to taxes and penalties upon withdrawal. Here is a comprehensive guide on how to open a Roth IRA.
Know the Roth IRA Basics
A qualified distribution (withdrawal) is one that is carried out not less than five years after you’ve established your first Roth account and when you are 59 ½ years old, buying your first residential property (with limit of $10,000), disabled, or deceased (in which your beneficiary collects the contributed funds).
Due to the fact that qualified withdrawals from a Roth plan are at all times tax-free and the investments options incorporate high Roth IRA rates of interest, some investors deem that a Roth plan is far more beneficial than a Traditional IRA. The specific IRA rules change every year, but you can easily stay up-to-date with the current Roth IRA rules here.
While you may not have enough resources and skills to solve the economic problems, this year, you CAN start working out a few of your own. You need to open your IRA account today – the longer you wait, the more money you will lose! Take the first step and make sure you open your Roth IRA today.
Opening a Roth IRA
After determining that you are qualified to contribute fully or partially to a Roth IRA, you must decide where to open a Roth IRA and select a financial institution that you will open the account with.
The best IRA provider we’ve found is Scottrade. Their Roth IRA accounts are excellent for beginners, those who invest in mutual funds, and long-term (buy and hold) investors. Since Scottrade is a well-established, seasoned brokerage firm with a very good reputation, it is a natural choice for people nervous about opening their retirement investment account at the newer companies.
Scottrade Roth IRAs are FREE: there are no IRA setup and annual IRA fees:
- No-Fee IRAs
- No Account Minimums or Custodial Fees
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- Open your Roth IRA with Scottrade today
Considerations
According to the National Financial Capability Study of FINRA, 58% of all U.S. citizens do NOT have an idea how much money they need to put aside for their retirement, 51% have a little retirement plan that is employer-sponsored, while only 28% actually maintain their own personal retirement account outside their plan at work.
Learning about how to start a Roth IRA is easy due to the understandable rules stipulated by the Internal Revenue Service (IRS). Here are some pointers you need to remember concerning Roth Individual Retirement Accounts:
- The Roth IRA rules only allow individuals who pay income tax to set up and contribute to this account.
- Interest, rental income, dividends, and other amounts that are excluded from employer-paid earnings are not qualified as compensation, thus these funds are not allowed to be contributed to a Roth plan.
- You must establish a Roth IRA with financial institutions like brokerage firms, banks, and other companies that were approved by IRS to offer IRAs.
- You can fund your Roth plan from your spousal IRA contributions, your own contributions, and from rollovers and transfers.
- All of your Roth contributions should be completed in cash. You can’t make contributions in any form of security.
- You can’t invest your Roth IRA in collectibles, though you can place your account in silver coins, gold coins, and even other precious metals.
- Qualified withdrawals from Roth retirement plans are penalty free and tax-free, however, non-qualified withdrawals may be subject to early withdrawal penalty and tax.
Restrictions
You should be aware of the Roth IRA income limits that are still in effect while everybody is now authorized to convert a Traditional IRA to a Roth plan. In addition, if you are now earning more than the income limit, you may not establish and fund a new Individual Retirement Account.
While the steps on how to open a Roth IRA can be easily accomplished, if you are single with an income of more than $120,000 or married filing jointly with $176,000 income or more, you will not be permitted to open and place funds in a Roth account.
Presently, a new law has established the right for people who were not allowed before to benefit from a Roth IRA. As of January 1, 2010 the U.S. federal government eradicated the income cap on individuals wanting to convert their traditional IRA account contributions to a Roth retirement plan. A tax break was also granted to investors who prefer to convert a portion or all of their traditional IRA to a Roth account by this year.
You can seek Roth investment advice from a financial expert to discover the most lucrative investments possible with your account.
