You'll need basic documents to open an account, including a government-issued identification form, your Social Security number, and account numbers to get funds. Once your account is open, you must choose funds, stocks, or bonds. As long as you have earned income from work, you can open a Roth IRA and contribute to it. The exception is if your earned income for the year exceeds the limits set by the IRS.
The IRS sets an income limit on your ability to contribute to a Roth IRA. If you earn more than that limit, you won't be able to contribute to a Roth IRA. Different companies require different minimum investments, but most brokers or automated online advisors usually don't have a minimum to open a Roth IRA. Others will exempt you if you set up automatic monthly contributions.
Since you can convert a traditional IRA to a Roth IRA at any time, you can contribute to the traditional account and then make an immediate conversion to the Roth IRA. Note that the contribution limit is for all of your combined IRAs. If you have a Roth and a traditional one, that limit is a total for both accounts. Now, every time you convert what's known as a Roth IRA conversion, which is the term for converting a traditional IRA or other tax-deductible retirement plan into a Roth IRA, you'll have to pay taxes on the amount of the converted balance.
If your income exceeds those limits, the clandestine Roth IRA strategy allows you to open a Roth by converting the money from a traditional IRA. This type of contribution to a Roth IRA is known as clandestine because it starts as a contribution to a traditional IRA. Transferring your funds from a former employer's 401 (k) to a Roth IRA is a reasonably simple two-step process, and most 401 (k) and IRA plan providers are well equipped to manage it. Most people don't know that you can have a Roth IRA for any member of your family who has earned income.
While the Roth IRA doesn't offer immediate tax breaks like other types of retirement accounts do, it does allow you to grow tax-free and you'll never have to pay any retirement tax if you follow the rules. Roth IRAs are usually funded by stocks, bonds, mutual funds, exchange-traded funds or ETFs, and money market funds. Unlike other retirement plans, where you must hold your money for decades or face taxes and penalties, the Roth IRA allows you to access your contributions at any time. If most of your Roth IRA is invested in stocks, your account will grow quickly and generate good retirement savings when you're ready to start withdrawing funds.
With this special type of IRA, you can make a contribution to Roth accounts or traditional IRAs for both you and your spouse, as long as you have sufficient earned income to support both contributions. However, in the case of a clandestine Roth IRA, you won't pay taxes by converting your traditional IRA contribution to your Roth IRA plan.