Updated on 09.15.14

How To Start a Roth IRA Successfully

Trent Hamm

Many people often think in the back of their heads that it would be a great idea to start a Roth IRA, but they let it stay there in the back of their heads because it’s easier to do other things than plan for an optional retirement plan, especially if one is already deducting money for retirement through a 401(k) and 403(b).

By doing this, though, you’re missing out on an utterly incredible investment opportunity that, if you’re under thirty, could easily be the key to retiring before your sixtieth birthday (that’s what I’m planning, anyway). If you’re older than that, don’t sweat it; a Roth IRA can still be a big help.

I don’t need to repeat how great Roth IRAs are; simply put, it’s the best deal that the government will probably ever give to the middle class for investing in their future. It’s non-taxable income for those who are smart enough to take advantage of it; you can have money rolling in during your retirement years and not pay a dime of taxes on it.

Here’s a plan that I developed that will get you into a great Roth IRA before the end of the year. I’m basically following this plan myself, as I am looking to start one of my own this year. I am making two pretty basic assumptions: I am assuming you want to make a $4,000 annual contribution to the fund (which will give me a Roth IRA well in the six figures by retirement – and far, far beyond if I assume any sort of healthy growth), and I’m also assuming that I’m using Vanguard, which has a $3,000 minimum to get started (they want investors that are serious, and they treat you very well).

First, open a high-yield online savings account immediately. I recommend ING Direct for their great customer service, great interface, and competitive interest rates – they’re the bank I use. The real reason for doing this is to find a relatively secure place to put some money aside until you reach the $3,000 limit.

Now, set up a $75 weekly contribution to that account. Just set it up as an automatic weekly deduction to your new account from your checking account. Eventually, you will switch this deduction to come from Vanguard, but that will be later in the year.

So far so good? Now wait nine months. In nine months, your account will build up to $3,000. Depending on precisely when you get started, I wouldn’t even look at the balance of that account until the end of September.

When your balance is above $3,000, sign up for a Vanguard Roth IRA and transfer that amount over. If you start saving immediately, your target for signing up will be in mid-October. I encourage you to look carefully at their retirement options; their Target Retirement options seem pretty good to me (I’ll be looking at the Target 2040 or Target 2045 funds).

Once you’ve started your Roth IRA, switch your $75 a week deduction over to that instead. Of course, if you don’t have an emergency fund, you might want to also continue putting some into your savings account, but emergency funds are another story.

When you reach the end of the year, you’ll come very close to your $4,000 contribution limit for the year; you might want to adjust your final payment so that the contributions do total $4,000 for the year.

That’s all you have to do. Suddenly, you’ll have a Roth IRA also building for your future, along with all its flexibility: the ability to withdraw your contributions early and the tax-free status of your earnings when you reach 59 1/2 and have had the account for five years. It’s a sweet deal, and now there’s an easy plan for getting it done – what are you waiting for?

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  1. Aaron says:

    I went with the ultimate lazy man’s route with my Roth IRA. Fidelity has “Freedom Funds” that are managed based on your target retirement date. I’m in the FF2040 fund which is managed aggressively right now, but as I get closer to retirement, they’ll start managing more conservatively.

    The best thing is, if you set up automatic investments (free), for a minimum of $200 a month, they wave the $2500 minimum account balance. It’s a truly set it and forget it investment option. You really couldn’t ask for an easier way to get into a Roth IRA.

  2. TOK says:

    Vanguard lets you start an IRA with the STAR Fund for $1,000. This is a balanced fund made up of other Vanguard Funds.

  3. btc says:

    I opened a Roth IRA last week with T. Rowe prices. I wanted to go with Vanguard, but thought I would never get around to it if I waited until I had the minimum requirement. Besides the higher fees, I really like T. Rowe Price. Still, I plan on transfering my funds to Vanguard once it reaches $5000.

    Great blog, by the way!!

  4. Chris says:

    Do you recommend opening an account with Fidelity if you don’t have the $3,000? I have about $2000 saved up and would like to get started. I’m also confused about fees. How do you know what fees are associated with your Roth IRA? (assuming I got with Fidelity or Vangaurd?) Do you get slapped with fees for every thing you do? Or can you leave your $$ in a “Freedom Fund” type thing and not touch it (and is that even wise?)

  5. I disagree with your theory on waiting until you have enough money. You lose interest every day your cash does not compound. Many banks allow customers to open a roth IRA account with less than $50. You can open one up, then start contributing every time you either get paid or earn some additional income. That way the compounding effect will reach its full potential in the long run.

  6. Trent Hamm Trent says:

    Vanguard has a $3,000 minimum and they’re the investment house whose philosophy I agree with the most. For me, it’s worth saving the money before investing – you are beating 5% in a savings account along the way, so it’s not a significant loss.

  7. I like Vanguard, too. They aren’t out to gauge customers with 1% to 2% ridiculous expense ratios.

    I know my Fidelity cash balance earns like 4.92%, so it’s close to 5% anyways. But the reason why I like to send it ASAP is because I can’t spend it on anything once it’s gone. I rarely make withdrawals from my investment accounts once the money is gone.

    But you’re right. Building a large cash balance is the most important decision you can make.

    Also, love the blog. I don’t know how you write so much so often.

  8. Mark Conrad says:


    2 years ago I started investing $300
    a month in a Vanguard Roth-IRA, that
    uses a spread of mid cap stocks.

    Thus far, I have lost over $3800 dollars
    in that fund, and its dropping all the
    time. (14% loss according to my statement.
    Feels more like a robbery at gunpoint, but
    hey that’s emotion for you)

    I don’t know much about stocks, but
    I’d told they are the only way to beat
    inflation over the long haul.

    Some pundits say ‘buy and hold,’ others
    say leverage losses in a down market
    by buying inverse funds.

    Should I stay in or get out?

    I fear my retirement savings may be
    at serious risk, particularly with
    big companies like Bear Stearns nearly
    averting disaster.

    Since the funds aren’t FDIC insured,
    seems like a dangerous line to walk
    in these volatille times, and the
    situation looks like its going to get
    a lot worse before it gets better.

    Then again, buy and hold with dollar
    cost averaging could yeild a much higher
    return over the next 15 years?

    Lost and confused, burned and bedraggled.


  9. John says:

    Vanguard will waive the account service fee if you sign up for the e-service package, basically go paper-less with account activity.

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