MORE LIKE THISRetirement PlanningRoth and Traditional IRAs
A Roth IRA is a true gift for retirement savers: You pay taxes on your contributions up front, you let that investment compound, and then your withdrawals in retirement are tax-free.
Here's a step-by-step guide on how to open a Roth IRA:
Figure out if you qualify
Decide what type of investor you are
Choose a provider and open your Roth IRA
Select your investments
1. Figure out if you qualify
Roth IRAs have income limits, which can reduce or eliminate your ability to contribute to a Roth. For 2023, the contribution limit is $6,500 if your modified adjusted income is below $138,000 (single filers) or $218,000 (married filing jointly). At incomes above that, your contribution limit begins to phase out, until it is eliminated completely at $153,000 for single filers and $228,000 for married filing jointly. If your income exceeds those limits, the backdoor Roth IRA strategy lets you open a Roth by converting money from a traditional IRA.
2. Decide what type of investor you are
Eligible? Awesome. Now consider your investing preferences.
If you're a “do-it-yourself” investor, choose a brokerage. You can open a Roth IRA at an online broker and then choose your own investments. This may be simpler than you think — you can build a diversified portfolio with just three or four mutual funds that are in different asset classes. When comparing brokers, look at trade commissions and the investment fees of their offered funds (also called expense ratios).
If you're a “manage it for me” or hands-off investor, choose a robo-advisor. If you’d rather have someone pick an investment portfolio for you, you can open your Roth IRA at a robo-advisor. Robo-advisors are online services that build and maintain a diversified portfolio for you. You pay a small fee for the service, but their fees generally are far lower than a human financial advisor.
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3. Choose a provider and open your Roth IRA
The next step in how to open a Roth IRA is to find a home for your account.
Opening a Roth IRA as a 'do-it-yourself' investor
For people who want to pick their own investments, opening a Roth IRA at an online broker makes a lot of sense. At the best brokers, you’ll find a large list of low-cost investments to choose from, including index mutual funds and exchange-traded funds. The top brokers also offer extensive retirement planning tools, robust customer service and reasonable account minimums and fees. And you maintain complete control over how your retirement funds are invested.
Opening a Roth IRA as a 'hands-off' investor
For people who want to invest for retirement but don’t want to worry about managing their portfolio over time, a robo-advisor is an easy choice. Generally, robo-advisors hire investment pros to develop a handful of portfolios aimed at different types of investors. Some robos offer portfolios that vary based on amount of risk, with “aggressive” ones for people who want a high percentage of their portfolio in stocks and “conservative” for people who seek a less volatile investment account.
As an investor, all you have to do is open your Roth IRA, link your bank account and follow the steps the provider uses to build your portfolio. The robo-advisor then purchases the investments for you and manages the account over time. Many robos also offer services that can help maximize your savings, such as goal-setting tools to get your finances on track, and strategies to reduce your tax bill. (Robo-advisors generally are registered investment advisors, operating under a similar structure to human investment advisors.)
» Check out all of our top picks for best Roth IRA accounts
4. Select your investments
The last step in learning how to open a Roth IRA is to decide where to invest the money in the account.
A Roth IRA is an account type, not an automatic investment. Contributing is just the first step. If you want to build wealth over time, you need to invest that money.
» Roth IRA calculator: Find out how much your contributions could be worth at retirement
If you're a hands-off investor and you've opted to open your Roth IRA at a robo-advisor, that service will choose a diversified investment portfolio for you.
If you're a DIY type of investor, you can get that diversification on your own for less by building a portfolio out of index mutual funds and ETFs. To do that, you’ll want to decide how much of your money to put toward riskier investments, like stock funds, and how much you want to keep relatively safe, in bond funds and cash. This mix is called your asset allocation.
IRAs give you access to a large pool of investment options. Once you’ve decided on your allocation, you can select specific funds to meet that.
