Roth IRA Setup: A Comprehensive Guide for Tax-Free Retirement

A Roth IRA is an individual retirement plan that is subject to rules that would apply to a traditional IRA, but with some exceptions [source: IRS]. Contributions are not tax deductible and qualified distributions are tax free. Here are some of the things you must consider when setting up a Roth IRA account:

• The account must be designated as a Roth IRA when it's opened.
• The account can be opened at any time.
• Contributions can be made at any age.
• The income that is taken into account is compensation income, i.e., wages, tips, bonuses, commissions, taxable alimony, military differential pay and self-employment income you have earned [source: IRS].
• Investment interest, pension payments and rental property income do not impact your eligibility to invest in a Roth IRA [source: IRS].
• The income limit is higher for spouses who file a joint tax return.

This is how you set up your Roth IRA:

1. Verify that your income is within the legal limits [source: rothira.com].
2. Determine what your contribution limit is, based on your age [source: rothira.com].
3. Consider where you want to invest your money by reading, researching and consulting with financial advisors.
4. Find a Roth IRA provider who will help you decide your investment objectives and how to meet your financial targets. Decide if you want to set up your Roth IRA at a bank, mutual fund company, brokerage firm, insurance company or financial agent. Determine what the fees are before you invest [source: rothira.com].
5. Open your Roth IRA, after completing your research. You'll need your banking information, employment information, social security number, tax filing information and the initial investment that you're going to put into your Roth IRA.