How to open a Roth IRA

My good friend Kimberlyn and I were talking about personal finance at a party (what else? I am a really fun party guest). Kimberlyn told me that when she was in college she had a professor who told everyone they should open up a Roth IRA immediately. Kimberlyn’s amazing response?

I couldn’t even afford crackers, how was I supposed to save for retirement?

I hear ya, Kimberlyn. Not only is it pretty intimidating to open up a new type of money account for the first time, but you were told to do it when you had no ca$h money at all. I worked two jobs in college and I was still super broke- it’s not an easy time, financially, and it is hard to think about saving long term when you are buying store brand saltines.

But Kimberlyn’s professor was right, starting a Roth IRA as early as possible will pay off hugely in the long run (because of compound interest. Do I sound like a broken record yet?)

I opened my Roth IRA in 2010 when I was living in a double wide trailer making about $1200 a month. If I managed to do it, you can do it, too!

Lots of Roth IRAs have a minimum deposit of $1000-$3000 before you can even open an account. I have (to this day) never had $1000-$3000 sitting around, and you better believe that double wide lifestyle was never going to allow me to save up $1000 to get started. Luckily, I found an easier way to get started.

At the time, ING Direct had a program that allowed you to put in  $50 a month as long as you set up automatic deposits. I had $50 a month, I already loved automatic deposits- boom! Roth IRA was set up and my compound interest makes me happy every day! $50 a month= $600 a year, which is not a ton of money, but that cashola has grown quite a bit! I didn’t have time or the money to muck around with trading stocks and paying fees (“um, I would like to buy 1 share of stock X for $14. Oh the fee to trade is $6 per transaction? Huh.”), so I chose to put all of my money into the 2050 retirement fund and I stick to it. The 2050 retirement fund is a plan already set up by ING Direct that invests my money more aggressively (aka, takes more risks) now, because I am young. When I get closer to retirement (in 2050…the year I will be 65) the money will be moved over to more conservative investments. I don’t have to do anything at all!

The bad news: ING Direct is now Capital One. And they don’t offer the awesome $50/month sign up deal anymore…so you guys can’t copy what I did exactly.

The good news: I will still tell you how to open a Roth IRA without needing $1000-$3000 in your piggy bank.

TD Ameritrade has no minimum and no annual fees (I HATE fees!) and they have a number of funds that you can trade around for free, if you are into that sort of thing. You can still set up automatic $50 (or $5…whatever you can afford) deposits, so it is kind of like you can do exactly what I did four years later!

It is worth it to give it a whirl. Start with an amount you won’t miss. I like to think of the money I invest as “night out equivalents.” If I went out for dinner and to a movie twice a month, that would cost me (more than) $50. I think it is snugglier (and cheaper) to make homemade (or frozen) pizza, buy a 6 pack, and rent a Redbox to watch with friends on the couch twice a month. Look at that! I saved for retirement!

Remember that unlike savings account it is not risk-free. But, you will have access to the original capital you put in at any time without penalty, so it’s like a secret emergency savings account. However, you will not see your money benefit from compound interest if you don’t take risks with it, and it is nearly impossible for the average Joe to retire if he has not invested his ca$h.

There you go! How to open a Roth IRA (relatively) painlessly. It will pay off tenfold when you are ready to retire, so it is worth it to get started now!