How To Set Up An Ira

I touched briefly on the benefits of contributing to a Roth IRA (Individual Retirement Account) in a previous post titled The Right Time.

Today, my goal is to provide you with a step-by-step guide to setting one up for yourself, a loved one, a friend, or a family member. If you know someone that is just entering into the workforce full-time or part-time, please feel free to share this information with them.

Aside from your employer-sponsored/company 401k. It is beneficial to set up your own individual retirement account (IRA).

Most human resource departments out there will share the company-sponsored retirement plan information with you if requested, but unfortunately setting up an additional retirement bucket for yourself, yourself and your family, or yourself and your future family if you are thinking big picture, will go by the wayside if you are not informed about it.

As a refresher, some of the benefits and stipulations for the Roth IRA are as follows:

The Roth IRA similar to the Roth 401(k) is funded by after-tax dollars allowing all future withdrawals to be tax-free
As of 2021, you can invest up to $6,000 into the Roth IRA . Those 50 years and older can contribute an additional $1,000, therefore $7,000 in total.
Another awesome feature with the Roth IRA is that your contributions can be withdrawn not just tax-free, but penalty-free as long as your withdrawal amount is less than or equal to your total contributions.
The Roth IRA does have an income limit. As of 2021, the limit for single individuals is a modified adjusted gross income (MAGI) of $140,000 and $208,000 for married couples filing jointly. (There are ways around this, called the Back-Door Roth, that we shall discuss on another day.)e

I think especially getting started in your career, this is a great foundation you can use to build wealth with many advantages to yourself.

Let's get into this.

Where can I set my Roth IRA up?

A Roth IRA can be set up with most brokerages around. You want to be careful with fees as what may seem to be a small percentage can compound mightily if you are not aware.

My wife and I both use Vanguard for our brokerage accounts. They are known for their low-fee index funds.

As a disclaimer, Makroe Money is not sponsored by Vanguard, I like what they seem to stand for. But there are other brokerages out there that are just as qualified.

Fidelity is another solid and reputable brokerage that also prides itself on keeping its fees down.

Why the concern with fees? Because you want to keep more of the gains on your investments to yourself. Over a 30-40 year period invested long-term, 1% on that accumulated interest can add up.

For example, Vanguard's Total Market Index Fund (VTSAX) has a fee of 0.04%.

Let's compare the VTSAX's 0.04% expense ratio to a hypothetical actively managed fund with a 1% expense ratio on $1,000,000 of accumulated interest:

$1,000,000 x .04% = $400

$1,000,000 x 1% = $10,000

$9,600 additional dollars in your pocket pays off over time.

Vanguard was honestly just the brokerage we luckily fell into. So for this tutorial setting up your Roth IRA, I will use their site for snippets and examples.

The Set-Up

Open up your browser, and enter the URL - www.vanguard.com
Click "Personal investors"

3. Get acquainted with the site and take a look around. When you are ready click "Open an account" in the top ribbon on the right side of the webpage

4. Start it up!

5. Declare how you will be funding your account. This is likely going to be coming from your bank account.

6. You are new in town, but your adventure is just beginning.

7. For the next step in the process gather your bank account & routing number which can be found in your mobile banking app or checkbook (checks are still out here tough!)

8. We can almost taste success

9. Complete the required information and continue onward and upward

After completion of your personal information and bank transfer resource, you will be free to contribute to your newly established Roth IRA!

Dependent on how much savings you currently have, you can begin funding your account.

Two suggested tickers to begin contributing if you are just starting are VTSAX and VTI.

VTSAX is the Vanguard Total Stock Market Index Fund Admiral Shares. This index consists of the total US stock market and has an expense ratio of 0.04%. It does have a minimum investment of $3,000 to begin investing in this fund.

If you are saving up to that $3,000, you can begin contributing by purchasing VTI.

VTI is the ETF (exchange-traded fund) version of VTSAX. You can begin buying in at the cost of the share price which is hovering about $227/share as of 8/18/21.

Once your pool of money has grown to $3,000, you can exchange it into the VTSAX fund.

I think it is beneficial to set up a recurring, automated transfer as well to keep things simple and consistent.

But hey, it is a start! You are now on your way to building that wealth foundation, brick by brick.

I hope this helped. If not, shoot me a comment down below.

If you know a young man or woman that this post may help in setting up their first individual retirement account, feel free to share this with them.

Makroe Money

Onward and Upward