How to open a Roth IRA: A step-by-step guide

Saving for retirement isn’t just about putting money aside. It also typically involves choosing the right tools that can help your savings grow efficiently. A smart strategy may combine thoughtful investments with tax advantages, and that’s exactly where a Roth individual retirement account (IRA) shines. With tax-free growth and flexible withdrawal rules, a Roth IRA can give you a powerful way to build long-term wealth on your terms.

This guide explains how Roth IRAs work, including income and contribution limits and eligibility requirements. It also details how to set up a Roth IRA for employees, the self-employed, and financial advisors guiding clients.

How does a Roth IRA work?

A Roth IRA is an individual retirement account that lets you invest after-tax dollars and make tax-free withdrawals once you turn 59½ and have held the account for at least five years. Once you meet both the age and five-year requirements, you can generally make tax- and penalty-free withdrawals — the internal revenue service (IRS) calls them qualified withdrawals — from a Roth IRA.

A Roth IRA is not an investment itself; it’s an account that holds the investments you choose. Typical options include stocks, exchange-traded funds (ETFs), mutual funds, bonds, and annuities. You can open a Roth IRA with a brokerage, bank, or robo-advisor (an automated investing service offered by many online investment companies and some larger financial institutions).

Unlike a traditional IRA, you can’t deduct Roth IRA contributions from your taxable income. Instead, you receive the tax benefit when you withdraw your money in retirement. Plus, Roth IRAs don’t mandate required minimum distributions (RMDs) during the owner’s lifetime, further distinguishing them from traditional IRAs and giving retirees more flexibility over when and how much to withdraw. 

Contributions, limits, and income rules

For the 2025 tax year, the total amount you can contribute to all of your IRAs — traditional or Roth — is $7,000. That limit includes a $1,000 catch-up contribution for investors 50 and older, bringing their total potential contribution to $8,000. You can contribute to both types of IRAs in the same year, but your combined contributions cannot exceed your personal limit.

The IRS uses modified adjusted gross income (MAGI) to determine how much you can contribute to a Roth IRA. For 2025:

• Single tax filers: Your MAGI must be less than $150,000 to contribute the full amount. If your MAGI is between $150,000 and $165,000, you can make a reduced contribution. At $165,000 or more, you can’t contribute directly to a Roth IRA.
  • The IRS has a formula you can use to figure your reduced contribution.
• Married filing jointly: Your MAGI must be under $236,000 to make the full contribution. Reduced contributions apply from $236,000 up to $246,000. At $246,000 or more, you’re ineligible for direct contributions. 
  

If your income is too high, you might be able to contribute using a backdoor Roth IRA strategy, which involves contributing to a traditional IRA and then converting those funds to a Roth. However, the IRS “pro-rata” rule determines how much of that conversion is taxable, and investors must understand those tax implications before moving forward.

In addition to these income limits, you must have earned income in the tax year you contribute.

The deadline to make contributions is the tax filing deadline for the tax year in which you make your contribution. So, for the 2025 tax year, you can make Roth IRA contributions up until April 15, 2026. 

How to set up a Roth IRA

Opening a Roth IRA retirement account is generally straightforward, but it still requires attention to detail and a strategic approach. Here are the essential steps to follow.

1. Confirm eligibility and decide contribution amount

Ensure you qualify to contribute to a Roth IRA based on your income and filing status. Then, determine how much you want to contribute based on your retirement strategy. You can contribute a lump sum or make monthly contributions. For example, someone planning to contribute $7,000 might set up automatic deposits of about $583 per month.

2. Choose a provider type

Decide where you’ll open your Roth IRA: a bank, brokerage, or robo-advisor. Your choice depends on your goals and investing experience.

• Banks may offer various products like certificates of deposit but often with more limited growth potential.
• Brokerages offer a wider selection of assets, including stocks, ETFs, mutual funds, and bonds.
• Robo-advisors typically automate portfolio construction using index funds and automatically rebalance your account.
  

Consider whether the provider offers fractional shares, commission-free trading, automatic rebalancing, and strong mobile tools, which can all enhance your experience. A thoughtful provider choice sets the foundation for a Roth IRA that’s easy to manage and well-suited to your financial goals.

