When planning on where to put their retirement dollars many are choosing a Roth IRA over a 401K. The benefit of a Roth is that, although taxes are paid on the original money set aside, the interest is not taxed. If you are interest in opening an IRA, then follow these steps.
Advisability - Is a Roth the best option for you? If you expect to be in a higher tax bracket or anticipate earning more than the limit for Roth eligibility later in life, than a Roth is a good choice now. Only if your employer offers matching funds would a 401K be a better option.
- Only earned income is eligible - Upper limit of $110,000 in income for single persons to contribute maximum amount - Upper limit of $173,000 in income for married couples to contribute maximum amount - More than $125,000 in income for single person makes that person ineligible for a
More than $183,000 in income for a married couple make them ineligible for a Roth
Research Providers - Determine the best provider for your investment goals. Roth's can be handled by brokerage firms, insurance companies, banks and mutual fund companies so there are many options to consider. The type of provider will be determined in part on how much you will be able to contribute as well as what sorts of investments you will want to make. For mutual funds, a company that specializes in them will work better than a bank. Some of these companies will offer a lower starting investment to those who are opening a new Roth. However, if you want to play it safe and go with money market funds or CDs a bank will do well. Factors to weigh are how much of a part you feel comfortable playing in the investment decisions, your level of risk and fees the provider will charge.
Choose a Provider - Once you know what kind of investment and therefore provider you want you can shop around for the specific one to handle your money. If you are going with a bank, do not assume it has to be the one that handles your accounts. If you choose a mutual fund company or financial advisor, either a fee based or no-load fund coupled with a low expense ratio is best. The advantage choosing an overall financial advisor is that he or she can assist you with all of your retirement planning and not simply your Roth.
Gather documents - After having chosen your provider, you will need to supply your social security number, income tax information, employment and banking information and the money to open the account.
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Article Added on Monday, June 3, 2013
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