What Is the Minimum Deposit to Open a Roth IRA?

Image Credit: Creatas/Creatas/Getty Images

So you've decided to start saving for retirement. You looked at the benefits of a traditional Individual Retirement Account (IRA) and a Roth IRA, and you just can't pass up the tax-free retirement savings. Now the question you have is just how much do you need to open a Roth IRA. The answer to that can be somewhat confusing.

Before You Open Roth IRA

Though savings for retirement is great, you don't want to shortchange yourself so that you wind up dipping into your retirement savings and incurring tax penalties. So before you begin saving for retirement, at the least you should have $1,000 tucked away for emergencies. It would be even better if you have your credit cards paid off. This gives you a sound foundation to begin saving for retirement and could be considered a minimum you need before actually opening your Roth IRA.

Minimum to Open

Minimum amounts required to open a Roth IRA depend on the company you are investing with. So, the first thing you need to do is decide which company is offering the type of investments that you feel comfortable with. Request the Roth IRA paperwork from the company and review it. Fidelity Investments, The Vanguard Group and T. Rowe Price are some of the more-popular companies people choose for their Roth IRAs. Fidelity has a minimum initial deposit of $2,500 and Vanguard and T. Rowe Price have a minimum initial investment of $1,000. These are mutual fund companies. A discount broker is a good choice if you want to purchase individual stocks for your Roth IRA. A discount broker like Ameritrade has a $500 minimum initial investment.

Waiving Minimum

If you are a new investor and don't have a lump sum to start your Roth IRA, many companies offer a waiver to the minimum investment if you enroll in the company's automatic investment program. Though different companies will name their programs differently, they all feature automatic monthly withdrawals from your checking account in an amount that you set. Most companies set the minimum withdrawal at $50 a month, though some go a few go as low as $25 a month. The advantage of this program is that you don't have to worry about timing the market. You are using dollar-cost-averaging so your fixed amount buys more shares when the price is low and fewer shares when the price is high. Over time, this lowers your cost per share, making it easier for you to make a profit.