Complete Guide to Opening an IRA at Vanguard

Complete Guide to Opening an IRA at Vanguard

Why Start a Roth IRA?

A Roth IRA is a great way to supplement your 401(k) or other workplace retirement plan. Fun fact: 8 out of 10 millionaires invested in their company’s 401(k) according to our National Study of Millionaires. That means their boring old workplace retirement account played a huge part in their financial success! On top of that, 3 out of 4 millionaires invested outside of their company plans too.But if you don’t have a retirement plan at work—and lots of people don’t—a Roth IRA isn’t just a nice thing to have. It’s essential. 



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With a Roth IRA, you won’t pay any taxes on the money you take out in retirement once you hit age 59 1/2. That’s because you invest in a Roth IRA with after-tax money—meaning you’ve already paid taxes on it.

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Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum depositFees Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contractInvestment vehicles Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account See our methodology, terms apply.

Pros$0 minimum deposit for active investingNo commission fees for stock and ETF trades and no transaction fees for over 4,000 mutual fundsOffers extensive retirement planning toolsUsers can get on-demand advice from a professional advisor/Schwab expertRobo-advisor Schwab Intelligent Portfolios® available as a no-fee automated service option (with Premium version available for a fee)Trading platform StreetSmart Edge® available for more active investors24/7 customer support access by phone or chatCharles Schwab offers over 300 brick-and-mortar branches across the U.S. for in-person supportConsSpecific transactions may require commission feeRobo-advisor Schwab Intelligent Portfolios Premium charges a one-time planning fee of $300, then a $30 per month advisory fee. For that price, you get unlimited 1:1 guidance from a CFP, interactive planning tools, plus a personalized roadmap for reaching your goalsLearn MoreView More

Is a Vanguard Roth IRA Free?

Vanguard charges annual account service fees of $20 per Roth IRA account if the total Vanguard mutual funds and ETFs assets in the account are less than $10,000. However, this fee can be waived by signing up for the company's e-delivery service or by maintaining at least $50,000 in qualifying assets. Investors should not overlook that they also pay through expense ratios at individual funds.

6. Choose mutual funds with strong returns

When you’re choosing your mutual funds, look for funds with a long track record—10 years or more—of strong returns that consistently outperform the S&P 500. They’re out there! You’ll also want to spread your investments evenly across these four types of funds:

  • Growth and Income: These funds create a stable foundation for your portfolio by investing in big American companies that have been around for decades. They also pay dividends. (Dividends are payments companies make to their stockholders to share their profits.) You might find these funds listed under large-cap or blue chip funds.  
  • Growth: These funds are made up of medium or large U.S. companies that are up and coming. Sometimes called mid-cap or equity funds, they’re more likely to ebb and flow with the economy.  
  • Aggressive Growth: Meet the wild child of your portfolio. When these funds are up, they’re really up, and when they’re down, they’re really down. Aggressive growth funds normally invest in smaller companies that have tons of potential.  
  • International: Investing in international funds gives you a chance to invest in big non-U.S. companies you already know and love—like Nestlé, which is based in Switzerland. International funds spread your risk beyond U.S. soil. Just don’t confuse them with global funds, which bundle U.S. and foreign stocks together.

Why Should You Invest in an IRA?

A traditional IRA offers big advantages over a brokerage account, thanks to special tax treatment.

In a brokerage account, the capital gains you realize when you sell at a profit and dividends earned by your investments are taxable based on your current income levels.

With a traditional IRA, you experience none of these tax consequences. Instead, you only pay regular income taxes on withdrawals from the IRA. This huge advantage helps your retirement funds grow much faster over time.

How We Chose the Best Roth IRA Accounts

The best Roth IRA accounts offer a broad selection of investment options with minimal fees. Beyond their investment options, the top Roth IRA accounts are also easy to open online and from the comfort of your home.

Although a lot of thought and research went into our ranking, here are the main factors we looked for in the best Roth IRA accounts this year. 

