1. Make Sure You’re Eligible

Most people are eligible to contribute to a Roth IRA as long as they have earned income for the year. If you’re considering contributing to one, keep in mind that there are income limits based on your modified adjusted gross income (MAGI):

  • For the 2021 tax year: An individual's ability to contribute to a Roth IRA starts phasing out at $125,000 and disappears altogether at $140,000. For couples, the contribution is reduced starting at $198,000 and phased out altogether at $208,000.
  • For the 2022 tax year: The phaseout range for an individual is $129,000 to $144,000. For couples, it is $204,000 to $214,000.

There are also limits to the maximum amount you can invest in a Roth IRA each year:

  • For 2021 and 2022: 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.

Roth IRA Income Limits for 2021 and 2022 If your filing status is… And your 2021 modified AGI is… And your 2022 modified AGI is… You can contribute Married filing jointly <$198,000 <$204,000 Up to the limit   ≥$198,000 but < $208,000 ≥$204,000 but < $214,000 A reduced amount   ≥ $208,000 ≥ $214,000 Zero Married filing separately but you live with your spouse <$10,000 <$10,000 A reduced amount   ≥$10,000 ≥$10,000 Zero Single, head of household, or married filing separately and you did not live with your spouse <$125,000 <$129,000 Up to the limit   ≥ $125,000 but < $140,000 ≥$129,000 but < $144,000 A reduced amount   ≥$140,000 ≥$144,000 Zero

If you need to reduce your contribution, you can use our Roth IRA calculator to determine the correct amount.

You can't contribute more than your earned income for the year. For example, if you only earn $5,000, that's the most you can contribute. Investment income from securities, a rental property, or other assets is considered unearned income, so it doesn't count.

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1. Find out if youre eligible and ready

First things first. Before you can open a Roth IRA, you have to make sure you meet the income limits to contribute to a Roth IRA.

In 2022, as long as your adjusted gross income is less than $129,000 for single filers and $204,000 for married couples filing jointly, you can contribute the maximum amount to a Roth IRA.1

Remember when we said your Roth IRA has a specific place in your wealth-building plan? Here’s the deal: Eligibility for an IRA isn’t all you should keep in mind. You also need to make sure saving for retirement fits into your budget. That means you’ll need to be halfway through the Baby Steps. Baby Step 1 is saving a $1,000 starter emergency fund. Baby Step 2 is getting out of debt (everything except your house) using the debt snowball method. Baby Step 3 is saving three to six months of expenses for a fully funded emergency fund.

And then you get to Baby Step 4—investing 15% of your household income for retirement. When you’re trying to figure out where to invest for retirement first, remember: Match beats Roth beats Traditional. This means you should invest in your 401(k) up to your match (hey, it’s free money!), then max out your Roth IRA. If you haven’t reached 15% at that point, go back and invest in your 401(k). And if you have a Roth 401(k) at work, great! You can invest your entire 15% there.

Working through the Baby Steps—and getting out of debt—is the quickest right way to build wealth. So if you haven’t paid off all your debt or saved up an emergency fund, stop investing for now. No exceptions!

There’s actually a special group of people called Baby Steps Millionaires who followed these exact steps to build a net worth of a million dollars or more. Want to learn even more about how they built their wealth? Dave Ramsey’s new book, Baby Steps Millionaires, will show you the proven path that millions of Americans have taken to get out of debt and build wealth—and how you can too!

The difference between a Roth IRA and a 401(k)

Roth IRAs and 401(k)s are both investment accounts, but they are different in terms of the contribution limits.

The limit for annual 401(k) contributions (as of 2022) is $20,500 for those under 50. Those 50 and older can contribute an additional $6,500 per year.

For Roth IRAs, the maximum annual contribution is $6,000 (as of 2022) for those under 50. Those 50 and up can contribute an additional $1,000 for a total of $7,000 per year. Any individuals earning more than $139,000 per year (or $206,000 for couples) are ineligible to contribute.

For a comprehensive list of differences, here’s a handy table:

Roth IRA401(k)
Contributions limits $6,000, plus a $1,000 “catch-up contribution” if you’re 50 or older. Total, $7,000$19,500, plus a $6,500 catch up contribution if you’re 50 or older. Total, $26,000
Tax deductibility of contributions Not tax-deductibleTax-deductible
Employer matching contributions None availableAn employer may match between 50% and 100% of the employee’s contribution
Tax treatment in retirement Distributions can be withdrawn tax-freeBoth your contributions and investment earnings are only tax-deferred. You pay income tax when you withdraw
Early withdrawals Contributions can be withdrawn at any time, tax-free and penalty free. Investment income earned subject to income tax and the 10% early withdrawal penalty if taken before age 59 ½10% penalty
Loan provision NoneCan borrow up to 50% of the vested value of your plan, up to a maximum of $50,000. Repayment must typically be accomplished within five years
Investment options Self-directedRestricted to the investment selected by your employer
Required Minimum Distributions (RMDs) Not subject to RMD’sFully subject to RMD’s

How much should I contribute to my Roth IRA?