3. Gather required documents

To open a Roth IRA, you’ll need your Social Security number (or equivalent tax ID), photo identification (passport, state-issued driver’s license), bank account information, and, potentially, income details — particularly, if you’re self-employed or setting up the account for a spouse. 

4. Fund the account

You can link your bank account and transfer money directly to your Roth IRA. If you’re moving funds from a traditional IRA, confirm whether you’re doing a Roth conversion — which may trigger taxes — or a direct rollover from another Roth IRA.

Keep in mind that only certain types of annuities can be transferred into IRAs; non-qualified annuities generally cannot be moved into a Roth IRA.

5. Pick investments

Once funded, choose investments that align with your risk tolerance, investment goals and retirement timeline. A robo-advisor can handle this automatically based on your provided answers.

You can also hold certain types of annuities inside a Roth IRA or traditional IRA. If transferring an annuity, confirm whether you qualify for a 1035 exchange and how the IRS treats distributions during the annuitization process.

Roth IRA benefits

A Roth IRA offers several advantages that can make it a strong component of a long-term retirement plan.

Tax-free growth and withdrawals

Because you make Roth IRA contributions with after-tax dollars, you can withdraw your principal and any accumulated earnings (interest, dividends, capital gains) tax-free once you hit 59½ and meet the five-year rule. This differs from traditional IRAs, where withdrawals are taxed as income.

Flexibility to withdraw contributions

Because you’ve already paid taxes on your contributions, you can withdraw them (but not your earnings) anytime, tax and penalty-free. 

However, withdrawing Roth IRA earnings early could trigger a taxable event and the IRS will charge a 10% early withdrawal penalty. 

You may qualify for exceptions to the rule, which include:

• First-time home buyer expenses (up to $10,000)
• Qualified education expenses
• Qualified birth or adoption expenses (up to $5,000)
• Unreimbursed medical expenses
• Health insurance premiums during unemployment
  

It’s also important to understand IRS withdrawal ordering rules:

• Contributions
• Conversion amounts (oldest first)
• Earnings
  

This determines whether taxes or penalties apply.

No RMDs for original owner

Unlike traditional IRAs, Roth IRAs do not require you to start withdrawing money when you turn 73 (if you were born between 1951 and 1959) or 75 (if you were born after 1960). 

This means you can keep your funds invested and growing tax-free for as long as you live.

Estate planning advantages

No RMDs make Roth IRAs especially valuable for passing wealth to heirs. Upon inheritance, your beneficiaries will receive your Roth funds tax-free, as long as the account has met the five-year rule. Their withdrawal rules depend on their relationship to you.

Spouses can generally treat the inherited Roth IRA as their own, preserving all the usual Roth IRA benefits, including no RMDs.

Non-spouse beneficiaries, such as adult children, must typically withdraw all Roth IRA funds within 10 years of the account owner’s passing. As long as the five-year rule was satisfied, these withdrawals are typically exempt from taxes. 

Eligible designated beneficiaries, such as minor children, disabled individuals, or those within 10 years of the account owner’s age, may qualify for extended withdrawal timelines.

How many Roth IRAs can I have?

You can own as many Roth IRAs as you like across banks, brokerages, robo-advisors, and other financial institutions. 

Multiple accounts can help you separate investment strategies, but your annual contribution limit ($7,000 or $8,000 if you’re 50 or older) still applies across all accounts combined.

Build your retirement plan with Gainbridge 

A Roth IRA provides tax-free growth and valuable flexibility for estate and retirement planning. Still, depending on your goals, a well-rounded investment plan may also include assets like stocks, bonds, ETFs, and other income-producing investments. For investors seeking tax-deferred growth and a guaranteed income stream in retirement (that they can pass on to loved ones), a fixed annuity can often make sense. 

Gainbridge’s digital-first annuities can provide peace of mind with predictable retirement income, free from market volatility. 

Learn how to combine fixed rate growth and reliable income in retirement with Gainbridge today.

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This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional.  The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.

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