And if you get stuck? Use a model. Check out the portfolios used by robo-advisors (often displayed on their websites), then mimic them. Be sure to rebalance the investments as they shift out of the original allocation you decided on because you won’t have robo-advisors to do it for you.
» Dig deeper: Check out these simple investments for retirement goals
Is that it?
That's it. Except, a handful of considerations:
If you have a 401(k) that offers matching dollars and you’re not contributing enough to earn them all, that's where you should direct your retirement savings first.
There are two main types of IRA: Roth and traditional. Traditional IRAs can come with an upfront tax break, but the Roth is often a good choice for those who qualify. Here's why: Early withdrawal rules are much more flexible with a Roth, and there are fewer restrictions for retirees. Plus, unless you're an extremely disciplined saver, you'll end up with more after-tax money in a Roth IRA. Here's more on a Roth vs. traditional IRA.
Once you figure out how much you can contribute, consider setting up automatic transfers. Not only do you avoid the hassle of initiating the transfer each month, but you ensure you’re saving regularly. (Also, some brokers waive their initial deposit requirement if you agree to automatic transfers each month.)
Be sure you don’t contribute too much. Contributing more than the annual limit — $6,500 in 2023 ($7,500 if age 50 and older) — may leave you subject to an IRS penalty. Keep in mind that the contribution limit is for all your IRA accounts combined — if you have a Roth and a traditional, that limit is a total across both accounts.
Got more questions? We have answers
Where is the best place to open a Roth IRA?
Many brokerages offer competitive Roth IRAs. NerdWallet's analysis of the best Roth IRA accounts can help identify providers that align with your needs.
What is the minimum to open a Roth IRA?
The good news is that the IRS doesn't require a minimum amount to open a Roth IRA. While there's a Roth IRA maximum contribution amount, there's no minimum, according to IRS rules. The less-good news is that some providers do require account minimums to get started investing, so if you've only got $50 or so, find a provider who doesn't require one. Keep in mind, too, that many mutual funds have minimums of $1,000 or more, so if you've got less than that, you might be limited in the investments you can choose. Still, there are plenty of investments that have no or a low account minimum.
How much does it cost to open a Roth IRA?
Generally, you don't need to pay a fee to open a Roth IRA, but there are some costs. 1) This isn't a fee, but some brokers and robo-advisors require a minimum amount to open an account, so you'll either have to come up with that dollar figure or choose a provider with no or low minimums. 2) This, too, isn't a fee, but you'll need enough money to buy whatever investments you want in your Roth IRA. Some mutual funds have a $1,000, or higher, minimum investment (though once you make that initial investment, generally you can add to your investment with smaller amounts — as small as, say, $20). Some investments don't have minimums at all. 3) Some brokers charge trading commissions when you buy or sell investments, but many do not —find one in that latter group. 4) If you invest in mutual funds or ETFs, you'll pay an expense ratio and possibly other fees as well. The good news is many popular index mutual funds have very low fees.
How can I learn more about Roth IRA rules?
See our Roth IRA rules page, which provides current details on annual contribution limits, income eligibility and withdrawal rules.
What if I'm not sure how to invest my Roth IRA?
A robo-advisor, described above, can be a good option. We also have a complete guide to how to invest within your IRA that provides an overview of suggestions.
Can I transfer an old 401(k) to a Roth IRA?
Yes. Moving your funds from a 401(k) at a former employer to a Roth IRA is a reasonably straightforward two-step process, and most 401(k) and IRA providers are well-equipped to handle it. You would roll your 401(k) money to a traditional IRA, and then convert to a Roth. Keep in mind that when moving regular 401(k) or IRA money to a Roth, the deferred income taxes are due at that point. You can learn how it all works in our 401(k) rollover guide.
How much should I save for retirement anyway?
There are lots of factors to consider here, including your income, desired retirement age, monthly expenses, health status and future Social Security benefit levels. Our retirement calculator can help you gauge whether you're saving enough to ensure a comfortable retirement.
