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66 67 68 <H1>Opening and Funding a Roth IRA Account</H1> 69 <P> 70 You can open a Roth account at any time. 71 Whether you can <I>contribute</I> to it for any given tax year depends on your income and filing status: 72 see the <A HREF="contribution_limits.htm">Roth IRA Rules</A> page. 73 <P> 74 The choice of who to open your account with depends on your choice of what type of investments you want in it. 75 If you want to invest in individual stocks or ETFs, you'll open your account with the stockbroker of your choice (preferably a low-cost one). 76 If you want to invest in index funds or other mutual funds, you'll open your account with the fund provider. 77 In each case, you'll specify that the account is a Roth IRA account, rather than a regularly-taxed account, at the time you open it. 78 79 <P> <P> 80 <H2>If You're Just Starting Out ...</H2> 81 <P> 82 If you're just starting to save for retirement and are overwhelmed by all the choices, you can start with something very simple now - you can always modify your portfolio years from now when you are more experienced and knowledgeable. 83 The obvious starting investment for your account would be a Total Stock Market ("TSM") index investment (either a regular index fund or an <A HREF="/glossary/etf.htm" onClick="showGlossary('etf');return false" onMouseOver="window.status='definition of exchange traded fund';return true" onMouseOut="window.status='';return true" CLASS="glossary">ETF</A>). 84 Two equally easy ways to go: 85 86 <OL> 87 <LI> 88 Choose a low-fee TSM from a respected, well-known index fund provider that has a customer-friendly reputation. 89 (Ideally they will have a wide selection of other low-fee index funds, so that you can modify your portfolio several years from now when you may want to.) 90 You can open an account on their website, specifying that it's a Roth IRA account rather than a regular account. 91 <P> 92 - or - 93 <P> 94 <LI> 95 Choose a low-fee TSM ETF, again from a classy provider. 96 This time you open your account with your choice of stockbrokers, again specifying that it will be a Roth IRA account. 97 Once the account is open you'll buy shares of the ETF using its symbol. 98 </OL> 99 100 <P> 101 (This <A HREF="/articles/index_funds/fund_list.htm">list of index funds</A> has some possible TSMs to consider.) 102 103 <P> <P> 104 <H2>More Generally ...</H2> 105 <P> 106 Generally speaking, your Roth account is appropriate for the least tax-efficient funds in your long-term retirement portfolio. 107 Let's make that more clear by taking a specific example. 108 Suppose you have decided to build a retirement portfolio out of three types of index investments: total stock market, foreign, and small value. 109 We'll fill in the table with specific fund numbers (taken from three different companies so as not to play favorites): 110 111 <P> <P> 112 113 <CENTER> 114 115 <TABLE BORDER=0 WIDTH=400 CELLPADDING=3 CELLSPACING=1 BGCOLOR="#003399"> 116 <TR BGCOLOR="#F0F0F0"> 117 <TD ROWSPAN=2 ALIGN="CENTER"> 118 Fund Type 119 </TD> 120 <TD COLSPAN=3 ALIGN="CENTER"> 121 Representative Fund 122 </TD> 123 </TR> 124 125 <TR BGCOLOR="#F0F0F0"> 126 <TD ALIGN="CENTER"> 127 Symbol 128 </TD> 129 <TD ALIGN="CENTER"> 130 Turnover Rate 131 </TD> 132 <TD ALIGN="CENTER"> 133 Dividend Yield 134 </TD> 135 </TR> 136 137 <TR BGCOLOR="#FFFFFF"> 138 <TD> 139 <A HREF="/articles/index_funds/styles.htm">Total Stock Market</A> 140 </TD> 141 <TD ALIGN="CENTER"> 142 FSTMX 143 </TD> 144 <TD ALIGN="CENTER"> 145 6% 146 </TD> 147 <TD ALIGN="CENTER"> 148 1.47% 149 </TD> 150 </TR> 151 152 <TR BGCOLOR="#FFFFFF"> 153 <TD> 154 <A HREF="/articles/index_funds/foreign_funds.htm">Foreign</A> 155 </TD> 156 <TD ALIGN="CENTER"> 157 EEM 158 </TD> 159 <TD ALIGN="CENTER"> 160 9% 161 </TD> 162 <TD ALIGN="CENTER"> 163 1.12% 164 </TD> 165 </TR> 166 167 <TR BGCOLOR="#FFFFFF"> 168 <TD> 169 <A HREF="/articles/index_funds/small_value.htm">Small Value</A> 170 </TD> 171 <TD ALIGN="CENTER"> 172 VISVX 173 </TD> 174 <TD ALIGN="CENTER"> 175 30% 176 </TD> 177 <TD ALIGN="CENTER"> 178 1.80% 179 </TD> 180 </TR> 181
