Roth IRA Investing in 10 Simple Steps

January 12, 2022

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The magical Roth IRA … You’ve heard that you need one. Or if you have one, you’ve heard that you should be taking full advantage of it.

What is so excellent about a Roth IRA?!

For starters:

  • This retirement account grows tax-free. Anytime you can get Uncle Sam out of your pocket, you’re winning when it comes to retirement savings.
  • You can withdraw 100% of your contributions at any time without penalties or taxes.
  • Your options for investing are plentiful including mutual funds, bonds, and real estate.
  • Index investors who are working toward FIRE also really tend to love Roth accounts!

10 Steps to Get Started with a Roth IRA

Tax-free growth, flexibility and a multitude of investing options are great descriptions when it comes to retirement planning. If you’re convinced (or at least intrigued) and you want to start a Roth IRA, here are 10 simple steps that can help you plan for your future today:

1. Make Sure You’re Eligible for a Roth IRA

The Roth IRA has some age, contribution, and income restrictions that you should be aware of before you open your account. As of this writing, here are some of those 2022 IRS Roth IRA Guidelines:

  • If you’re SINGLE and you make more than $144,000 per year, you’re not eligible.
  • If you're MARRIED, you file jointly and you make more than $214,000 per year, you’re not eligible.
  • $6,000 is the max annual contribution limit for people under 50.
  • $7,000 is the max annual contribution for people over 50.

The majority of Americans qualify under these guidelines. If you don't, there is always the backdoor Roth IRA option which allows you to invest in a Roth even if you're over the income limits.

2. Have an Emergency Fund in Place

Consider holding off on your Roth IRA until you have 1-3 months of expenses saved up in emergency savings.

God forbid your car breaks down, you lose your job, or you have an expensive home repair. Without an emergency fund, you’ll feel forced to take it out of your retirement account. A BIG NO-NO!

If you take money out of your retirement early, you could be hit with penalties and taxes. It will negate all the hard work you put in.

Ensure you have enough saved up in a separate savings account that will cover you for these emergencies. Getting on a budget will surely help.

As stated earlier, your contributions in a Roth IRA can be taken out at any time penalty-free, but if you're looking for this nest egg to grow, I wouldn't touch those funds for an emergency.

3. Save Up for the Minimum Roth IRA Investment

For low-cost brokerages like Vanguard and Fidelity, you can get started investing in your Roth IRA for as little as $50 or more by buying an ETF (exchange-traded fund).

To make the long-term investing process more automatic and convenient, you may want to go for a mutual fund or Target Date Fund. In many cases, you need to have at least $1,000 to get started in a Target Date Fund and around $3,000 for non-Target Date mutual funds.

If you don’t have $1,000 today, that’s okay. Set up a monthly automatic withdrawal of $100 in your savings account, and in 10 months, you’ll be ready.  

This does three things for you:

  1. You now have the $1,000 you need. Score!
  2. It gets you in the habit of doing monthly automatic withdrawals. Something you’ll have to do when you open a Roth IRA anyway!
  3. It will also help you get used to living without $100 per month – a good monthly starting deposit for your Roth IRA.

Again, you can also start investing in ETFs at much lower than $1,000. If you're looking for a long-term investment strategy, I'd recommend sticking with mutual funds.

4. Choose the Right Investment Firm

I used Fidelity for over 10 years. They have a wide variety of mutual funds to choose from and their online interface is intuitive and easy to understand. Best of all, they have a LOT of low-cost or no-cost mutual fund options.

Vanguard is another industry leader that I trust because of the reputation it has developed. This company is completely geared toward helping its investors succeed in their retirement planning by providing simple, low-cost retirement solutions like index funds.

Now there are many other options to consider. Please do your homework. Read some of your favorite personal finance blogs, talk with your friends about who they use, and weigh the pros and cons.

I like Fidelity and Vanguard because I feel like I have control over my money, I understand where it goes, and I know how much I’m being charged.

5. Understand Expense Ratios for Your Roth IRA

Most all mutual funds charge an expense ratio. This is a fee that covers the fund’s total operating expenses, management and administrative fees.

For example, a mutual fund like Fidelity OTC Port (FOCPX) has a 0.87% expense ratio. So for every $1,000 I have in my account, I’m charged $8.70 annually. You can see how this can add up over time. If my account grows to $1,000,000, I’m paying $8,700 per year.

The lower your expense ratios, the more money you keep in your pocket. The Vanguard and Fidelity websites make finding the expense ratios very easy. I looked up Vanguard’s VFIAX and Fidelity’s FXAIX and did screenshots for you below showing where you can find the expense ratios.

Vanguard VFIAX
Fidelity FXAIX

6. Take Advantage of Index Funds

Speaking of low expense ratios, I’m a big proponent of index funds. These are mutual funds that track the components of a market index like the S&P 500. If you invest in the Vanguard 500 Index Fund (VFIAX), you are investing in 500 of the largest US companies much like the S&P 500. Because index funds track different market indices, it takes a lot of guesswork out of the process for you, the investor.

The major benefit of index funds is that they have a super low expense ratio. Using the Vanguard 500 Index Fund (VFIAX) as an example again, the expense ratio on this fund is only 0.04%. So for every $1,000 I have in my account, I’m only charged $0.40 annually. If I get up to $1,000,000 in the account, I’m charged $400 annually. This is a dramatic reduction from the non-index fund example above.

