How to Open a Roth IRA Account

A Roth IRA is an individual retirement account (IRA) allowed under the tax law of the United States. Named for its chief legislative sponsor, U.S. Senator William V. Roth Jr. of Delaware. It is one of the smartest investments for young people. Your money grows absolutely tax free and it's more flexible than a 401(k). You can take money out for emergencies. You can use the money to buy your first home. You can use the money to save for your childrens' educations.
STEPS
Prioritize your investments. A Roth IRA is generally a better investment than a 401(k) because you won't pay taxes on the withdrawals; however, if your employer is making matching contributions, take advantage of that first, then open the Roth IRA.
Decide if you want your Roth IRA invested in stocks, bonds, mutual funds, CDs, or real estate.
Choose stocks if you are young. A discount broker can set that up for you.
Sharebuilder.com for example
Enter your social security number and the social security numbers of your beneficiaries.
Choose a price point program. The least expensive is $4.00 per month per stock.
Decide if you are saving for a car, a house, a college education, or retirement.
Discover what kind of investor you are. The portfolio builder will then ask a series of questions designed to classify you as a conservative, balanced, moderate or aggressive investor.
Review a list of suggested investments. These will either be index funds (similar to mutual funds) or individual stocks (Apple, Google, Exxon, etc).
Choose mutual funds if you have little experience investing. A fund company can set that up for you. Sometimes you can start with as little as $1000, and sometime you can set it all up online.
Choose CDs for the lowest risk. A bank can set that up for you.
Find the money. You might have to save it up, invest your tax refund or sign up for automatic withdrawls from your checking account.
TIPS
In a traditional IRA, you make contributions based on pre-taxed dollars, but you receive heavy penalties if you withdraw money from the account before you turn 59 1/2. A Roth IRA allows you to withdraw the money without worrying about penalties, but the money that you contribute to the account is done with taxed dollars.
If a 25-year-old contributes $4,000 each year until she retires and makes an average annual return of 8% on her investment, she'll have more than $1.1 million saved by the time she is 65.
If a 15-year old contributes $2,000 a year until she is 18 and makes an average annual return of 9% on her investment, She'll have more than $370,000 saved by the time she is 60.
If a 15-year old contributes $2,000 a year until she is 60 and makes an average annual return of 9% on her investment, She'll have more than $1.2 million saved by the time she is 60.
WARNINGS
You can contribute to a Roth only if you have taxable income from a job.
You cannot save more than you earn.
In 2007, you could contribute $4,000 per year if income falls below $99,000 (single) or $156,000 (married filing jointly). In 2008, you can contribute $5,000 per year. If you are 56 years old, you can contribute $6,000 per year.