As I have said in previous posts, you need to open a Roth-IRA stat! Outside of your 401k plan, a Roth-IRA is by far the best way to save for your retirement. It’s the “golden egg” our government gives us. Since you’re investing your post-tax dollars, your money grows tax free for the life of the account. How sweet is that? The tax shelter benefits is just one great aspect though. With a Roth-IRA, you have unlimited options for investing. You can choose everything from individual stocks to index funds, so the sky is the limit.
I won’t go into too much more as to why a Roth-IRA is a great way to invest. What I want to do with this article is tell you a little about some things you should consider when opening a Roth-IRA. There are a host of tools that can be coupled with a new Roth-IRA account. I want to make sure that you are aware of these things before jumping in!
Is your financial house in order?
Before you set out on the quest to opening a new Roth-IRA, you need to ensure that your financial house is in order. What I’m referring to are things like debts and high interest credit cards. These are examples where you should use your money to pay down debt instead of investing in a Roth-IRA. If it’s a low interest loan, then that’s another story. However, all high interest debt should take precedent.
What about your emergency fund?
Another item besides paying down debt that you need to take care of before opening a Roth-IRA is making sure you have an ample emergency fund. I’ve been guilty of not having a big enough emergency fund but it’s wise to focus your energy here rather than investing in a Roth-IRA. Yes, investing is great but what’s going to happen if you lose your job or have some unexpected medical bills come up? You want to avoid this type of situation. Worst case scenario is you taking money out of your Roth-IRA. By doing so, you are foregoing future gains on your investment, which you want to avoid at all costs. It’s almost like throwing money down the drain!
How to invest your Roth-IRA money?
There are tons of ways you can invest your money within a Roth-IRA. It’s critical that you go into a new Roth-IRA with confidence and choose investment options that have the lowest costs. You can buy stocks, a variety of mutual funds, or even index funds. I personally recommend index funds as they are the lowest cost to own and will get you consistent gains over the next few years. Another option would be to go with a local bank. These are more like money market funds, so your investment options will be severely limited if you do this. At the end of the day, you need to make the best decision for YOU and only YOU.
Where to open a Roth-IRA?
So, now that you have a Roth-IRA account open, what’s next on the agenda? Well, where you actually open your account is! you will have to research various account entry minimums across various brokers like Zecco or Betterment. While both are great companies, both have positives and negatives you need to take into account.
You may also elect to use a stard bank like Ally or Discover to invest your money in a Roth-IRA. While the investment options will be limited, this is a great way to invest your money if your’re a beginner.
Now you’re set!
Now that you know the various items to be aware of, you’re all set and ready to open your first Roth-IRA! Don’t be scared, now you can go into a new Roth-IRA account with confidence.
We opened our Roth IRAs in 2007 (me) and 2008 (hubby) and fully funded them since then. BUT, we are taking a temporary break for the next 3-4 months while we build up cash reserves since we will be using almost all cash on hand for the 20% downpayment on a new home in September. So yes, I completely agree with you, I love our Roth IRAs but won’t contribute until our finances are all in order again.
My husband and I are ready to open a Roth IRA but are stuck for one of the reasons you listed- where do we open one? It’s a lot of money we’ll be pouring in so I’d like to have a good idea of where it’s going. I’d love to find someone who can give me suggestions like a parent would to their kids as opposed to someone who makes a profit off of my decision.
One thing I’d not realised when I opened my Roth IRA was that you can only put in EARNED INCOME. So now that I’m retired (at 51) and live off my rental income, I can’t add to it. Also, I opened the account with Chase in Oklahoma City and they charge me $30 in fees every year (the account only has $3,000) in it. I’m struggling with the paper work Chase requires to move this account to my credit union, which will not charge me fees. Just some other things to consider.