How To Start a Roth IRA in 2020

March 27, 2020

How To Start a Roth IRA in 2020

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I’m glad that I have finally managed to convince you to open a Roth IRA. This article walks you in details on how to start a Roth IRA. The first thing before we get started is to determine whether you qualify.

What you need to qualify in 2020:

  • A single U.S resident making no more than $99,000 adjusted gross income in a year
  • Head of households who earn less than $146,500
  • Those that file jointly can make no more than $198,00.
  • You have not contributed more than $6,000 to your Roth (if you have one)

Choosing A Provider:

The first thing you need to do is decide how invested you want to be in your investment. Do you want to be hand on or hand off? There are two options:

  • If you want to be hands-on with your investment then a brokerage firm are your best options. This can easily be done online. Most investment firms offer the opportunity to open a Roth IRA. They also offer plenty of mutual funds that will allow you to easily create some diversified portfolio. Here are my personal favorites that are easy to use and do not charge you a fee for opening an account:
    • Fidelity Investments
    • Vanguard
    • Charles Schwab
    • Merrill Edge
  • “Let Me Hold You”: This is for those who want other people to help you invest. This is a great option for novice and beginners that are trying to get their feet wet. Robo-advisors are apps and online platforms that use algorithms to help pick out investment funds that are diversified enough for your needs. There is a fee associated with these services (duh), but the fees are substantially lower than those of professional financial investors. Here are some great Robo-advisor options:
    • Betterment
    • Wealthfront
    • Personal Capital
    • Ellevest
  1. Nowadays it is much easier to find brokerage firms that offer low-cost investments and an abundance of options. This oftentimes includes index funds, mutual funds, and exchange-traded funds (ETF). The best financial institutions often offer amazing customer service, low or no fees. You also have almost complete control over your investments.
    • “Miss/Mr. Independent”: Robo-advisors have hired investment professionals to create a variety of portfolios that are intended for people with varying financial goals.
      • They usually tailor your portfolio based on how aggressive or conservative you want to be. Aggressive portfolios are heavy on stalks and carry greater risks, but also greater rewards. Conservative portfolios tend to be bond heavy and also carry fewer risks and thus fewer rewards. These platforms also offer some nice tools to help you budget better, set financial goals, maximize savings, and also reduce your tax bills. They essentially do all the hard work for you.

What do I need to open an account?

  • Your social security number
  • Your bank information (account and routing number)
  • A government identification (driver’s license, other photo identifications)
  • Some information about your employer (optional)

What should I invest in a Roth IRA?

That’s a good question. All a Roth IRA does is hold your investment; it is not an actual investment. To invest you have to buy different investments. Thankfully a Roth IRA allows you to invest in a number of things like individual stocks, bonds, mutual funds, ETFs.

For those who want to be hands-off and choose a Robo-advisor, you will not have to worry about creating a diversified portfolio.

Those who choose a brokerage on the other hand have an array of choices. You’ll have to decide your risk tolerance, asset allocation (how much money is allocated to specific funds), etc.

BUT, for our demographic, I would HIGHLY recommend investing in index funds. Index funds are low-fee, low-maintenance, diversified investments.

Index funds are a type of mutual fund that made of portfolios that track a particular market index. To put it in simpler terms, index funds are packages of stocks that are meant to mimic the stock market.

Index funds are not trying to beat and outperform the markets by anticipating which stocks are going to rise and investing in them. Instead, it is simply going to mirror the markets. The reason why is that research has shown that index funds beat out actively invested firms over a long period of time.

Popular indexes that Index funds track:

  • The S&P 500: This is an index performance of the 500 largest U.S public companies.
  • The Dow Jones Industrial Average: This tracks the 30 largest U.S firms.
  • Nasdaq: These tracks more than 3,00 tech companies

PROS OF INDEX FUNDS:

  • Low cost
  • Low maintenance
  • Easily accessible
  • Hands-off
  • Already diversified portfolio
  • Simple and easy to understand
  • Beats out actively invested portfolios

So, there you go. Now you now how to start a Roth IRA.

So, what are you waiting for? Go ahead and start securing the bag.

Want to know which specific stocks that I recommend for your Roth IRA? Click here

Dave Ramsey has some nice tidbits for those that want to learn more here

So, what are you waiting for? Go ahead and start securing the bag.



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