A Roth IRA is a type of retirement savings account with a twist on the traditional ways of saving. Traditional IRAs allow investors to deduct the contributions for the year it is contributed and defer taxes until distributions are taken. A Roth IRA gets no income deduction but grows tax free as long as the IRA owner holds the assets for at least five years and until age 59 and a half. Make sure you qualify before opening a Roth IRA.
Calculate your modified adjusted gross income (AGI) for the year. Look at previous year's tax returns, or do a rough estimate of income and deductions to see if you qualify for a Roth IRA. Your AGI must be less than $120,000 if you are a single tax filer and less than $177,000 if you are married and filing joint returns.
Find a Roth IRA custodian that meets your investment needs and objectives. Banks, brokerage firms and specialty financial advisers offer a plethora of investment options allowed by the IRS including bank accounts, stocks and bonds or even real estate. Ask what the minimum account deposit requirements are to ensure you can open and not be penalized for an IRA with $500.
Obtain an Roth IRA application. Fill in your legal name, Social Security Number, date of birth and current contact information. Write the year the contribution is for, the current calendar year or the previous tax year. You can open an IRA up until April 15 for the previous year. Be sure to name your beneficiaries on the application as well.
Sign and submit the application. Include a check for $500 for the initial deposit made payable to the IRA custodian.
Check with your IRA custodian when naming a beneficiary other than your spouse. Most states require the spouse to sign a waiver of the inheritance. Beneficiaries can be updated at any time with written notification.
The Roth contribution must be of earned income. If you had no income in the year, you do not qualify for a Roth IRA contribution for that year.