How Do I Open a Roth IRA?

Written by Andrea Coombes
Edited by Carolyn Kimball
Fact-checked by Dayana Yochim

December 02, 2024

Opening a Roth IRA is one of the smartest moves you can make for your financial future. Unlike a traditional IRA, a Roth IRA allows your money to grow tax-free, and you won’t owe taxes when you withdraw it in retirement. It’s a powerful tool for building a retirement fund that you can rely on for decades to come.

In this guide, I’ll walk you through the steps to open a Roth IRA, from understanding eligibility requirements to picking investments that match your goals. Whether you’re just starting out or looking to roll over a 401(k), you’ll find actionable advice to make the process seamless.

How to open and invest in a Roth IRA

1. Make sure you’re eligible. There are income limitations. If you're a single filer, the amount you can contribute to a Roth IRA starts to get reduced at $146,000 of modified AGI (Adjusted Gross Income) and you can't contribute at all if your income tops $161,000. For a married-filing-jointly person, the phase-out starts at $230,000 of modified AGI and contributions are prohibited if income is more than $240,000.
2. Open your account at a brokerage. You can open Roth IRAs at many banks, but your best bet is an investment account so you can actually invest your money in a wide variety of equities. If you’re not sure which broker is right for you, we've got you covered with our guide to the best brokers for a Roth IRA. When you set up your account, make sure you pick the “Roth IRA” option.
3. Transfer money to your new Roth IRA. Most brokers let you open an account with $0, so you can start with just, say, $50. (The one caveat is the investment you choose may have a higher minimum; for example, some mutual funds have a $1,000 minimum initial investment.) The maximum you can contribute currently is $7,000 per year into your Roth IRA, plus an extra $1,000 if you’re 50 or older. Those contribution limits often increase each year so keep an eye on that if you’re one of those maximal savings types.
4. Pick your investments. Simplest option? Choose a target-date fund. These one-stop shops provide a diversified portfolio that gradually gets more conservative as you approach retirement. Check out our story on passive investing strategies for more ideas.
5. Set up auto-saving. By transferring a set amount from your checking or savings account to your Roth IRA every month, you are paying yourself first. It's simply a very smart way to save for retirement. And it can be a small amount, such as $25. For the same cost as a streaming subscription, you can build future wealth for yourself in a Roth IRA.

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Can I roll over my 401(k) to a Roth IRA?

Short answer: Yes, you absolutely can do a rollover of a 401(k) to a Roth IRA.

Longer answer: You'll need to understand the tax ramifications of rolling a 401(k) to a Roth.

• If the money in that 401(k) was money you contributed “pre-tax” — that is, you’ve never paid taxes on that money — then you will owe income tax in the year you roll that money to a Roth IRA.
• If the money in that 401(k) is in a Roth account — that is, you paid income tax on that money in the year it was contributed — then rolling over to a Roth IRA is relatively easy and no tax will be due on money you contributed to a Roth account. (Keep in mind that any employer match might have gone into a traditional 401(k) rather than the Roth, in which case you will owe income tax on that money if you roll it over.)

Can I roll over 401(k) money if I'm still working at the company?

Show me!

If you still work at the company that offers you the 401(k) and you’re interested in rolling that money over to an IRA, then you need to find out if your company allows an “in-service rollover.” Not all companies do.

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» Read more: Roth IRA vs. traditional IRA

Taxes now or later?

If you want to avoid a tax bill in the year you do the rollover, then roll pre-tax 401(k) money into a traditional IRA, rather than a Roth IRA.

That pushes your tax bill out into the future, when you start withdrawing this money in retirement. At that point, you’ll owe income tax on the money you withdraw.

But, maybe a tax bill sooner rather than later makes sense. Even though moving untaxed 401(k) money into a Roth IRA means a tax bill in the year you do the rollover, it may make sense to do so if:

• You can afford the tax bill now, ideally using savings you have set aside or current income. That is, you do not need to tap into your retirement savings to pay the tax bill, because, if you’re like most of us, you’re definitely going to need that money in retirement.
• You believe that your tax bracket now is lower than it will be later. If that’s the case, then you’re reducing your overall tax bill by paying taxes now.
• You just really love the idea of building up your Roth assets, because having a stash of money that won’t ever be taxed again (assuming you don’t make early withdrawals) can be a pretty amazing feeling. (For the opposite effect, subtract income taxes from your current pre-tax retirement savings. It’s not great.)

Rollovers can be smart

Big picture: Doing a rollover from an old workplace plan like a 401(k) or 403(b) can be a great way to take control of your money, because moving your money to an IRA can make it easier to manage your expenses. Here’s how:

• Potentially finding lower-cost investments at your IRA broker. Reducing costs on investments will depend on how good your old company plan is — some offer fantastically low investments. Many of them don’t. (You want to compare expense ratios on the mutual funds in your plan. Go to each mutual fund’s details page to see the expense ratio. A number like 0.05% is great, but anything lower than 0.5% is good.) Here are the best IRA brokers for rollovers.
• Avoiding any fees that your old company plan might charge ex-employees for administrative purposes. For example, I have an old 401(k) from a former job still sitting at that employer’s 401(k) company. I really need to roll it over — not least because they charge me a fee of about $37 a year. Not a huge amount, but these things add up.

But if your old 401(k) offers super cheap investment options and doesn’t charge fees, it might make sense to let your money sit.

Bottom line:

An IRA — traditional or Roth — is a great way to save for retirement. While you don't get the upfront tax deduction available with a traditional IRA, with a Roth all of your retirement withdrawals are tax-free. And opening a Roth is as easy as opening any other kind of brokerage account, it is only a little lift for a great life-time benefit.

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About the Editorial Team

Andrea Coombes has 20+ years of experience helping people reach their financial goals. Her personal finance articles have appeared in the Wall Street Journal, USA Today, MarketWatch, Forbes, and other publications, and she's shared her expertise on CBS, NPR, "Marketplace," and more. She's been a financial coach and certified consumer credit counselor, and is working on becoming a Certified Financial Planner. She knows that owning pets isn't necessarily the best financial decision; her dog and two cats would argue this point.

Carolyn Kimball is a former managing editor for StockBrokers.com and AdvisorSearch.org (formerly investor.com). Carolyn has more than 20 years of writing and editing experience at major media outlets including NerdWallet, the Los Angeles Times and the San Jose Mercury News. She specializes in coverage of personal financial products and services, wielding her editing skills to clarify complex (some might say befuddling) topics to help consumers make informed decisions about their money.

Dayana Yochim is a former Senior Writer/Editor at Reink Media Group who has written about personal finance and investing for more than 20 years. Her work has appeared in outlets including HerMoney.com, NerdWallet and the Motley Fool, and has been syndicated nationally. Dayana has also been a guest expert on "Today" and Good Morning America.