What are you waiting for?
You finally reached that point in your life where you know that you need to start investing, but the whole process intimidates you.
Many young investors falsely believe they since they’re not Mark Zuckerberg they don’t meet the minimum bankroll to get started.
Not true!!
I am constantly asked,
“How much does it take to open an IRA?”
If you are a young investor and determined to start saving for your financial future, you’re in for a treat.
With most IRAs (traditional or Roth), there are no minimums.
Yup, that’s right.
Let’s see if I can add some clarity to the young investors who are looking to open an IRA and get started saving for their financial future.
How much does it really take?
When most people think of investing, they think of the big Wall Street firms where their investors have millions upon millions of dollars. While some of these big Wall Street firms may have their own minimums, typically to open an IRA, there isn’t one.
For example, you could go to a bank, a local Edward Jones office, or even online, and there are plenty of places where you can start an IRA with no minimum.
Scottrade, a popular online brokerage based out of St. Louis, Missouri, states on their website that there’s $500 minimum to open an account. The reality is that that’s not the case. That’s just a suggested amount, so that way when you make your first deposit, you actually have enough money to make your first trade.
Why no minimums?
An individual is only allowed to put up to $5,500 into an IRA if you’re under the age of 50 (as of 2013), $6,500 if you’re over the age of 50, into an IRA each year. It’s not a requirement to put that amount in. That’s just the absolute most that you can. If you only wanted to put $50 into an IRA, you could do so.
Where I think most of the confusion comes into play is making the actual investments inside the IRA.
For example, if you only put in $100 into your IRA and you want to buy a share of Google stock, it’s not going to happen. With Google’s stock price currently being above $600 per share, you’re one-sixth away of being able to own that one share.
Whether you’re looking to buy an individual stock, an ETF, or an individual bond, you must have at least that much in your IRA before you can buy that investment.
Mutual Funds May Have Minimums
If you’re looking to purchase mutual funds inside your IRA, a lot of mutual funds will also have minimums, depending on the fund company. I’ve seen some mutual funds that have as little as $100 minimum investment and I’ve some as high as $25,000, sometimes $50,000 before you can even get in.
To make mutual funds more accessible for the new investor, some mutual funds will allow you to get in even if you don’t meet the minimum. They’ll do this only if you set up an automatic purchase that comes out of your checking or savings account that purchases the fund each and every month.
Starting out this is how I was able to invest into mutual funds. I was having $50/month taken out of my checking account and being split between two mutual funds.
This is a way that I commonly suggest for new investors to get started with an IRA or any mutual fund investing since it prevents less of a chance of you not making that investment for the month because you wanted to go buy something that you don’t need.
An online option that makes this super easy is Betterment. They automatically rebalance your portfolio for you and for a small monthly charge ($3) you can begin investing a small amount.
Getting Started Investing With a Roth IRA
As you can see, often times there are no minimums in getting started with investing, especially in an IRA.
{ 4 comments… read them below or add one }
This is very enlightening. Many beginning investors believe they need thousands of dollars to start an IRA. Every little bit helps and people need to start somewhere.
I need to make the plunge in investing, but its so scary to think about someone else handling my hard earned money for me. I am an avid saver. I always have been. I know I need to start a retirement account of some time, but I have heard so many horror stories, that I always put it off and leave my money sitting in a little local owned bank that draws next to nothing in interest rate. Then, something comes up, and the money is so easy to get to that I run and grab $500 or $1000 out to loan someone, or pay off a credit card that a ran up over vacation…Is this Roth IRA movement really a safe investing method? It sounds like I should do it. I’m 30 years old and have 3 kids nearing teen years. We have always done fine in life, but I have never felt secure about my future. Just like your post says, these guys actually start off lying to you in the first sentence when they say $1000 min, and its not the case..Any advise on where to start and how to make sense of whats hype and what could really help me retire one day or just have the financial freedom to help my kids when they get older and start planning for college.
@ Roxanne Check out a previous post where I talk about some of the Best Places to Open a Roth IRA.
A few personal favorites are Scottrade and Betterment. Scottrade is a legitimate do it yourself online brokerage but they do have an awesome customer service hotline to help their clients. I know, because I talked to them.
Their fees area also very reasonable; much cheaper than going to a local investment firm.
Betterment does the investing for you, you just convey to them what your risk profile is. They also have very reasonable fees.
Do you think a Roth is right for a person such as myself, where I own a small business that is thriving at the time, but could always do worse in the future? This is something that terrifies me, hence one of my reasons to save as much now as possible. The tax bracket I am in now, could always increase or decrease in the future. I guess one day I will also be looking at not having the kids at home, and then my taxes will rise as well. Am I still looking for a Roth with these thoughts in mind?