Wednesday, January 21, 2015

How to Set Up a Roth IRA?

A Roth IRA is a great investment for retirement because these savings are untaxed. While a traditional IRA offers initial tax deductions, Roth IRAs do not. However, holders may withdraw their contribution funds when they retire without paying taxes on these funds. Roth IRAs are ideal saving choices for those who expect their tax rate or tax bracket to be higher when they retire than at present. Moreover, they benefit young and low-income workers who will receive compounded growth on their savings without paying taxes on these funds, or those who are interested in leaving assets to heirs because these funds may be transferred tax free. Most people who earn income from a job are eligible to start a Roth IRA regardless of their occupation. Read on to find out how to set up a Roth IRA in four relatively easy steps.

1. Determine Eligibility

Prior to setting up a Roth IRA, individuals should determine whether they are eligible. Generally, households with an annual income of $50,000 or less qualify to open a Roth IRA fund. This is a general guideline because income brackets will vary depending on the size of household and other factors. Those with incomes that are higher than $50,000 annually may divide some of their savings into a traditional IRA. For 2015, the maximum amount of money that could be contributed to a Roth IRA was $5,500 or $6,500 for those over the age of 50 by the end of the year. Another requirement of a Roth IRA is that a person is earning income from a job or enterprise; however, married couples with one working spouse are typically able to open two Roth IRAs and contribute the maximum amount permitted annually to both accounts.

2. Gather Important Documents

Opening a Roth IRA is relatively simple and similar to opening a bank account. Those interested will need to bring their driver's license or another form of legal photo identification, their social security number, their bank routing number and their checking or saving account numbers. Additionally, they'll need to know the name and address of their current employer. Finally, these accounts require the name of a beneficiary or beneficiaries who would inherit the Roth IRA in the event that the holder dies prior to withdrawing these funds. Those who are opening the account will need to know their beneficiary's name, date of birth and social security number. 

3. Choose Where to Open Account

After gathering the required documents and checking eligibility, investors will need to choose where they would like to open their Roth IRA account. It's recommended that people hire an investment advisor who can help ensure a person is eligible for this type of saving account and process paperwork. These individuals may help investors choose the best bank or mutual fund company to open these accounts. Usually, it's best to meet with an advisor in person; however, their are plenty of online brokers for those who prefer to complete this process online or over the phone.

4. Open Account and Make Deposit

Roth IRAs have annual contribution caps. An investment advisor, the bank or mutual funds firm will notify investors on these limits periodically. Investors may decide to deposit a lump sum into their account annually or choose to have an amount of money deducted from their bank account each month that is contributed to their Roth IRA. Some mutual fund companies permit investors to contribute small sums such as $50 a month. As a result, the average American can afford to invest in this type of saving for retirement.