Step-by-Step Guide to Opening a Vanguard Roth IRA – Biglaw Investor

What is a Roth IRA?

First things first. Before you move ahead with a Roth IRA at Vanguard, make sure you’re clear on what one is. The short and sweet version is that a Roth IRA is a type of investing vehicle controlled by you, not your workplace or your employer. That means that you set it up and you choose the funds to invest in. 

That’s one reason Roth IRAs are so desirable.

Another aspect of Roth IRAs that makes them so popular is the tax treatment Roth IRAs get–or don’t get! Since you invest post-tax money–otherwise known as money that you’ve already paid taxes on–your Roth IRA grows tax-free and gets withdrawn tax-free. 

“Future you” is going to be thrilled with your decisions today!

Find out more about how Roth IRAs work and if you’re qualified to invest in one here.


How Much Does It Cost to Open a Vanguard Roth IRA?

Vanguard charges annual account service fees of $20 per Roth IRA account if the total Vanguard mutual funds and ETFs assets in the account are less than $10,000. However, this fee can be waived by signing up for the company's e-delivery service or by maintaining at least $50,000 in qualifying assets. Investors should not overlook that they also pay through expense ratios at individual funds.

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Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Vanguard account, but minimum $1,000 deposit to invest in many retirement funds; robo-advisor Vanguard Digital Advisor® requires minimum $3,000 to enrollFees Fees may vary depending on the investment vehicle selected. Zero commission fees for stock and ETF trades; zero transaction fees for over 3,000 mutual funds; $20 annual service fee for IRAs and brokerage accounts unless you opt into paperless statements; robo-advisor Vanguard Digital Advisor® charges up to 0.20% in advisory fees (after 90 days)Investment vehicles Robo-advisor: Vanguard Digital Advisor® IRA: Vanguard Traditional, Roth, Rollover, Spousal and SEP IRAs Brokerage and trading: Vanguard Trading Other: Vanguard 529 Plan See our methodology, terms apply.

ProsNo commission fees for stock and ETF tradesNo transaction fees for over 3,000 mutual fundsOne of the largest ETF and mutual fund offerings aroundRobo-advisor Vanguard Digital Advisor® available for 90-day free trial with no advisory feesVanguard 529 Plan helps you save for college early onExcellent customer serviceOffers retirement planning toolsCustomers get access to GetHuman, a website dedicated to human-to-human customer service, with features that include talking to a Vanguard rep, notice of the current hold time, reminders to call when call center opens, as well as pro tips and talking points for customersVanguard Personal Advisor Services® available for personalized supportConsMany retirement funds require $1,000 to invest$20 annual service fee for IRAs and brokerage accounts (investors can waive this fee by opting into paperless statements)Robo-advisor Vanguard Digital Advisor® requires minimum $3,000 to enroll and charges up to 0.20% in advisory fees (after 90 days)Basic trading platform onlyNo robust research and data toolsLearn MoreView More


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  • How much should I contribute to my IRA?

    There are strict contribution limits, so you can only deposit a certain amount of money into your IRA each year.

    Both traditional and Roth IRAs have the same contribution limits: For 2021, those under age 50 can make a total contribution into their traditional and Roth IRAs of up to $6,000. Those 50 or older have a limit of $7,000.

    With traditional IRAs, you can contribute regardless of how much money you earn, but with Roth IRAs there are income limits. High-earners may not be eligible to open or contribute to a Roth IRA. Here are the 2021 income thresholds for contributing to a Roth IRA:

    • Married filing jointly or qualifying widow(er): Not eligible if your modified adjusted gross income is $208,000 or more
    • Single, head of household or married filing separately (and you didn't live with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $140,000 or more
    • Married filing separately (if you lived with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $10,000 or more


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  • Vanguard Total Bond Market ETF (BND)

    • Expense ratio: 0.04% (as of Q2 2022)
    • Assets under management: $81.5 billion
    • 12-Month Trailing (TTM) yield: 2.02%
    • 1-year trailing total return: -4.11%
    • Inception date: April 3, 2007

    The Vanguard Total Bond Market ETF tracks the Bloomberg U.S. Aggregate Float Adjusted Index, a broad, market-weighted index. Provides gives investors broad exposure to the taxable investment-grade U.S. dollar-denominated bond market. The fund excludes inflation-protected and tax-exempt bonds.

    BND holds 10,127 bonds. The average duration of a BND bond is 6.8 years, and the average effective maturity was 8.9 years. Just over two-thirds of bonds are U.S. government bonds. While the remaining third is investment-grade debt, about 15.2% of the total is BBB bonds, which are among the lowest-rated on the investment-grade ladder.

    BND is intended to serve as a core bond holding for investors. Bonds generally have low volatility and provide a steady supply of interest payments to the investor. Taxes on the interest payments are deferred in a Roth IRA account, making it an ideal place to hold these kinds of investments. A broad-based bond fund is typically a lower-return, lower-risk investment vehicle than a stock fund. As a result, bonds can be useful both for risk-averse investors and for portfolio diversification.

    BND is the ETF equivalent of The Vanguard Total Bond Market Index Fund (VBTLX).

    Step 3: Start Investing

    Your funds can take a few days to reach your account, so you might not be able to complete this step for five to seven days after submitting the application.

    Once your money arrives, it’s in your account, but it’s not yet invested. You must choose where to invest your funds.

    Choose Your Investments

    It’s normal if you feel overwhelmed at this point. Choosing your investments is a big deal! But don’t worry. We’re here to walk you through it. We recommend you choose one of two options:

    • Buy Vanguard funds
    • Trade Vanguard ETFs

    If you want to buy individual stocks, you have that option, too. Just click the option to trade stocks and listed securities.

    There’s in-depth information about when you might choose each investment type, how they work, and the ins and outs of buying shares in the how-to video. Spoiler alert: it’s easier than you might think!

    Future Investing

    Your first investments are done. But what about investing in the future? Vanguard makes that easy, too.

    You can add funds automatically. For instance, maybe you want to take advantage of dollar cost averaging (DCA) and contribute a fixed amount every month. You can also add funds manually by transferring from your bank account or sending Vanguard a check.

    Remember: as you contribute to your account over time, you need to choose where to invest your money.

    Fortunately, it’s simple. First, log into your account and select the option to contribute to your IRA. Then, choose where you want your funds to go. The process is the same as when you initially invested your funds, so it should be familiar.

    Final Thoughts on How to Open a Roth IRA with Vanguard

    Are you ready to set up a Roth IRA? The process is streamlined and straightforward with Vanguard. That means that you can be one step closer to hitting your retirement goals.

    If you’re not sure if Vanguard is right for you, check out some of our favorite investing apps and tools.

    Whether you choose to open a Roth IRA with Vanguard or somewhere else, the most important thing is that you take action today. The sooner you open an account and select funds to invest in, the sooner the eighth wonder of the world can get to work for your wallet!

    Do you have a Roth IRA? What investment options do you use or are you considering for retirement goals?

    Please let us know in the comments below.


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