Investment Options

Opening a Roth IRA account can help you save on taxes later in life, but you’ll get the best results if you have a broad selection of investments to choose from. We looked for providers that offer many investment options ranging from index funds to ETFs. The more options available from each provider, the higher they scored in our ranking. 

Low Trading Fees

We also looked for Roth IRA accounts with low fees, both in terms of ongoing account management fees and individual trading fees. The Roth IRA accounts on our list tend to come with some of the lowest fees available today. Many also offer a range of fee-free investments to choose from. 

Investing Help

Finally, we gave precedence to Roth IRA providers that offer hands-on investing help. Some of the accounts on our list will even choose all your underlying investments for you. Many also offer investor education and online tools that can help you learn how to invest for optimal results. 

Exits

  • The 4% Rule
    Your retirement “number”. Safe withdrawal rate. How to never run out of money.
  • The Three Years and Out Plan
    Short term lawyer and then on to something else. Aggressive debt repayment and savings.
  • How to Retire in 5 Years
    Craft a plan. Calculators. Join the many other lawyers on a different path.
  • Million by Partnership
    Savings. More savings. More more savings. Some investment growth.
  • How to Open up a Roth IRA with Vanguard

    To open an account with Vanguard we start by going here:

    By clicking “Open an account online” you’ll be pro

    By clicking “Open an account online” you’ll be provided with an overview of the account opening process and will be guided through a brief questionnaire on how you plan on funding the new account.

    You can fund the account in three ways:

    • Check or transfer from your bank or another Vanguard account.
    • Rollover from an employer plan.
    • Transfer from a financial institution.

    After choosing the option that makes sense for you, you’ll then be notified of the key information you’ll need (routing and your account number at your bank, current employer’s name and address) to open an account as well as the overall account opening process.

    Following this page, you’ll go through five steps

    Following this page, you’ll go through five steps in order to complete opening an account and selecting your appropriate Roth IRA fund.

    Create a profile

    The first step in the process is choosing the spec

    The first step in the process is choosing the specific account you’re looking to open.

    In this case, start by selecting Retirement as the reason for why you’re investing followed by selecting the Roth IRA as your account type.

    Following this page, you will need to fill out your profile – providing basic information such as your name, gender, birthdate, SSN, email, mailing address, citizenship status, and employment information.

    Establish Funding

    Establish Funding

    After completing your account profile, you’ll be asked for bank account information so Vanguard can help pull the necessary funds into your account. Here, start by choosing your desired funding method, whether that’s an  electronic money transfer, check, or simply skip the step to add funds in later.

    For the screenshot below, I’ve illustrated the information you’d need to move funds via electronic money transfer. Note, for this process, the funds will be withdrawn from your bank account within 1 to 2 business days after your account has been approved.

    After entering the necessary banking information,

    After entering the necessary banking information, the next step is determining the initial contribution amount for your Roth IRA account (note that the screenshot shows a maximum of $6,500 because the limit in 2018 was $5,500 plus there is an additional $1,000 contribution amount available if you’re over 55).

    This will lead you to a screen where Vanguard will

    This will lead you to a screen where Vanguard will ask whether you’d like to reinvest your dividends and capital gains or transfer the money to a money market settlement fund. Select Reinvest.

    Review and e-sign

    Review and e-sign

    Now that you’ve completed filling in your application for opening up a Roth IRA, it’s time to review. Be sure to check the details over and if at this point you’re wondering when you’ll be selecting what to invest in, don’t worry this will happen later in the process.

    Sign up for web access

    Sign up for web access

    The next step will be to quickly register for online access so you can control your account online, change your profile information as needed, view your transferred funds, and carry out other functions.

    What is an IRA?

    IRAs are tax-advantaged investment accounts. They offer a range of investments for your money, such as individual stocks, bonds, mutual funds, CDs and cash.

    You can open an IRA at most banks and credit unions, as well as through online brokers and investment companies.

    If you already make automatic contributions into a 401(k) account through your employer, you may wonder if you also need an IRA. IRAs supplement these other retirement accounts and come with their own advantages. They are accessible and easy to set up, plus individuals can shop around for the right investments for their finances versus being limited to their employer's 401(k) plan. This gives you the flexibility to make your own investment selections, with the guidance of the brokerage firm or bank that manages your account.

