Many investment experts consider a Roth IRA one of the first investments you should ever make. Investment retirement accounts (IRA) are popular because they offer tax-deferred and sometimes tax-free capital gains that compound over time and can generate a hefty retirement fund to draw from in your later years. Even though IRAs are designed as retirement accounts, some people also use them for big purchases, such as making a down-payment on a house--and you're never too young to open one.
Step 1
Choose between a Roth IRA or a traditional IRA. Roth IRAs have investment limits ($5,000 a year as of 2009), and the investments are taxed, but the capital gains are not. Traditional IRAs do not tax initial investments but tax capital gains. If you don't have either, you should open a Roth IRA, since it will cost less in the long run.
Step 2
Contact various banks and financial institutions in your area, such as investment groups like Thrivent, Charles Schwab and Edward Jones, plus a number of online brokers (see Resources) and ask them about their different fees and average rate of return for both Roth and traditional IRAs. Every place will charge you fees, but by comparing the amount of the fees to the average rate of returns you can figure out whether it is advantageous to pay more for a better investment management service. You should also ask about their minimum deposit requirements, which can be anywhere from $50 to $5,000.
Step 3
Ask the potential investment managers what kind of monitoring services are available, such as online account monitoring, monthly statements and so on, and find out what exceptions they make to early and/or emergency withdrawals from your IRA. Many people don't need to make withdrawals from the accounts prior to their maturity, but it is good to know what kind of access you have to the money if you have unforeseen expenses arise.
Step 4
Ask the prospective account manager what kind of commission they got off both the Roth and traditional IRAs. This will help you determine whether they are trying to lead you towards one for their own personal benefit. Make sure you know what kind of investment options exist for each account--the more options, the more stable and productive you can expect your account to be.(see Resources).
Step 5
Sign an agreement with the broker you believe has the best financial opportunity in contrast to the fees demanded. Provide them the initial deposit and your IRA is up and running.
Tips and Warnings
- You may be able to get a deal on fees or investment minimums if you sign up for a monthly account debit to fund your investment account.
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