How To Set Up A Roth IRA: Step By Step

You Still Don’t Have A Roth?!?!

I promised I would show you how to set up a Roth IRA in my Quick & Dirty post, but first I have one request of you. Before you read any more of this, please, please, please promise to YOURSELF you will take the steps outlined below to set up this account in the next 48 hrs. Years later when you have retired, you can send me a thank you note (check is optional). Also, this is foolproof; I had to go through it myself.

The Best Multiplied Four Times Over!!!

After doing what I outline below for you, you can say that you own one of the best retirement accounts available (the Roth IRA) in one of the best no-load mutual fund indices available (The Vanguard Total Stock Market Index Fund: VTSMX) at one of the best, if not the best, mutual fund companies in the world (Vanguard) for one of the absolute best prices available to investors (a dirt cheap expense ratio)!!! Remember my one request of you, please do this now for yourself (don’t wait until five years from now). In an effort to keep this extremely high yield, I am outlining the steps in this post and my following post will have the reasons why.

Roth IRA Set Up. Vanguard. Step by Step.
The way is made my walking. One step at a time!

Your Step by Step Guide To Setting Up Your Roth IRA:

  1. Go to Vanguard.com
  2. Click “Open An Account”
  3. Click “Open A New Account”
  4. Click “Transfer From A Financial Institution” & “Continue.”
  5. Now set up your account with Vanguard. This will take a couple steps and you will need to fund your account at this time as well as determine the account type: choose the Roth IRA. The money you transfer will be placed in a money market account initially. This takes a couple of days to process. Next is where the magic happens!
  6. Once your account is opened & funded, you are ready to Roth, I mean ready to Rock…
  7. Now, on your new account homepage click the Menu icon at the top left.
  8. Click “My Accounts”
  9. Click “Buy & Sell”
  10. Click “Buy Vanguard Funds”
  11. Click “Add Another Vanguard Mutual Fund”
  12. In the dialogue box enter “VTSMX” and click “Continue.” See my second post as to why I chose this one for myself.
  13. Fund your new Roth by entering in your amount in the dialogue box and clicking “Continue.”

Now Go Read!!!

There really is no way around this. Read, read, read and read some more! You have to read about these topics now. You can’t just trust me on this one, unfortunately. I mean, I guess you can, but if you are like me you need the answers yourself or months later you are likely to think that the grass is greener. Without the knowledge of these topics, you are never going to know what is good or bad in terms of investments and that WILL set you up to fail.
You need to start learning now. Keep your eyes on the look out, my post “What Is A Roth IRA” is coming out soon. In that post I will outline why I set you up the way I did and why I set up my own Roth IRA the same way!

Have You Started Yet?

Starting early in investing is a surefire way to developing passive income (i.e. money that makes you money while you do nothing). Passive income coupled with compound interest is an absolute true recipe for success in your financial journey, but it takes years, so start early.

Albert Einstein considered compound interest the 8th wonder of the world. He said of it, “He who understands it, earns it … he who doesn’t … pays it.”

2 Replies to “How To Set Up A Roth IRA: Step By Step”

  1. I am young and just started investing within the past year. I have wanted to open a Roth outside of my 401k, but went with a traditional IRA bc my MAGI made me ineligible for a direct Roth. However, I have been reading about and considering a backdoor Roth. All of my contributions have been with post-tax dollars and my investment has not had much time to grow yet, so I do not anticipate that I will be taxed too heavily on this conversion. Would you recommend doing this? Also, I am offered both traditional and Roth 401k plans at work in which I currently maxing out by contributing 50/50 to each. Being in the 28% (now 32%) tax bracket, would it be wise to just go with 100% Roth 401k rather than take a 9k tax-break? I am just trying to wrap my head around all of this sooner rather than later. Thanks in advance for any advice!

    1. Hey bmwhite,

      These are all excellent questions to have. Good on you for taking care of these things early on!

      Concerning the Roth IRA, if you have funded your Traditional IRA with post-tax dollar then you should be golden to complete the steps to fund a Back Door Roth. I would get that money over to your Roth ASAP to get the most tax-free earnings with extra time in the market! Physician on FIRE wrote an excellent tutorial on how to do this (link is at the bottom).

      Concerning the Roth 401K and Traditional 401K at work, I honestly think your strategy is good currently (in that it’s good to diversify with some pretax and posttax retirement accounts). My own personal preference leans more towards tax-free growth and especially so early in one’s career! If I was in your shoes I would say now is the best time for fully funding the Roth 401K option since the earnings in that account would grow tax-free for the entirety of your whole career! Compounded tax-free earnings really can’t be beat. In 3-5 years from now, you might switch back to fully funding the Traditional 401K or go back to your 50/50 mix.

      Hope that answered your questions or at least gave you more info! Thanks for stopping by.

      https://www.physicianonfire.com/backdoor/

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