182 </TABLE> 183 <BR> 184 <SPAN CLASS="smallfont">Turnover rate and dividend yield from <A HREF="http://www.morningstar.com">Morningstar</A> as of 1/20/2006</SPAN> 185 186 </CENTER> 187 188 <P> <P> 189 190 191 <TABLE BORDER=0 CELLPADDING=0 CELLSPACING=0><TR> 192 <TD VALIGN="TOP"> 193 Portfolio <A HREF="/articles/index_funds/turnover.htm">turnover</A> (that's the percent of the fund's stock portfolio that gets sold and reinvested every year) and dividends are the causes of tax inefficiency; 194 so based on these numbers, the small value fund is the logical choice for the Roth IRA account; the other two would do fine in a regularly taxed account. 195 </TD> 196 <TD> </TD> 197 <TD> 198 <!-- morningstar box --> 199 <FORM name="mstarform" method="GET" action="javascript:showMorningstarSnapshot(document.mstarform.Symbol.value)"> 200 <TABLE BORDER="0" CELLPADDING="1" CELLSPACING="0" BGCOLOR="#003399" ALIGN="RIGHT"> 201 <TR><TD> 202 <TABLE BORDER="0" CELLPADDING="4" CELLSPACING="0" BGCOLOR="#FFFFFF" WIDTH="150"> 203 <TR><TD ALIGN="CENTER"> 204 <A HREF="http://www.morningstar.com">Morningstar Snapshot</A> 205 <BR> 206 <SPAN CLASS="txtfld"><INPUT TYPE="TEXT" NAME="Symbol" size=4 maxlength=10 value="VISVX"></SPAN> 207 208 <INPUT TYPE="SUBMIT" VALUE="Go"> 209 </TD></TR> 210 </TABLE> 211 </TD></TR></TABLE> 212 </FORM> 213 <!-- end morningstar box --> 214 </TD> 215 </TR></TABLE> 216 217 <P> 218 (At this point you may want to see the <A HREF="/articles/index_funds/fund_list.htm">tiny list of index funds</A> in the separate <A HREF="/articles/index_funds/overview.htm">index funds article</A>; 219 and see this article on <A HREF="https://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement">Principles of Tax-Efficient Fund Placement</A>.) 220 221 <P> 222 223 </TD></TR></TABLE> 224 225 <P> 226 227 <TABLE WIDTH="560" BORDER="0" CELLSPACING="0" CELLPADDING="0"> 228 <TR> 229 <TD BGCOLOR="#003399" ALIGN="RIGHT"><A 230 HREF="roth_calculator.htm" onMouseOver="window.status='next page: calculator';return true" onMouseOut="window.status='';return true"><IMG SRC="/images/arrow_next.gif" WIDTH=128 HEIGHT=12 BORDER="0" ALT="next"></A></TD> 231 </TR> 232 </TABLE> 233 234 <P> 235 236 <TABLE WIDTH="500"><TR><TD ALIGN="CENTER"> 237 <A HREF="/">home</A> | 238 <A HREF="/articles/rothira/rothintro.htm">article</A> | 239 <A HREF="/glossary/">glossary</A> | 240 <A HREF="/calculator/compound_interest_calculator.htm">calculator</A> | 241 <A HREF="/about.htm">about us</A> | 242 <A HREF="/books/">books</A> 243 </TD></TR></TABLE> 244 245</TD> 246<TD VALIGN="TOP" ALIGN="RIGHT"> 247 248 <!-- article menu ---> 249 250 <TABLE WIDTH=300 BORDER=0 CELLPADDING=1 CELLSPACING=1 BGCOLOR="#003399"> 251 <TR><TD ALIGN="CENTER"><IMG SRC="/images/menu/articlecontents.gif" WIDTH="150" HEIGHT="16" BORDER="0" ALT="Article Contents"></TD></TR> 252 <TR BGCOLOR="#FFFFFF"><TD> 253 <img src="/images/invis1x1.gif" width=7 height=9 border=0 name="rothintro"><A CLASS="menuitem" HREF="rothintro.htm">Roth IRA Intro</A><BR> 254 <img src="/images/invis1x1.gif" width=7 height=9 border=0 name="contribution_limits"><A CLASS="menuitem" HREF="contribution_limits.htm">Rules & Eligibility</A><BR> 255 <img src="/images/invis1x1.gif" width=7 height=9 border=0 name="roth_account"><A CLASS="menuitem" HREF="roth_account.htm">Opening an Account</A><BR> 256 <img src="/images/invis1x1.gif" width=7 height=9 border=0 name="roth_calculator"><A CLASS="menuitem" HREF="roth_calculator.htm">Calculator</A><BR> 257 </TD></TR> 258 </TABLE> 259 260 <P> 261 262 <TABLE WIDTH=300 BORDER=0 CELLPADDING=1 CELLSPACING=1 BGCOLOR="#003399"> 263 <TR><TD ALIGN="CENTER"><IMG SRC="/images/menu/sidebar.gif" WIDTH="150" HEIGHT="16" BORDER="0" ALT="Article Contents"></TD></TR> 264 <TR BGCOLOR="#FFFFFF"><TD> 265 <img src="/images/invis1x1.gif" width=7 height=9 border=0 name="rothcontribs"><A CLASS="menuitem" HREF="rothcontribs.htm">Roth vs. Deductible</A><BR> 266 </TD></TR> 267 </TABLE> 268 269 <!-- end article menu --> 270 271 <P> 272 273
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