Billionaires like Warren Buffet are big fans of index funds too! In fact, Warren Buffett gave this advice to his wife regarding his estate when he dies:

“… Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund … ”

I gave similar advice to my wife for the life insurance money if I were to pass away unexpectedly. If it works for Warren Buffet, it works for me.

7. Diversify to Win

You’ve heard the old adage “Don’t put all your eggs in one basket”, right? The same goes for investing for retirement.

If you put 100% of your money in an S&P 500 index fund, then you are only investing in the equity of US-based companies (Large Cap). If the S&P were to decline, so would the value of your shares.

Consider balancing out your portfolio by investing in other options like bonds, international companies, small-cap (another name for smaller and aggressively growing companies), and real estate (through REITs). By doing this, you won’t be as vulnerable to huge market swings. The mix is up to you and what is best for your age, income and your proximity to retirement.

A simple rule of thumb for stocks and bonds that I like to follow is as follows:


For me, this would be:

120 – 40 = 80% Stocks

So based on that rule of thumb, my portfolio would be based on 80% stocks and 20% bonds. I like to add real estate into the portfolio as well to diversify it even further. This works for me. It might not work for you. Here is the diversification breakdown that I use in my Roth IRA:

  • Large Cap US Based: 50%
  • International: 10%
  • Small Cap: 10%
  • Bonds: 20%
  • REITs: 10%

As I get older, I will increase my bond holdings as that is typically a less volatile investment. The older you get, the more conservative you want to be so your money doesn’t all disappear in a big market crash right before you retire.

8. Consider Partnering with a Financial Advisor

If you need help in laying out your portfolio or reviewing your current portfolio, consider partnering with a FEE-ONLY CERTIFIED FINANCIAL PLANNER (CFP). I put it in all caps because I do not recommend working with someone who gets a commission based on selling you specific products. Been there. Was burned. Don’t recommend it.

You can pay an hourly rate for someone’s review or development of your portfolio. Resources like XY Planning Network can help you find the right fee-only CFP that works for your situation.

9. Have the Discipline to Invest for the Long Haul

Investing in your Roth IRA is a long-term play. There will be some major ups and downs in the market during the time you have your money invested. If you get all freaked out during another recession and pull your money out, you could lose out on the big returns.

Have the discipline to stay the course. You can do this in a “set it and forget it” way through dollar-cost averaging. This is a fancy way of saying you make regular, consistent and automatic contributions to your account each month regardless of the share price. This way, you’re not tempted to “time the market” or pull out of funds when times get rocky.

10. Rebalance Your Portfolio Annually

Remember when we talked about the importance of diversification?

As your portfolio grows, your allocation percentage will begin to shift as well. Let’s say your original asset allocation was 90% stocks and 10% bonds and it was a great year for the equity market. After year one, your portfolio might have shifted to 93% stocks and 7% bonds. This can easily be corrected by selling your stock mutual funds and putting the proceeds into your bond mutual funds.

Also, as you get older and near retirement age, you’ll want to adjust your allocation appropriately (120 – YOUR AGE = STOCK PERCENTAGE).

I’d recommend you do this annually. If you need some help with this, I have three suggestions at varying price levels:

  • Higher Price: Ask for it from a fee-only certified financial planner.
  • Lower Price: Partner with an automated service like blooom that rebalances on your behalf.
  • Free: Set a Google Calendar alert for the same time each year when you can spend some dedicated time reviewing and rebalancing your portfolio.

Any of these options should work great for your rebalancing needs.

Final Thoughts on Getting Started with a Roth IRA

The Roth IRA is an essential tool to have on your journey toward retirement.

By following those 10 simple steps, my wife and I have invested in our Roth IRA accounts for over 10 years and our accounts are growing consistently. Together, we have around $500,000 in retirement funds. If we leave it alone and don't add another penny, we could potentially have around $2.7 Million by the time we turn 65.

We still have quite a few years before we reach retirement, but at least we know we’ll be ready.

Are you investing with a Roth IRA?

Please let us know in the comments below.

This post was Updated for 2021 and was originally featured on Think. Save. Retire. on February 8, 2017.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


  • If you are married, make sure both of you have a Roth IRA. Even if you work and your spouse doesn’t, your spouse can still have a “spousal Roth IRA” using your earnings so you can double your investment savings. Fidelity’s zero fee index funds are stellar.

    • Great points! Fidelity is doing an incredible job staying competitive and offering great low cost solutions for investors.

  • Excellent post Andy. I’m a big fan of Vanguard’s Total Stock Market Index (VTSAX). Since it tracks the whole market it is mostly weighted in the S&P but has a decent mix of mid cap and small cap.

    But no matter what allocation strategy you use, I agree that the most important things are to contribute regularly and not to stick to the plan through ups and downs.

    • I’ve been considering going full on Vanguard target date funds to go for a super simple investing strategy. VTIVX (around my retirement age) appears to include VTSAX at around 60% of the fund. Like you said, continuous contributions and not freaking out during marketing dips will be the key to success. Thanks for the comment!!


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