When deciding how much money to deposit into your Roth IRA, you are limited to a certain amount each year.

Roth IRAs have the same contribution limits as traditional IRAs, which is the below for 2021:

  • Those under age 50: Total contribution limit to both Roth and traditional IRAs of up to $6,000
  • Those 50 or older: Total contribution limit to both Roth and traditional IRAs of up to $7,000

Withdrawals: Non-Qualified Distributions

The Roth IRA provides a surprising amount of flexibility when it comes to withdrawals. As we discussed above, there are several exceptions in place that allow you to take distributions before reaching 59½ as long as you’re withdrawing only your contributions or using your withdrawals for certain purposes.

That being said, if your withdrawal doesn’t meet the IRS requirements for a qualified distribution, then it will be considered non-qualified. In that case, the portion of your distribution that is earnings may be subject to taxes, as well as an additional 10% penalty.

How often should I contribute to an IRA?

Make it consistent. The other key is to make consistent contributions — even better to automate the process altogether (contact your HR department to set up automatic paycheck contributions or set up an automatic transfer from your bank). For one, this ensures you’re making saving a habit. But there’s an additional benefit, known as dollar-cost-averaging 

It works like this: If you want to max out your IRA, you could invest $6,000 all at once, or you could invest $500 each month. Investing in increments is one way to dull the psychological impact of market volatility because you aren’t watching a large sum of money potentially decline in value out of the gate. Dollar-cost averaging may also help you arrive at a better average price for your portfolio investments.

If you have the funds and can stomach a little volatility, a Northwestern Mutual analysis shows investing a lump sum all at once tends to outperform dollar-cost averaging over the long run. Regardless, it’s beneficial to develop a consistent investment strategy that works for you and makes it easier to participate in markets for the long term.

Can I Open a Roth IRA for My Child?

You can open a Roth IRA for your child. In order to do so, you’ll need to set it up as a custodial account, which is an account controlled by someone over 18 for a minor.

How to Start Investing in an IRA

2. Fund your account

Now it’s time to put the minimum amount in to fund your brand new account. As previously mentioned, different brokerages have different minimum requirements, so 

3. Select your investment strategy

Your next step is building a system that will allow you to seamlessly build wealth over time. This means figuring out how much you can afford to invest in an IRA each month, but it also means choosing investments that will exist within your IRA.

Remember: Your IRA is nothing more than a retirement vehicle you can use to save and invest for the future. Once you open an IRA, you still have to choose the investments that do the work inside your account.

If you find you are able to deduct contributions to a traditional IRA because your employer doesn’t offer a retirement plan, you should strive to contribute as much as you can each month up to the $500 monthly (and $6,000 annual) limit. That way, you’re building up retirement funds in a hurry while maximizing tax advantages. If you opt for a Roth IRA instead, you won’t get any tax advantages now, but you will later on since you won’t have to pay income taxes on distributions once you reach retirement age. Either way, the ultimate goal is striving to invest as much as you can each month up to account limits, and without harming your other financial goals. 

In terms of selecting your portfolio, this component of your system depends a lot on which investment platform (brokerage firm) you choose to go with. Some firms like M1 Finance let you set up “pies” of investments that are based on fractional shares. With M1 Finance, you can build your own “pie” from more than 6,000 available stocks and funds, but you can also choose from “Expert Pies” that have been put together by in-house investment professionals.

That’s just one way this can work, but there

That’s just one way this can work, but there are plenty of other ways to set up a portfolio depending on the firm you choose. For example, let’s imagine you decide to open an IRA with Betterment.

Betterment is a robo-advisor that helps you formulate an investment plan based on your age, your investing goals, and your risk tolerance. As a result, opening an IRA with Betterment is a breeze. You’ll start by answering some basic questions about yourself, including your age, your income, and when you plan to retire. From there, Betterment will suggest a specific investment plan that is formulated to help you achieve your goals.

If you’re a knowledgeable investor who wants

If you’re a knowledgeable investor who wants to select the stocks, bonds, ETFs, and other investments that live within your IRA, that’s perfectly okay, too. Just remember that some brokerage firms will help create an investing plan for you based on how much you can invest and your long-term goals.

