What a Roth IRA is and who can open one

A Roth IRA is a retirement savings account where you contribute money that has already been taxed, and then the money grows tax-free. When you withdraw it in retirement, you pay no tax on the growth — only on what you originally put in. The tradeoff is that you cannot deduct your contributions from your taxes right now the way you can with a traditional IRA.

You can open a Roth IRA if you have earned income — money from a job, self-employment, or freelance work — in the year you contribute. You do not need a certain age or income level to open one. The only real limit is how much you can contribute each year, which the IRS sets and adjusts annually. For 2024, that limit is $7,000 if you are under 50, and $8,000 if you are 50 or older. If your income is very high, you may not be able to contribute the full amount, but you can still open the account.

Key Takeaways

  • You open a Roth IRA directly with a bank, brokerage, or investment company — not through your employer or the government.
  • You will need your Social Security number, proof of identity, and information about your income to complete the application.
  • Once the account is open, you decide how much to contribute each year (up to the annual limit) and where that money is invested.
  • You can withdraw your contributions at any time without penalty, but earnings cannot be withdrawn tax-free until you are 59½ and have held the account for at least five years.

Where to open a Roth IRA

You open a Roth IRA with a financial institution that offers them. The most common choices are banks, brokerages, and investment companies. Banks like Chase, Bank of America, and Wells Fargo offer Roth IRAs. Brokerages like Fidelity, Charles Schwab, E-Trade, and Vanguard offer them. Online brokerages and robo-advisors also offer them. There is no single "right" choice — it depends on what you want to invest in and what fees you are willing to pay.

The main difference between these types of institutions is what you can invest your money in once it is in the account. At a bank, your Roth IRA is usually held in savings accounts or CDs, which means your money earns a fixed interest rate and is insured by the FDIC. At a brokerage, you can invest in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some people use a brokerage because they want more control over where their money goes; others use a bank because they want simplicity and insurance protection.

The information you will need to provide

When you open a Roth IRA, the institution will ask for personal information. You will need your Social Security number, date of birth, and current address. You will also need to provide proof of identity — usually a driver's license or passport. Some institutions ask for this information online; others may ask you to upload a photo or visit a branch.

You will also need to tell the institution about your income. They ask this because the IRS limits who can contribute to a Roth IRA based on how much you earn. If your income is below the limit for your filing status, you can contribute the full annual amount. If your income is above the limit, you can contribute less or nothing at all. The income limits change each year, so the institution will tell you what applies to you based on what you report.

Finally, you will choose how the account is registered. Most people open it in their own name. If you are married, you can also open a spousal Roth IRA in your spouse's name if they have little or no income — this lets you save more as a household.

Steps to complete your application

Most institutions let you open a Roth IRA online in 10 to 15 minutes. You start by going to the institution's website and finding the link to open an IRA. You will fill out a form with your personal information, Social Security number, and income details. The form will ask you to choose whether you want a Roth IRA or a traditional IRA — select Roth.

Next, you will choose how you want to fund the account. You can link a bank account and transfer money electronically, mail a check, or in some cases wire money. You do not have to fund it immediately — you can open the account and add money later. Once you submit the form and fund the account (if you choose to), the institution will send you a confirmation and your account number.

After that, you will log in and decide how to invest the money. If you opened the account at a bank, the money may already be in a savings account earning interest. If you opened it at a brokerage, you will need to choose what to invest in — stocks, bonds, mutual funds, or ETFs. If you are not sure what to choose, many brokerages offer target-date funds, which automatically adjust as you get closer to retirement.

What happens after you open the account

Once your Roth IRA is open, you own it and control it. You decide how much to contribute each year, up to the annual limit. You can contribute as little as you want — even $50 counts. You can also change your mind about how much to contribute in a given year; there is no penalty for contributing less than the limit.

You can contribute to your Roth IRA anytime during the year, but the deadline to contribute for a given tax year is usually April 15 of the following year (the tax filing deadline). For example, you can contribute to your 2024 Roth IRA anytime from January 1, 2024, through April 15, 2025. The institution will track your contributions and tell you how much you have contributed in each year.

Your money grows inside the account, and you do not pay taxes on that growth. You can move money between investments within the account without triggering taxes. You can also move the entire account to a different institution if you want — this is called a rollover, and the institution you are moving to can walk you through it.

Rules about withdrawing money

One of the main benefits of a Roth IRA is that you can withdraw the money you contributed (not the growth) at any time without penalty or taxes. This is different from a traditional IRA, where withdrawals before age 59½ usually trigger a penalty. So if you contributed $5,000 and it grew to $6,000, you can withdraw the $5,000 anytime without consequence.

The growth — the extra $1,000 — is different. You cannot withdraw it tax-free until you are 59½ years old and have held the account for at least five years. If you withdraw it before then, you will owe income tax on it and a 10% penalty. There are a few exceptions: you can withdraw earnings without penalty if you are using the money for a first home purchase (up to $10,000 lifetime), certain education expenses, or a few other specific situations.

At age 73, the IRS requires you to start taking withdrawals from most retirement accounts, but a Roth IRA is different — you are never required to withdraw money. This makes a Roth IRA useful if you do not need the money in retirement and want to leave it to your heirs.

Roth IRA versus other retirement savings options

A Roth IRA is one way to save for retirement, but it is not the only way. If your employer offers a 401(k) or 403(b), that is usually a good place to start because employers often match a portion of what you contribute — that is assistance programs. A traditional IRA is another option; the main difference is that you can deduct your contributions from your taxes now, but you will owe taxes when you withdraw the money in retirement.

You can have both a Roth IRA and a 401(k) at the same time. Many people do this: they contribute to their employer's 401(k) to get the match, and then they open a Roth IRA to save additional money. The annual contribution limits are separate, so you can contribute to both in the same year.

Frequently Asked Questions

Can I open a Roth IRA if I am self-employed?

Yes. You need earned income, which includes self-employment income. You report this income on your tax return, and you can use it to open and fund a Roth IRA. If you have a high self-employment income, you may also want to look into a SEP IRA or Solo 401(k), which allow you to save more.

What if my income is too high to contribute to a Roth IRA?

If your income exceeds the IRS limit for your filing status, you cannot contribute directly to a Roth IRA. However, you may be able to use a strategy called a "backdoor Roth," where you contribute to a traditional IRA and then convert it to a Roth. This is more complex and has tax implications, so you should talk to a tax professional before doing it.

Do I have to invest in stocks, or can I just keep the money in a savings account?

It depends on where you open the account. At a bank, your Roth IRA is typically in a savings account or CD earning interest. At a brokerage, you choose what to invest in. You can choose conservative investments like bonds or money market funds if you do not want to invest in stocks.

Can I open a Roth IRA for my child?

Yes, if your child has earned income from a job or self-employment. You open it in their name, and they own it. You can contribute up to the amount of their earned income or the annual limit, whichever is less. This is a powerful way to help them save for retirement early.

What if I already have a traditional IRA — can I open a Roth too?

Yes. You can have both at the same time. However, your total contributions to all IRAs (traditional and Roth combined) cannot exceed the annual limit. So if you contribute $3,000 to a traditional IRA, you can only contribute $4,000 to a Roth that year (assuming the limit is $7,000).