10 simple steps to invest in a Roth IRA

22 thoughts on “10 simple steps to invest in a Roth IRA”

  1. Great IRA advice! It’s always nice to get a refresher on the traditional vs Roth IRAs, with limits and penalties included. Expense ratios are something that could easily be overlooked by someone new to investing. I liked that you gave solid number examples.

    I have heard of people starting one prior to having a full emergency fund in place – since a Roth could double as an emergency fund. I think either way is fine, assuming you’re not pulling out emergency money to replace a tire on your car.

    Well done!

    Mad Money Monster

    1. Good point! I never would have considered investing in a retirement fund (regardless of the type) without first having an emergency fund in place. Sounds like a hassle.

  2. My wife and I are hoping to retire in the next five years. Although that may change if we decide to have any more kids. For us we have been maxing out our Roth IRA since our 20s and it’s steadily grown. Most of our investments are in the Vanguard 500 which mimics the market. Although I have been looking at the Vanguard Total Stock Market Index Fund Admiral Shares to see if it makes more sense.

  3. Two things to consider: you can withdrawal Roth contributions penalty free. Some people use them as their emergency account. Not I but it is an option.
    Second you can qualify for a Roth holding much more then the limits. Things like our 401k lower the income that counts against these limits. So pay attention to how you can use these accounts to qualify if your writhing 30-50k of a cutoff.

  4. That’s a good primer. You have to invest young to gain the most benefit from compound interest.
    I’m 43 and my allocation right now is 80/20. I accept the volatility so this is the right mix for me. It really depends on your risk tolerance. If you can handle more, then allocate more to stock.

  5. I set up a Roth IRA with my bank (not Vanguard or Fidelity) and they didn’t require a minimum investment amount that I’m aware of. However, the returns have been so-so, so I’ve been looking to move the investments over to Vanguard.

  6. @Mrs. Mad Money Monster, Absolutely you can use a Roth IRA for an emergency. In fact, I spoke with a Senior Strategist at Vanguard, Maria Bruno, about this very topic. While she doesn’t recommend it as the only solution, it is definitely a viable option as you’ve already paid the taxes. She even references the Roth IRA as a option for a down payment on a home if you need it. I have her interview coming up on my podcast on Monday, 2/13 if you’re interested in hearing her advice. She’s a smart cookie.

  7. @Mustard Seed Money, retiring in 5 years sounds heavenly! Steve is showing us how to do it in style!

    I’ve been doing since my 20’s but I have NOT been maxing mine out as well as you have been. Nice work! Looking forward to hearing more about your retirement journey!

  8. @FullTimeFinance, great point about the 401k! I’m maxing mine out at work right and it helps lower my tax burden come April. I haven’t used my Roth for anything but retirement growth at this point. I need to fatten it up first!

  9. @Mrs. Picky Pincher, do whatever works for you! If you’re not getting the returns you want, take a look at Vanguard and Fidelity to compare. They are great companies that help you make smart decisions. It doesn’t feel like you’re being “sold” on anything. if you’re considering making a switch, transferring from one institution to another is not a big process. Vanguard and Fidelity make the process smooth for you. Good luck!

  10. Great primer. I am above the income limits but I do treat myself to a backdoor Roth. Roth $ are just yummy $ to have for the future.

    Oh also, the screenshot of expense ratios you promise in step 5 didn’t seem to make it to the post.

  11. I agree with others who have mentioned the ability for withdrawals from a Roth – you can (penalty/tax free for contributions, not gains), but probably shouldn’t. Roth conversion ladders are also a good (optimized) option for many people, and what my wife and I plan to do.

    I believe the $2,500 minimum is incorrect, at least for Vanguard. The target date fund minimum is $1,000, so that’s all you need to be invested in the stock market. I’m not sure there is even a minimum for Vanguard, but you would be limited to the money market settlement fund until you reach $1,000.

    1. @Dylan, you are spot on about the $1k minimum for the target date funds! That is a great option to consider as well. I should have clarified that I was looking at non-target date funds. Good catch!

  12. New reader to your blog and loving it so far! My husband and I stumbled onto the early retirement scene about 3 months ago and are eating up everything we can find to optimize our investing to retire within the next 15 years (hopefully sooner!)

    We are currently maxing out our 401k’s through our employers and would like to open up a couple Roth IRA’s this year as well, however, we don’t have much extra cash to invest (will be lucky to find an extra $5-6k per year).

    Would it be better to open one Roth IRA account for now in one of our names and plan to fully fund it or open an account in both our names and invest an equal amount in each per month/year? We are both 29 years old.

    Thanks in advance for your help!

    1. Nice job on maxing out the 401ks! I take it you’re getting a match from your employer? If you’re not getting a match, it might more sense to fully fund the Roths instead. If you are getting that FREE MONEY from your employer through the 401k match, I would suggest you both open up a Roth as well. Even if you’re not able to fully fund them, you eventually will be able to. Start with an evenly split amount so you get in the practice of contributing. Check out Vanguard’s VFINX to start – you can move up to Admiral shares (lower fee) when you get up to $10k. Good luck!

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