    You can also set up automatic contributions into your IRA from your checking or savings account. IRAs typically don't come with account setup fees, but you'll likely have to pay transaction and advisory fees when applicable, as well as fund expense ratio fees which cover operational costs.

    Before funding an IRA, you need to understand the contribution limits and tax implications. How much you can contribute and deduct from your taxes depends on your age, income, tax filing status and whether or not you have a retirement plan through your employer.

    Below are two handy resources from the IRS website that help guide you through how much you can contribute to an IRA and how much of it can be tax-deductible:

    1. IRA Contribution Limits: There is a maximum dollar amount you can contribute to your IRA each year, and it's determined by the federal government. In 2021, the limit is $6,000 if you're younger than 50 and $7,000 for those 50 and older.
    2. IRA Deduction Limits: There are also limits on how much of your IRA contribution you can deduct from your individual federal income tax return. This only applies to traditional IRAs as Roth IRA contributions are not tax-deductible. You cannot make a deduction if you (or your spouse, if married) have a retirement plan at work and your income is $76,000 or more as a single filer/head of household, $125,000 or more as married filing jointly/qualifying widow(er) or $10,000 or more as married filing separately. If you (and your spouse, if married) do not have a retirement plan at work, you can make a full deduction up to the amount of your contribution limit.

    Step 2: Choose Your Account Type

    Choosing your account type is a crucial step. It determines what you’ll use the account for, how you’ll invest your money, and the tax benefits that might be available.

    Vanguard has a few options:

    • Retirement
    • General investing
    • College savings or investing for a minor
    • Small business investing

    Because an IRA is a retirement account, select the retirement option. From there, you can choose between a traditional IRA or a Roth IRA:

    • A traditional IRA gives you the tax benefit up-front. The money you invest may be tax-deductible, and your earnings are tax-deferred. You’ll pay taxes when you withdraw funds in the future.
    • A Roth IRA gives you the tax benefit later. You can’t deduct the money you invest now, but your earnings grow tax-free, and you won’t pay taxes on the withdrawals you make in retirement.

    Enter Your Information

    After selecting the account type, enter information about yourself to complete your application. Vanguard will ask for your name, email, date of birth, social security number, mailing address, and phone number. You’ll also create a username and password as part of this step.

    Vanguard has the option to receive notifications and account documents electronically. It’s recommended that you choose e-delivery. Think about it: having your statements, tax forms, and more available in your online account at the click of a button can save a lot of time and hassle later on.

    You’re doing great so far, mama! So take a deep breath, and let’s go to the next step.

    Enter Banking and Regulatory Information

    You’ve finally made it to the part of the process where you fund your account. You can pull money from a checking or savings account. Enter your bank account number and routing number to continue.

    Vanguard also collects information for regulatory purposes. So you’ll want to have the name and address of your employer, your income, and your net worth on hand.

    The platform needs to know where you’ll get the money that you’ll invest in the account. This helps to prevent money laundering and other illegal activity. For example, your funds might come from your salary or income, social security benefits, investment gains, or other sources.

    For retirement accounts, the money should come from your salary or income.

    Submit the Application

    Vanguard will ask you to review the information you’ve entered so far, including your personal details, source of the funds, and employment information.

    Then, you’ll review and sign new account agreements. This is done online, so you’ll read the information and sign electronically.

    Congratulations, mama! Your Vanguard Roth IRA is open, and your funds are on their way to your new investment account.

    Grow your wealth with confidence by downloading our free guide!

    The Bottom Line

    Opening an IRA at Vanguard is an excellent option to make your money work for you. It allows you to grow your wealth over time. Because it has some of the lowest fees around, you can keep more money in your pocket.

    If you’re brand-new to investing, the best way to start is with DCA. Set up automatic transfers to invest a certain amount of money each month. The market will go up and down, but DCA with a Vanguard IRA can help to reduce your risk over the long term.

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