How to Start a Roth IRA with $1000 (Start to Finish)

in this video i'm taking you step by step and opening up a roth ira with 1 000 we'll talk about what exactly the roth ira is some pros and cons of it and why most people can greatly benefit from that and of course the video would not be complete if i didn't show you exactly how to do it step by step so i'm going to open up a roth ira account live for you to see so that you can then go and do it by yourself let's start by discussing what exactly is a roth ira a roth ira is a type of individual retirement account that you can use to invest and build your wealth for retirement now when you think of a roth ira i don't want you to think of it as an actual investment right like you've got investments like stocks and bonds and real estate and etfs these are all different types of investments the roth ira itself is just an account that holds those investments but i think the most important thing just to not over complicate this is to remember that a roth ira is basically just a standard brokerage account the only difference though is that it comes with some really big advantages that we'll discuss right now and that actually brings up the next part of the video which are the pros and cons of a roth ira starting with the first pro which is that roth iras are tax free so let's say for example that you've got two different accounts one account is a regular brokerage account and then the other is a roth ira within both accounts you've consistently invested for the past 30 40 years and both accounts have grown to a million dollars the only problem though is that the standard brokerage account would not actually be worth the full 1 million dollars because after taxes it would actually be worth closer to 600 or 500 000 depending on where you live on the other hand though the roth ira would actually still be worth 1 million how is that so well it's because all of the money that you make inside of the roth ira all of those capital gains and the profits that you've earned over the years are not taxed and that is by far the biggest advantage of the roth ira the next pro is that with the roth ira you are allowed to withdraw your contributions at any point even before retirement now just to really quickly clarify okay it's critical that you understand the difference between a contribution and an actual earning within your roth ira your contributions are the money that you add into the roth ira so let's say you put in 1 000 into your roth ira and then a couple of months later you have this emergency and you don't have any money saved up in your savings and so you have to take out that one thousand dollars that you contributed to your roth ira well believe it or not that's not a problem and you can do that without incurring any penalties but let's say that during that period of you investing that thousand dollars that you ended up earning five hundred dollars and so that thousand dollars actually grew to fifteen hundred dollars what you can't do is take out that five hundred dollars because that is considered a capital gain so you can take out the one thousand dollars because that was the principle that was how much you actually put into the account your contribution but you cannot touch the actual gains from the investments growing if you simply could not help yourself your hands are too sticky and you have to take out that 500 then i'm afraid uncle sam and his non-profit the irs will first make you pay taxes on those gains and then you'll be required to pay a 10 early withdrawal fee and the final pro is that roth iras do not have required minimum distributions or rmds so most tax deferred retirement accounts like 401ks or scpi arrays traditional iras 403 bs they all require that you start making minimum withdrawals from your account after you turn 72. so you can't just keep your money inside of your retirement account and watch it continue to grow and compound uncle sam doesn't like that because he wants to be able to start collecting taxes on those withdrawals however this isn't a problem with the roth ira because it does not have an rmd so you could literally wait until you were i don't know 80 and you would give yourself like two extra decades of your investments growing and compounding i mean we're talking about millions of dollars in potential investment gains depending on the size of your account okay so the first con of a roth ira is that they have pretty small maximum contribution limits if you look at other retirement accounts like the 401k for example which has a maximum contribution of 20 500 and then if you're over 50 27 000 but when you compare this to a roth ira which has an annual contribution limit of only 6 000 or 7 000 if you're over the age of 50 that's a pretty small number the next con is that roth iras have income limits so as you can see from the chart on the screen if you earn over 129 000 per year your contribution limits will start to decrease as your income increases you can see that if you earn over 144 000 or more per year that you will not be eligible for a roth ira and these numbers are of course different depending on if you're married and depending on how you're filing your taxes and those numbers change all the time almost on a yearly basis and so by the time you're watching this video they may be higher or they may be lower and the final con if you even want to consider it a con is that with roth iras you do have to pay taxes upfront which means that the money that you contribute into your roth ira has already been taxed from your income by the irs okay so that's different from a 401k where the money that goes into that account is not taxed but the money that comes out of that account is taxed let's transition now into actually opening up the roth ira you can open up a roth ira with virtually any broker so some of the best examples include fidelity vanguard charles schwab m1 finance and of course there are a ton of other brokers out there it really comes down to your personal preference which one you want to go with if i had to give you my top three i would say fidelity vanguard m1 finance in that exact order but for this video i'm going to be using fidelity but just understand that you can go with any broker and the process for opening up the roth ira is for the most part going to be the exact same okay here we are in step number one which is opening up the fidelity account or whichever broker you decided to go with so on the screen right now what you'll see is fidelity okay you can either get here from your computer by going to fidelity.com or you can also download the fidelity app on your mobile device and just do it that way okay so back to my computer now what i'll do is click right here where it says open an account and then you should see this window pop up on the left hand side of this window you'll see an option for roth ira and then you'll just click the button that says open now next up you'll land on this page which will ask you if you're already a fidelity customer if you are then just sign in to your account and it'll save you like 15 extra minutes of having to fill out information if you are not a fidelity customer then you'll have to