Before you begin:

  • $1,000 or $100/monthly direct deposit (Min requirement to open IRA with Schwab)¹
  • Yearly Income must be less than $120,000 to fully contribute to Roth IRA²

A few of you asked about the actual process in registering for an Individual Retirement Account (IRA). Generally your employer will walk you through the 401(k) process, but for the IRA, you are expected to learn most of the processes yourself.

Before we begin, here is a quick recap of an IRA. There are two types of IRA: Traditional and Roth. Traditional and Roth have different tax benefits. This guide will focus on the Roth IRA. The yearly contribution maximum for your IRA accounts is $5,500.

Together, we will walk through 17 easy steps to opening and investing in a Roth IRA. This guide will give you an overview of opening an account with Charles Schwab. Feel free to use any other brokerage firm that offers an IRA.

A quick disclaimer: at the time of publishing this blog post, we are not sponsored by any of these banks or financial institutions. We are merely speaking from our own experiences. Please be aware that the steps below may change at the whim of Charles Schwab.

Already registered and transferred funds? Skip to Step 6.

Since we are using Charles Schwab, let's begin here. Be sure to enter the referral code, REFER (If the code is no longer valid, call customer service and ask for it). We don’t receive monetary compensation, but you do get $100. This $100 doesn’t count toward your yearly contribution limit meaning you can still invest $5,500 on top of the $100. According to Schwab's terms, the $100 will be deposited after 30 days of opening the account.

Schwab has a $1,000 account minimum or $100/monthly direct deposit. Schwab has one of the lowest minimums required to invest in a total market index fund, which is great if you do not have a lot of money to start with.³

1) Once you have $1,000 ready to invest for retirement, you may begin by clicking on Open an Account.

2) Click on Retirement Account, then select Roth IRA.

3) We won’t be trading more than 3 times a month. Feel free to press Continue.

4) Go ahead and click No, I’m new to Schwab.

5) Here is where you register and fill out your personal information. Make sure to thoroughly read the Terms and Conditions and fund your account with $1,000. If you choose to fund your account after registration, skip to Step 10.

Usually, your first fund transfer will take 5 days and the following transfers will take 2–3 days. Please come back to follow the rest of the steps once your funds have transferred.

Ready to invest your $1,000 toward your retirement?

6) Once you login, hover over Trade then under Mutual Funds, click Trade Mutual Funds.

7) We want to purchase low cost total market index funds, which have historically recovered from recessions and provided great returns that track the U.S. Economy.³ One of them is Schwab Total Stock Market Index Fund (SWTSX). Go ahead and enter SWTSX, select Buy then Continue.

8) Enter in $1,000 for the amount and make sure Dividends and Capital Gains are reinvested. Select Review Order.

9) By purchasing SWTSX through Schwab, there should be no Transaction Fee and only a low expense ratio of 0.03% (Average expense ratios are 1%). Double check all your numbers and that you are purchasing $1,000 of SWTSX, then click Place Order. Now you are officially invested for retirement!

10) $1,000 is not nearly enough for retirement. Let’s transfer in more funds on a monthly basis. Hover over Accounts and under Transfer & Payments, click on External Accounts.

11) Here you can add in bank accounts to transfer additional funds to invest. The process may take a day or two, but should be painless. Start by clicking Enroll Online and follow the directions.

12) Once you have added an external account, we can begin setting up monthly transfers. Be sure to select Cash Only. Here, From refers to your external bank account and To refers to your Roth IRA account. Click Continue.

13) Remember the yearly IRA limitations is $5,500 and the deadline for 2018 is April 15, 2019. Select a cash amount you are comfortable with and change the Frequency to Monthly and the transfer date to be the 1st of next month. Contribution year should be 2018 or the year you want to contribute to. After clicking Continue, you will be asked to review the transfer.

14) Once you set up automated transfers, it should look like this. You have the ability to cancel or modify these transfers before they occur.

15) Now that we have automated the transferring of funds, let’s automate investing too. Go back to Trade and Mutual Funds (Check Step 6). Be sure to select Automatic Investing then Enroll Now. If you don’t see this option, wait until your mutual fund order has executed. If you don’t see your mutual fund listed here, go back to Step 6.

16) Here you should enter the Investment Amount that you are transferring in every month. Since funds will be transferred on the 1st (Selected on Step 13), be sure to select Monthly on the 5th and the next month as your Start Date. Go ahead and click Continue to verify and finish the process.

17) Sit back and relax. You just finished setting up your Roth IRA and everything is automated!

A few notes to keep in mind:

  1. Check back next month on the 5th and make sure all the numbers are correct.
  2. Remember next year, you will need to adjust your recurring deposit amount and automatic investment amount.
  3. You don’t need to invest $5,500 every year, but it would be awesome if you did because by retirement you will likely have over $1,000,000!⁴
  4. Withdrawing your contributions from your Roth IRA is tax free and penalty free.⁵

Got more questions about how to open a Roth IRA? More than happy to answer them in the comments or over email. If you would like to request a specific topic you want to learn more about, please let me know in the comments section below or email me at alan@tomoonfund.com!


¹ Charles Schwab Roth IRA Account
² IRS Roth Contribution Limits
³ More info about total market index fund
⁴ Assuming a yearly investment of $5,500 over a 37-year period with a 7% average rate of return
IRS Guidelines for Roth IRA withdrawal, here is a simplified Schwab version

Cover Image Credit unsplash-logoJoris Berthelot


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