4. Make it automatic

To help in your effort to contribute consistently, and to remove some of the pressure, consider making your investments automatic with the click of a button. Many of the top brokerage firms let you set up automatic investments through their mobile apps or online platforms, including Betterment’s example below.

5. Check in regularly and stay on track

5. Check in regularly and stay on track

Part of the fun of putting away money for your future is watching it grow. Keep an eye on your portfolio to make sure you’re contributing the way you want to. It can be tempting during tighter financial times to stop contributing, but you can always reduce your contribution amount depending on your circumstances and then change it back later. Don’t worry about small fluctuations and seek help from an advisor if necessary. 

How to Start a Roth IRA

You can open a Roth IRA at a bank, credit union, brokerage or mutual fund company. Follow these steps:

  1. Decide whether you want a deposit account or an investment account for your Roth IRA. An investment account offers greater potential for growth, but comes with risks. Your account balance can go up and down. The balance in a deposit account won’t decrease (unless you make withdrawals), and it’s federally insured for up to $250,000, but you may not earn as much.
    • Interested in a deposit account? Get started with a Roth IRA certificate account.
    • Interested in an investment account? Talk to a financial advisor at Navy Federal Investment Services.
  2. Make a contribution. You can put up to $5,500 a year into your Roth IRA. If you’re age 50 or older, you can make an additional $1,000 catch-up contribution each year.
  3. Monitor your account. Over time, tax-free compounding interest or investment returns help your balance grow.
  4. Make plans to live the life you want when you retire. Planning ahead by opening a Roth IRA and contributing to it every year can help you achieve your retirement dreams.

Roth IRA FAQs

The best Roth IRA starter account

Acorns

What’s so great about Acorns? After all, it’s primarily a micro savings account—a way to save money, for people who can’t save money. And that’s exactly what’s so great about Acorns!

It can help people who can’t save for retirement get the process going. Best of all, it’s specifically set up to save money in a way that you won’t even notice. You can set up a Roth IRA in only two minutes through Acorns Later, which is the name of their IRA program.

Acorns works through a process known as Round Ups. It’s an app that’s connected to your checking account, and each time you spend money out of the account, it rounds up the payment to an even number, and holds the difference for savings.

For example, let’s say you make a purchase for $5.17. The charge will be rounded up to an even $6.00. $5.17 will pay the merchant, and $.83 will go into savings. Once at least $5.00 is set aside from roundups, it’s transferred over to your Acorns investment account. If you make 40 or 50 transactions per month through your checking account, you can easily save and invest $20 to $25 or more per month.

The Acorns investment platform is a robo-advisor, which will handle investment selection, and all the management responsibilities for your growing portfolio. All you need to do is spend money, and your Roth IRA account will begin to fill up.

In addition to connecting to your checking account, you can also sign up for Acorns Checking, which will get you a debit card to help you earn Round Ups in real time. The card will work at 55,000+ ATMs. This will help you move your Round Ups into your IRA account in real time so you can start earning interest.

Reasons to open an account with Acorns

  • $5 minimum initial investment required.
  • It’s an investment platform specifically for people who are unable to save and invest—passive savings through ordinary spending activity.
  • Your account is fully managed for you—all you need to do is fund it.

The main reason to not go with Acorns

If you’re capable of saving money, you don’t need Acorns. You’ll be better served by using one of the other investment brokerages on this list.

Who is Acorns best for?

Acorns is a perfect choice for a Roth IRA if you’ve never been able to save money. The automatic feature of saving money through regular spending turns the accumulation process into a completely passive venture. You don’t need to make any special effort to fund your account, it just happens as you go about your business.

Visit Acorns to open an account or read our full Acorns review.