click no at which point you'll have to create your account this part will take a few minutes you'll have to answer like a few administrative questions about your income and about your job and just like who you are you'll have to agree to some investing documents it's all pretty standard stuff and it's going to be the same for every single broker so nothing new here once your account has been created the next step will be funding your roth ira and making your first contribution keep in mind you're not required to make a contribution right here right now if you want to just go past this part and then wait you know a couple months down the road to make your first contribution that's totally fine so you've opened up your roth ira you've moved some money into your account those are both really big steps now it's time to actually choose what you're going to be investing when it comes to investments there's a lot out there i mean you've got stocks bonds etfs mutual funds reits real estate options annuities uh banking products like cds ignore all that okay it's all just noise in order to really start building your wealth and investing inside your roth ira i want you just to focus on one of these investments and that's the index fund if you don't know what an index fund is the easiest way to think of it is as a basket right so you've got this basket but within that basket are hundreds and sometimes even thousands of different stocks what's really great about index funds though is that if you can choose the right one which i'll help you with that in a second here but if you pick the right one it's basically just gonna allow you to have a broad diversified high growth portfolio without having to do any work any research if you know nothing about the stock market and how investing works it doesn't matter because all you have to do is just choose the right index fund and that actually brings me to my next point by far the best index funds to buy are the ones that give you broad exposure to the entire u.s stock market so a really good example of this is fs cax or the fidelity total market index fund this index fund holds about 3 875 stocks in it and so when you buy shares of this index fund you're essentially giving your portfolio exposure to all of those stocks companies like apple microsoft amazon google tesla and the list goes on so all of those stocks are in one single index fund and so when you buy a share of that one index fund for say 120 you're getting exposure to all of the thousands of different stocks that that index fund has now just one important note okay fs cax is a fidelity index fund so if you say for example went and opened up a roth ira with vanguard or with m1 finance then you wouldn't be able to invest in fscax specifically however every single broker is going to have basically their own exact equivalent of another index fund so for example vanguard's equivalent of fscax is vt sacs okay vt sacs is another total market index fund that will give you exposure to a broad selection of different u.s stocks if you opened up a roth ira with a broker like m1 finance who doesn't have any index funds of their own that's no problem because you can simply invest in an etf or an exchange traded fund which is basically the same thing as an index fund and a really good etf to invest in is vti or the vanguard total stock market etf investing in this etf will give you complete and total stock market exposure okay so here we are back on the fidelity dashboard step number four which is going to be buying the investments so we're just going to click right up here in the top left hand corner where it says trade and when you click that this window right here is going to pop up and you'll see a few different options it might seem kind of confusing but i promise you it's super easy okay if you want to invest in an index fund so if we're using fidelity the index fund that i would recommend for total market exposure would be fscax okay so what you'll do is you'll click right here on this drop down that says stocks etfs you'll click on that and you're actually going to choose mutual funds okay once you click on that you're going to select your account which is your new roth ira so you'll make sure you select that it's going to show you how much cash you have available to trade it should be whatever you contributed so in my case it's a thousand dollars so right here where it says symbol this right here is where you'll type in fscax and then when you type that in you'll see it pops up right there the fidelity total market index fund so you'll click on that it's going to show you the current price of the index fund and then directly below the price of the index fund you'll see this drop down right here that says action with three options buy sell exchange we're gonna buy the index fund and then it's gonna ask for the actual dollar amount i'm gonna enter in 1000 because i want to invest the entire one thousand dollars into this index fund it's going to give you this window right here which just gives you a really quick rundown of what you're about to do and once you have read through that and have agreed that that's what you want to do then you're just going to click on confirm okay so once that order goes through just so you're not confused index funds are a little bit different from like stocks and etfs right with a stock or an etf when you buy the stock or etf it shows up in your account right away because that order gets executed right away as long as the stock market is open index funds work a little different okay with an index fund the orders are only executed once per day and that's at 4 pm so let's just say for example you placed an order to buy an index fund at 5 p.m on tuesday well that order is not going to be executed until wednesday at 4 p.m okay and so the entire day on wednesday you're not actually going to own the index fund yet until that order is executed on wednesday at 4 pm if you don't really like the idea of not having control over your investments and being able to buy and sell throughout the day whenever you want i would recommend you go with etfs and so for example vti would be a really good example of a total market etf to invest in so that's basically it once the order is executed and you actually own the etf it's going to show up right here in your account under portfolio and then you'll be able to see what you actually own and how it's performing anyways that's it for this video hey thank you so much for watching it means the absolute world to me it really does and as always i will see you again very soon take care

Channel: Joshua Mayo

Views: 238,213

Keywords: roth ira, roth ira investing, what is a roth ira, roth ira investment options, roth ira withdrawal rules, how to open a roth ira, roth ira for beginners, where to open roth ira account, roth ira investing strategies, roth ira investing for beginners, roth ira millionaire, joshua mayo, where to open a roth ira, where to get roth ira, where to open a roth ira online, how to invest in a roth ira, what is a roth ira account, roth ira brokerage account, best roth ira for beginners

Id: N-k9mudgJHU

Length: 12min 11sec (731 seconds)

Published: Wed Jan 12 2022