I’ve made no secret about a number of things:
- Retirement planning is something we need to do, and right now.
- The best way for everyone to plan for retirement is through investing.
- A Roth IRA is an investment vehicle that should be a part of everyone’s portfolio, if possible.
A Roth IRA, unlike a 401(k), is something that you set up yourself, and not through any employer. And while you may have experience contributing to a retirement fund, you may not have much experience setting one up.
Never fear. Just follow the steps below and you can open a Roth IRA. All you need is $1,000 to get started. (If you don’t have that much, then save up and come back when you do.)
I’ll be showing you how to open a Roth IRA with Vanguard. Vanguard is an investment management company with a unique structure that allows it to offer very low fees on investments. This is good as it means higher returns for us. I’ve been using Vanguard for years, have most of my retirement funds with them, and couldn’t possibly recommend them more highly.
The process is quick and straightforward. Ready?
Open an account
- First step, go to vanguard.com.
- Click “Open an account” in the top right of the page. You will be confronted by a wizard which will ask you a number of questions.
- Select “Open a new account“. (I wrote about transferring a Roth IRA from another institution here.) After every page is completed, click “Continue“.
- The next page asks if you’re registered. We’re going to assume you’re not, so select “No“. If you already have an account with Vanguard, for example with your 401(k) or other arrangement, you can log in here.
- The next page shows you the process for creating an account. The time frame of 10-15 minutes is pretty accurate.
- Choose the type of account you’re opening. Select “Retirement” and “Roth IRA“.
- Enter your personal information. This information spans two pages of the wizard.
- Enter your employment status, and whether you have any conflicts of interest. (You’ll probably select “No” for both.)
- Enter your bank information. Presumably you’ll be using a bank transfer to fund your account. (That’s what I’d recommend.)
- Enter your contribution. The minimum to buy a mutual fund is $1,000, so put in at least that much. Also, this isn’t a rollover (it’s a new account), so select “No“.
- Select “Reinvest” for what to do with your dividends. Some funds will pay out dividends (cash payments) periodically. We can think of these just as extra growth in our account, so if we set this to reinvest automatically, we can buy more shares of the fund, and grow our account faster. There’s no reason I can think of to keep money in your Roth IRA not allocated toward any funds, and equally it is almost never a good idea to withdraw any money from a Roth IRA, so make sure you don’t skip this step.
- Review your details before continuing.
- And with that, you’re in! You’ve initiated your transfer!
Set account details
- Create a user name and password so that you can log on to access your account. Make sure you sign up for e-service, as Vanguard will charge you a $20 annual service fee otherwise.
- Create some security questions and answers.
- Now it’s time to figure out what you’re going to do with the money you’ve allocated to this fund. In this case, we’re going to buy a Vanguard mutual fund. You have lots of options, but Vanguard mutual funds are cheap and generally widely respected, with decent returns in the past, so let’s go with that.
- Under “Buy and sell“, select “Buy Vanguard funds”
- The following Vanguard funds are available with a $1,000 minimum, the Vanguard STAR fund, and all of the Target Retirement Funds. (Other funds, such as the Vanguard 500, have higher minimums.) In this example, we’re selecting the STAR fund (VGSTX). Remember, the goal here is to get started. You can always change this allocation later.
- Select “From my settlement fund“. This is a little confusing, but as soon as your money is available, it’s going to go in your settlement fund (kind of a holding tank for money). Here we are saying to put the money right into your fund.
- Review your information.
- Success! You’ve successfully started and funded your Roth IRA!
The entire process took about 10-15 minutes, and that was going slowly and taking screenshots. It is not a time consuming process.
As for next steps? Well, you could set up an automatic investment plan to add money every month to your account. You can add a maximum of $5,500 a year to a Roth IRA ($6,500 maximum if you’re over 50).
That said, if you’re still struggling with debt, I generally recommend tackling that first. Think of all the money you could throw into your retirement if you weren’t paying it to your debt?
But I don’t mind if you set this account up while you’re still in debt. That way, when you’re out of debt and ready to invest, your account will be waiting for you.
If you have any more questions about this process, please comment below or send me a message.
Note: I don’t work for Vanguard and don’t receive any compensation from them. I’m just a big fan.
Another note: Like all content on this site, this does not count as investment advice. Please make your own decisions and don’t be foolish.