Once you’ve familiarized yourself with the Roth IRA basics, you should know whether or not you want to open a Roth IRA or not (and, of course, whether or not you’re eligible).

If you decide the benefits of a Roth IRA are too good to pass up, then you’re ready to set up your account.

Below are the steps you’ll need to take:

1) Investment Preparation

Make sure you’re ready to open a Roth IRA right now. Setting up a Roth IRA is a long-term commitment. It’s not something to be taken lightly. If the money you plan to invest in your Roth IRA is money you will need by year’s end, then consider building up your savings first, then search for a top rated Roth IRA account provider.

For example, you have at least six months of living expenses set aside in your savings or money market account. If you have any high-interest debt, pay that off first. Debt in the form of a modest fixed-rate mortgage is okay, but debt in the form of credit cards is a major hindrance to your financial health. Make sure you pay off those credit cards!

Once you’re on firm financial footing, you’re ready to open a Roth IRA.

2) Find A Discount Brokerage Firm

You’ve made the decision to open a Roth IRA.

Great!

Your next step is to select the financial institution where you’ll open your account. A number of options exist for individual investors, including both traditional bricks-and-mortar firms as well as their online counterparts (although traditional firms have online services).

I highly recommend setting up your account online. Most online brokerage services are significantly less expensive than full-service, walk-in-the-door financial institutions where an employee has to be paid to help you. All such a person would do anyway is fill out the same online information as you, so you might as well do it yourself and save some money. I’m going to make the assumption that since you’re reading this online, you already know how to surf the web. And opening a Roth IRA account online is no harder than that!

Choosing what firm to use will be the hardest part of the process, and there’s no firm that is right for everyone. Each discount broker will have a different schedule of fees, different trading costs, and minimum initial and recurring investment amounts. You need to do some research to find out which one best meets your individual needs.

For example, if you envision yourself trading a lot, then choosing a discount broker with low trading commissions makes sense. But if you envision yourself trading very little, you may be willing to accept a higher trading cost if doing so means a lower threshold for your initial and recurring investments.
In your research, here are some questions you might consider:

* Is a minimum initial investment required?
* Is there a minimum amount for subsequent contributions?
* Are any fees associated with the account?
* Are automatic bank draft contributions available?
* Is free automatic reinvestment of dividends available?

Considering questions like these, you’ll have to choose the options that are best for you. But here’s a few discount broker recommendations:

TradeKing

Roth-IRA fee: No
Charge per trade: $4.95
Minimum Initial Investment: None

TradeKing is the discount broker I use for my own Roth IRA. They have no minimum initial investment requirement, and they charge only $4.95 per trade. But the most important factor in my decision to use TradeKing was their option for free automatic reinvestment of dividends. You can also set up a regular weekly or monthly contribution amount as low as $10. Their customer service is great plus they protect your account using several security measures. Learn more about Tradeking’s account protection policy in my article: Is TradeKing Legit?

Open Your Roth IRA with TradeKing Now

Etrade

Roth-IRA fee: No
Charge per trade: $9.99
Minimum Initial Investment: None

Etrade offers 2 different pricing structures, so your commissions will vary between $7 to $10 for automatic investments, all the way up to $9.95 per trade for real-time individual security purchases. The advantage of Sharebuilder is its automatic investment program. The program allows you to set up a plan to purchase a set dollar amount of a given stock on a monthly basis.

This is good for investors who have a small amount of money to invest, but want to diversify their purchases without spending the majority of their Roth IRA contribution on trading fees. It’s also great for those who wish to dollar cost average their investment portfolio.

Open Your Roth IRA with Etrade

OptionsHouse
Roth-IRA fee: None
Charge per trade: $2.95
Minimum Initial Investment: None

Optionshouse offers great rates for it´s commission with options set at $9.95 and stocks at $2.95 per trade, and this is possibly the only reviewed site to offer broker assisted trades for the same price as trade alone executions. The margin interest her is also a set figure at 6.45%, making this an extremely usable site for the traders who only wish to make several executions per month.

Open Your Roth IRA at OptionsHouse Now

3) Fill Out The Application

Once you choose your online discount broker, simply follow the steps on their site in order to open an account. When prompted, check the account option for “Roth IRA.”

When you do, you’ll be asked to fill out an application. The application process for an Individual Retirement Account (IRA) is easy. Most brokers allow you to fill out the application online, but then they’ll require you to mail or fax a signed copy afterward (just follow the instructions they provide). In the meantime, you’ll need to have some basic information at your fingertips:

* Your Social Security number
* Your bank account number
* Your bank account routing number
* Your current employment information
* Your initial investment amount

Once you’ve gathered this information, simply follow the onscreen instructions to complete the application.

4) Your Initial Investment

At this point, with your application complete, you’ll be prompted to make an initial contribution to your Roth IRA. Unless you’re using a wire transfer to do this, the process may take up to 3 to 4 business days to complete since the discount broker needs to contact your bank and set up the bank draft process. Once the transfer of funds goes through, your money will most likely go into a money market account where it earns interest until you decide to make your first investment.

5) Automatic Investments?

While you’re waiting for your initial funds transfer to go through, take the time to explore the discount broker’s online trading site. Familiarize yourself with the different areas of the site and the availability of options at your disposal.

I highly recommend setting up an option whereby monthly or weekly contributions are automatically drafted via your bank account. This is a relatively painless way to fund your Roth IRA during the course of the year.

Also, if you’re a buy-and-hold investor of individual dividend-paying stocks, you might want to choose an option for free automatic reinvestment of dividends. This will allow you to buy fractional shares of a company’s stock whenever a quarterly dividend is paid. If done right, this strategy can lead to compounding investment returns that significantly increase your account’s performance.

Overall, take the time to gain some familiarity with the broker’s site, so when it comes time to invest, you’re ready to pull the trigger.

6) Start Investing

Assuming you’ve already chosen an investment strategy with which your comfortable, the process is now complete. Once your initial contribution shows up as “available” in your online account, you’re ready to start investing!