Step-by-Step Guide to Opening a Vanguard Roth IRA – Biglaw Investor

Step-by-Step Guide to Opening a Vanguard Roth IRA – Biglaw Investor

Spousal IRA: The Basics

A spousal IRA is a traditional IRA or Roth IRA in the name of a non-working spouse. The working spouse can contribute to a spousal IRA. That way, both members of the couple can be saving at once, even if only one is working outside the home. If the working spouse has maxed out his or her own retirement contributions for the year, contributing to a spousal IRA is a great way to boost the couple’s total retirement savings. For the non-working spouse, having a retirement account in his or her own name is an important form of financial independence. The two accounts must be held separately; they cannot be held as joint accounts, like a bank account can.

Depending on whether you choose a traditional IRA or a Roth IRA, there are different tax advantages. Traditional IRAs are deductible in the year you make your contribution. Roth IRAs provide you with future income that will be tax-free when you draw on it in retirement.

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How do I choose an IRA?

Though there are several different types of IRAs, you may not be eligible for all of them. Individual taxpayers can choose from traditional and Roth IRAs, while anyone who is self-employed (think freelancers) or a small business owner can choose from SEP (Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) IRAs.

When choosing an IRA to start saving for retirement, you'll most likely be deciding between a traditional or Roth IRA. Key factors to think about are your financial goals, timeline to retirement and risk tolerance. If you're closer to retirement, you'll probably want to go with investments that are lower risk and have less potential to lose money as you near your nonworking years. The advantage of choosing an IRA from a well-known brokerage firm or bank is that they help you assess what would be the best investments depending on your other goals, how soon you want to retire and how conservative you want to be.

For the more active investors, look at IRAs offered by online brokers like E*TRADE. For the more passive investors, consider an IRA from a robo-advisor, such as those from Betterment. Robo-advisors rely on algorithms to manage your portfolio for you, taking into consideration your risk tolerance and goals.

For a more personal experience, consider IRAs offered by big brokerage firms like Charles Schwab, Fidelity Investments and Vanguard that provide access to human advisors.

Compensation Limits

There is no income cap on your eligibility to make traditional IRA contributions, although people with incomes over a certain level may not be able to take a tax deduction for their contributions. These rules are explained in IRS Publication 590-A.

However, if you want to contribute to a Roth IRA for your spouse (or yourself), there are income limits. For 2022, a married couple who file a joint tax return and have a modified adjusted gross income (MAGI) of up to $204,000 can contribute the full amount to each of their Roth IRAs.

Couples with incomes between $204,000 and $214,000 can make partial Roth contributions. If their income exceeds $214,000, they no longer qualify for Roth IRAs.

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  • Age Limits

    There are no longer any age limits on making IRA contributions. (At one time traditional IRAs had such limits, but that changed in 2019.) 

    It might be worth keeping in mind, however, that Roth IRA account owners must have had a Roth for at least five years in order for their withdrawals to be tax-free. This will generally not be an issue for younger taxpayers, but older ones may want to plan accordingly.

    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.

    Retirement Tips

    • For help in planning your retirement, consider finding a financial advisor to help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
    • Don’t forget, you’ll be getting a check from the government to supplement your retirement plans. See how much the check could be for with our free Social Security calculator.
    • Investing is another key part of getting ready for retirement. You want to make sure what you are investing in matches the current stage of your life, though. Use SmartAsset’s asset allocation calculator to see what your investment mix should look like now — and how it should change as you get older and move closer to your ultimate retirement date.

    Photo credit: © iStock/michaeljung, © iStock/Aldo Murillo, © iStock/mtreasure

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