How to Open a Roth IRA And Why

For most people the Roth IRA is probably the best long term (until retirement) savings tool. After you learn how it works, the Roth IRA rules, chances are you will want to open a Roth IRA yourself.

How to Learn About the Roth IRA

Robert Brokamp, in The Motley Fool, has an article called Why the Roth Rules that spells out the advantages of a Roth IRA over most other forms of retirement investment. It does a good job of laying out the basics.

A terrific amount of good information about the Roth IRA can be found by checking out the the article Guide to Roth IRA, 401k and 403b Retirement Accounts on the website. Another helpful site, dedicated completely to the Roth IRA is appropriately named

Should You Open a Roth IRA?

The Roth IRA is not always the first retirement fund to open, however. For example, one exception is when an employer offers matching funds toward a 401k. When that is the case that option should be taken advantage of until matching funds are no longer given, then go to the Roth IRA.

There may be other situations where it may not be the best choice, but the advantages are so many that in my opinion a Roth IRA is probably the best retirement vehicle for most people. Among the most important benefits are these:

  • There are no age limitations for contributions or withdrawal of your contributions (you cannot withdraw earnings until after age 59½).
  • After five years you can withdraw up to $10,000 of earnings without penalty to purchase a home.
  • You can also withdraw earnings for education for you, your spouse, your children or grandchildren.
  • When you withdraw earnings after age 59½ there is no tax on earnings.

You can contribute until you are as old as you choose and there are no taxes on earnings you withdraw after age 59½. These facts are incredibly important.


You may work ten years or more beyond the minimum age for normal withdrawals as many people do now, so earnings on your retirement fund may be considerable. This mean that the tax savings may be quite significant.

How to Open a Roth IRA

If you do not know a lot about investing, or even if you do, one of the best routes is to put your money into a basic index fund with a company like Vangard where expenses are very low. Personally I use the Vanguard Total Stock Market Index Fund for my Roth IRA.

If you use a total stock market fund or Standard and Poor's 500 stock fund to open a Roth IRA you will consistently outperform about 60-70% of all funds and take the worry out of your primary retirement savings program. You will never be in the top performing mutual fund, but you will never be in a low one either.