Getting started is easy

Choose how you’d like to invest Merrill Edge Self‑Directed A self-directed investing platform that streamlines investing, giving you access to research and insights, and flexible tools—all with low, flat-rate pricing.Footnote  2 Are Roth IRAs Insured? One of the greatest concerns that many people have with putting their money into an investment account is whether it will be safe. The fact is that anytime you invest, you take on the risk you could lose money if your investments perform poorly. There are still some protections in place to protect you against certain losses. First, the Federal Deposit Insurance Corporation (FDIC) insurance protects the money in Roth IRAs and other IRAs at FDIC-insured banks. Your money is protected up to $250,000 per depositor per account type. If your IRA is housed at a brokerage firm instead of a bank, then your money is protected by the Securities Investor Protection Corporation, which insures up to $500,000 of cash and securities. It’s important to note that the FDIC and SIPC are designed to protect account holders from financial loss if a financial institution fails and can’t return its customers’ money. These agencies don’t protect investors from loss when their investments underperform. Why open a TD Ameritrade Roth IRA? Breadth of Investment Choices – Including commission-free ETFs, no-transaction-fee mutual funds1, fixed income products, and much more. Empowering Education – We offer exclusive videos, useful tools, and webcasts to help you create a personalized retirement plan. Smart Tools – Plan and evaluate your retirement strategy with helpful tools like the IRA Selection Tool and Retirement Calculator. Fair and Objective Research – Take control with objective third-party research provided by Morningstar Investment Management, CFRA (formerly S&P Capital IQ), and Market Edge Benefits of a Roth IRA The way that Roth IRAs work, they confer many benefits, including:Tax-free income in retirement: Depending on how much you contribute to a Roth IRA and how well the investments in the account perform, being able to withdraw money tax free in retirement from your Roth IRA could result in enormous income tax savings. In addition, if you are retired and use money from your Roth IRA to make a large purchase one year, then you don't have to worry about an abnormally high income tax bill or the possibility of being bumped into a higher tax bracket for that year.Tax- and penalty-free withdrawals for first-time homebuyers: If you purchase a home, and you and your spouse haven’t owned a home within the past two years, then you are considered as a first-time homebuyer. This enables you to withdraw up to $10,000 of earnings from your Roth IRA without paying income tax or the early withdrawal penalty. The $10,000 limit, however, is a lifetime cap that does not reset each year.Unrestricted withdrawals of contributions: You can withdraw your original contributions to a Roth IRA at any time without paying a penalty or tax. Because you paid income tax on the money in the year that you earned it, you may withdraw that same money without restriction, regardless of your age or when you opened the Roth IRA.Contributions allowed at any age: Contributions to Roth IRAs are allowed at any age, unlike with other types of IRAs, for which contributions are prohibited after you turn age 72.No required minimum distributions: Also known as RMDs, required minimum distributions are specific dollar amounts that owners of other types of retirement accounts must accept, starting at age 72. Roth IRAs are exempt from RMDs because receiving distributions from this type of account doesn't change how much you owe in taxes.Tax-efficient inheritance strategy: A Roth IRA can be willed to your heirs, who can receive the account's balance tax free.Education: Some account holders leverage a Roth IRA instead of a 529 for education savings. 4. Choose investments within your Roth IRA So, once you’ve opened your account, your next step is to choose what to invest in. Remember: Your Roth IRA is not an investment in itself—it only holds your investments and protects them from income taxes. You can put all kinds of different investments into your Roth IRA. Choosing your investments is by far the most difficult step in starting a Roth IRA because you’ve got so many options. We recommend a mix of mutual fundsbecause they allow you to spread your investments across a lot of companies, which lowers your risk while allowing your money to grow. That’s called diversification. If you put all your eggs in one basket (single stocks or trendy investments like cryptocurrency), at some point, you’re going to end up with a mess on your hands. Here are some other benefits of mutual funds: Mutual funds allow you to use the power of the stock market’s long history of growth without taking on the risk of single stock investing. The stock market historically has an annual average rate of return between 10–12%.2 Mutual funds are managed by teams of investing professionals who make sure the mutual fund performs at the highest level possible. They live and breathe this stuff! If you decide to work with an investing professional to open your Roth IRA and choose your mutual funds, the up-front commissions pay for your pro’s time and expert advice—not just at the time you open your account but for as long as you invest in your Roth IRA. View important information about our fees and commissions View important information about our fees and commissions 3. Standard online $0 commission does not apply to over-the-counter (OTC) equities, transaction-fee mutual funds, futures, fixed-income investments, or trades placed directly on a foreign exchange or in the Canadian market. Options trades will be subject to the standard $0.65 per-contract fee. Service charges apply for trades placed through a broker ($25) or by automated phone ($5). Exchange process, ADR, and Stock Borrow fees still apply. See the Charles Schwab Pricing Guide for Individual Investors for full fee and commission schedules. Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing. Schwab ETFs are distributed by SEI Investments Distribution Co. (SIDCO). SIDCO is not affiliated with Charles Schwab & Co., Inc. We’re here for you It takes as little as 15 minutes to open a TD Ameritrade Roth IRA and with our straightforward pricing there are no hidden fees. As always, if you have any trouble, our retirement consultants are here to help you every step of the way. Open an account TagsTaxes and RothPros and ConsPros and ConsRoths and TheirFacts and Statisticsuspersonaloverviewfidelity

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