How to open a Roth IRA with Vanguard

SailboatsPhoto courtesy of Yisong Yue

I’ve made no secret about a number of things:

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

  1. First step, go to vanguard.com.
  2. 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.
  3. Select “Open a new account“. (I wrote about transferring a Roth IRA from another institution here.) After every page is completed, click “Continue“.

    Open a new account

    Click any of the images to see a larger size

  4. 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.

    Let's register now

    Let’s register now

  5. The next page shows you the process for creating an account. The time frame of 10-15 minutes is pretty accurate.

    Overview of the process

    Overview of the process

  6. Choose the type of account you’re opening. Select “Retirement” and “Roth IRA“.

    We're going Roth, baby!

    We’re going Roth, baby!

  7. Enter your personal information. This information spans two pages of the wizard.
    Personal info

    Personal info

    More personal info

    More personal info

  8. Enter your employment status, and whether you have any conflicts of interest. (You’ll probably select “No” for both.)

    Employment status

    Employment status

  9. Enter your bank information. Presumably you’ll be using a bank transfer to fund your account. (That’s what I’d recommend.)

    Bank information

    Bank information

  10. 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“.

    $1,000 to begin

    $1,000 to begin

  11. 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.

    Always reinvest

    Always reinvest

  12. Review your details before continuing.

    Review before continuing

    Review before continuing

  13. And with that, you’re in! You’ve initiated your transfer!

    Congrats!

    Congrats!

Set account details

  1. 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.

    Account information

    Account information

  2. Create some security questions and answers.

    Feel free to make up these answers, as long as you remember them!

    Feel free to make up these answers, as long as you remember them!

  3. 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.

    We're going with Vanguard funds

    We’re going with Vanguard funds

  4. Under “Buy and sell“, select “Buy Vanguard funds

    This part is a little tricky to find on the page

    This part is a little tricky to find on the page

  5. 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.

    Thing

    STAR is one example of a fund with a $1,000 minimum

  6. 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.

    Invest right away

    Invest right away

  7. Review your information.

    Review your information again

    Review your information again

  8. Success! You’ve successfully started and funded your Roth IRA!

    And we're done!

    And we’re done!

Recap

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.

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey

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Posted on October 10, 2016