Can I open a Roth IRA if I have little money and no current steady income?

Question

I am a college student and am unemployed except for a part-time summer job. I have a little money saved up but nothing huge. I looked at Vanguard but their minimum requirement for opening a Roth is $3000. I don't have anywhere near that amount of money saved up. Does anybody know if I can open one for less with another brokerage firm? Also, can anyone recommend some firms that would be good choices and charge little or no fees? Your help is greatly appreciated.

Answer 1

I earn income from commissions. Its a difficult business, so some months I don't earn money because I don't see any clients.

Anyway, to open a Roth IRA, you will need some sort of employment. Either part-time or commission base like me. I open my Roth IRA through Primerica Financial Services and there is no minimum to open a Roth IRA. The mutual funds themselves require a minimum value. For each mutual fund you put into a Roth IRA, they may require a minimum investment of $250. If the value of your mutual fund falls below $250, you will need to make another investment to bring the value to $250 or above. The mutual fund or your dealer will send you a warning letter about not having enough money in a particular mutual fund and they will give you a time limit to meet this demand.

You can avoid this minimum value requirement if you choose to invest systematically, which is really another term for "Dollar Cost Averaging." This is where you make the same investment every month no matter how the market performs. The minimum amount to invest systematically is $25/month. I tell my clients to do this because this method lower the cost per share. The market always fluctuate and so in some months, you may buy lots of shares when market is down. In other months, you may buy fewer shares when market is rising. If you average them out, the cost per share is lower than investing one lump sum once a year.

The custodial fees on my Roth IRA is $20/year. It comes out of one of my mutual funds. It didn't affect my portfolio at all because some of my mutual funds had capital gains and dividends, which were all re-invested. You may choose to pay this fee by check, if you selected this option in your Roth IRA application.

I personally have Legg Mason Partners mutual funds in my Roth IRA. I like the Legg Mason Partners Aggressive Growth fund because it earn an average rate of around 14% in the past 10 years. I also own couple others. You should read the fund's prospectus before investing into these mutual funds.

When you pick your mutual funds, now you need to invest your money. In all IRAs, there is maximum contribution limit in any given year. Every year it changes. Right now its $4000 if you are below the age of 50. In 2008, it will be $5000. If your income is below $4000, then you can not contribute more than that. For example, lets say you only earn income of $3000 this year. You can only contribute up to $3000 for that year, even though the maximum contribution limit is $4000. The IRS is very strict about this rule and if you break it, expect to pay excess contribution fees or income tax on the excess contribution.

Good luck in investing. Check out the link below to see my research about IRAs and mutual funds and some other stuff.

Answer 2

I would go with Franklin Templeton. The minimum investment is $250 and the annual fee is something like $15. They have a great allocation fund that is a balanced fund. It's called the Franklin Templeton Allocation Fund (original right?). It's a young fund but has been performing rather well. American Funds is similar with a minimum investment of $250 and an annual fee of $10. They don't have an allocation fund so you'd have to probably start in only one fund which doesn't allow for the diversification of your portfolio. Neither of the companies require systematic contributions. If you make a one time contribution, it will sit and hopefully grow for as long as you allow it.

A benefit of working with a brokerage firm such as Morgan Stanley or Merrill Lynch is that you would be able to invest in almost any fund company's funds whereas opening an account directing at the fund company limits you to only that company's funds. But as you encountered with Vanguard, brokerage firms typically have higher minimum contribution requirements.

Either way you go, you are making a very smart decision to start saving for your retirement, so congratulations!

Lastly, a good reason to open up a Roth IRA at your age is that you can use that money to purchase your first home (up to $10,000 lifetime limit) WITHOUT the 10% early withdrawal IRS penalty. Contributions to a Roth are made with after-tax dollars but you will not be taxed on your gains when you make a distribution.

Answer 3

Most IRAs require $2500 to start. Once you have that, check out T. Rowe Price for lots of no-load(no commission) mutual funds that are excellent for IRAs.

Answer 4

www.scottrade.com

500 bucks minimum balance to open.

No maintenance fee. NO FEE IRA.

Commision is $ 7.00 per trade.

Answer 5

I agree with the person who suggested Scottrade.