5 Steps to Opening a Roth IRA

• Make Sure You’re Eligible. Most people are eligible to contribute to a Roth IRA, provided they have earned income for the year. …
• Decide Where to Open Your Roth IRA Account. …
• Fill Out the Paperwork. …
• Make Your Investment Choices. …
• Set Up Your Contribution Schedule.

Roth IRAs are one of the best ways to save for retirement. While there’s no upfront tax benefit, you get tax-free income in retirement—even on the earnings that have accumulated over the years.

There are also no RMDs (required minimum distributions) for Roth IRAs during your lifetime. That means you can let the money keep growing until you need it, or even leave tax-free income to your beneficiaries. See SECURE Act changes which passed in 2019.

The Roth IRA is especially beneficial for younger investors, who have decades for their money to compound before retirement. But there are no age limits for creating a Roth IRA.

One more advantage: It’s really easy to open a Roth IRA, in 5 minutes or less. Here’s how.

1. Make Sure You’re Eligible Most people are eligible to contribute to a Roth IRA, provided they have earned income for the year. But there are income limits, based on your modified adjusted gross income (MAGI).

• For tax year 2019, an individual’s ability to contribute to a Roth IRA starts phasing out at $122,000 and disappears altogether at $137,000. For couples, the contribution is reduced at $193,000 and phased out altogether at $203,000.
• For tax year 2020, the phase-out range for an individual is $124,000 to $139,000. For couples, it is $196,000 to $206,000.
• There also are limits to the maximum amount you can invest in a Roth IRA each year.
• For 2019 and 2020, you can contribute $6,000 to an IRA, plus another $1,000 if you are age 50 or older. (If you have more than one IRA, such as a traditional tax-deferred account and a Roth account, the combined limit stays the same.)

1. Choose Charles Schwab for Your Roth IRA Account Almost all investment companies offer Roth IRA accounts. If you have an existing traditional IRA, the same company can probably open a Roth IRA for you. At BayRock Financial, we love Charles Schwab and its our first choice for clients, too. Here’s Why:

There’s no fee to open or maintain Your Roth IRA. Schwab provides customer service online and by telephone. Schwab offers the types of investments you’re looking for, whether that means ETFs, target-date funds, actively managed funds, or stocks and bonds. Currently, there is no cost to trade. This is especially important if you select one of BayRock’s tactical portfolio models which may buy and sell frequently in your account. There are many online brokerages offering Roth IRA accounts and some are better than others.

Schwab is what’s called a “custodian” because they take custody of your money. By using the online process outlined below, you’re setting up your Roth IRA with Charles Scwhab and you’re hiring BayRock as your Registered Investment Advisor.

We build and manage the investment portfolio so you don’t have to.

1. Complete the Process Online Most banks and brokerages have a web page for Roth IRAs that you can visit to begin the process. You may be able to complete the entire application online, or you can speak to someone in customer service if you have questions.

You’ll need the following:

• A driver’s license or another form of photo identification.
• Your Social Security number.
• Your bank’s routing number and your checking or savings account number so that you can transfer money directly to your new account.
• The name and address of your employer.
• The name, address, and Social Security number of your plan beneficiary (the person who will get the money in the account if you die).
• Naming one or more beneficiaries is very important. It allows the account to pass to someone else without having to go through probate. Remember to keep your beneficiary designation up to date, especially after events like marriage, divorce, or the death of a beneficiary.

1. Make Your Investment Choices The financial firm will help you open the account, but you’ll need to decide how you want to invest the money that goes into your Roth. This can be the most difficult part of starting a Roth.

2. Set Up Your Contribution Schedule If your bank allows you to, you can set up monthly transfers from your bank account to your Roth IRA. Alternatively, you can decide to make an annual contribution, as long as you still meet the income requirements.

You can contribute to your Roth IRA as late as the tax-filing date in the following year, typically April 15, however, in 2020 the tax deadline has been postponed to July 15, 2020!

Remember, contributions to Roth IRAs are made with after-tax money, so there’s no tax advantage to waiting until the last minute to make your contribution. In fact, the sooner you contribute, the sooner that money will go to work for you.

We’ll be here every step of the way, so don’t hesitate to reach out by phone, text, or email if you need help!