Starting A Roth IRA With $500

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Nashawn recently asked on my post about opening a Roth IRA right this minute for some advice as to how she should invest $500 with a Roth IRA. She’s looked at Vanguard’s mutual fund accounts and ran into the minimum balance requirement for each of the funds. At Vanguard, the STAR Fund has the lowest minimum balance with $1,000 – a good $500 more than what Nashawn has at the moment. If I were her, this is what I’d do…

Wait Until April 15th Next Year
You have until tax day next year to contribute to your Roth IRA this year. That is, you have until April 15th, 2008 to contribute to your Roth IRA for 2007, giving our heroine a good nine months to try to get her balance up to $1,000. This is predicated on the fact that you are sold on Vanguard’s mutual fund accounts.

Consider Another Brokerage
You don’t have to go with Vanguard and you don’t even have to go with their mutual fund account, with a regular brokerage account your account balance minimums are lower than $3,000. TradeKing, Sharebuilder and Zecco are atypical brokerages that don’t have account minimums and both are known for their cheap/free trades. That’s crucial for a balance of $500. TradeKing has no custodial fee but Zecco charges $30/yr and Sharebuilder charges $25.

When it comes to the bigger brokerages, your pickings get slimmer. Fidelity will waive their minimum of $2,500 if you can commit to a $200/month contribution (Fidelity has no annual fee). If you can commit to that, you might as well wait a few months and go with Vanguard (if you wanted).

Summary: If you’re sold on Vanguard and can wait, wait; otherwise there are plenty of other options out there whether you want a discount brokerage like TradeKing or a more traditional name like Fidelity, just keep an eye out.

If you know of any brokerages with low account minimums and low annual fees for Roth IRAs, please share!

{ 19 comments, please add your thoughts now! }

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19 Responses to “Starting A Roth IRA With $500”

  1. aaron says:

    i would suggest t rowe price as an alternative. one can start a roth ira with automatic investments of as little as 50.00 per month. i believe it would be worth a look.

  2. Dennis says:

    I am new to all of this Roth IRA stuff and am looking to contribute sometime this winter.

    Many have said that Vanguard is the preferred broker? How exactly do the brokers differ beyond price? Do they offer different funds? Dah, I’m a newb.

  3. Larry says:

    ING Direct (the orange ball savings account people) have an initial investment requirement for an IRA account of only $250 per fund. They have about 15 different mutual funds to choose from. However, you may open your account for as little as $25 and $25/month thereafter in an Automatic Investment Plan (“AIP”). An AIP will allow you to invest regular amounts at regular intervals and benefit from Dollar Cost Averaging. There is a $10.00 annual custodial fee. The funds can be deducted from your orange savings account earning 4.5% in the meantime.

  4. Joe says:

    Last time I checked the Star fund minimum at Vanguard is $1,000 not $3,000.

    • jim says:

      You’re right Joe, before I posted it I fixed the error in the “Wait Until April 15th Next Year” section but missed it in the opener. Thanks!

  5. Zachary says:

    Everyone who qualifies should have a Roth IRA. I opened mine with Sharebuilder in January 2007 and have been very happy with it since.

  6. Nashawn says:

    Thanks so much for helping me guys. I have decided to check into ING Direct and T Rowe. I still want to do Vanguard, yet at least I know there are other places that are better for me!

    Oh …and just for the record…im a girl 🙂

  7. Peter says:

    Firstrade, a brokerage, has a no-annual-fee no-minimum IRA account. It will cost you a $7 commission to buy shares of your chosen ETF. If you are just investing once a year, it may be a good low-fee option until you get the balance built up to the point that you can roll it over elsewhere.

    The tricky part about investing $500 with them is that you have to buy whole shares of your chosen ETF and so it may be hard to find something that doesn’t leave you with too much cash left over. Once you have a position, however, they do perform fractional share dividend reinvestment.

  8. Tanelia says:

    Roth IRA is a must. Mine is through Vanguard, which I had actually opened after you told us to 😉 here.

    However, I think it’s important to point out that contributions are only deductible under certain circumstances:
    AGI under
    – $52,000 if your filing status is married filing jointly,
    – $39,000 if your filing status is head of household, or
    – $26,000 if your filing status is single, married filing separately, or qualifying widow(er).

    Check Retirement Savings Contributions Credit for more info

  9. Larry says:

    Those limits you quoted for “deductible” are for the retirement savings contribution CREDIT (reported on form 8880 and deducted on line 51 of your 2006 form 1040). As for “who can contribute” go to and look up pub 590:

    “Can You Contribute to a Roth IRA?
    Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:
    $160,000 ($166,000 for 2007) for married filing jointly or qualifying widow(er),
    $10,000 for married filing separately and you lived with your spouse at any time during the year, and
    $110,000 ($114,000 for 2007) for single, head of household, or married filing separately and you did not live with your spouse at any time during the year.”

  10. Art Dinkin says:

    You also may want to check with American funds( They have no min balance with a $50/mo systematic investment. These are load funds but expenses are fairly low and account fee is $10 (I think). You will want to do your own research. I do not know if they are available except through an investment rep.

  11. Tanelia says:

    Larry – I guess I am misused to term credit for deductible. I apologize for that.

    My point here was that a lot of people open a Roth IRA thinking they will be able to deduct the contributions where they might not be able to (yes, I did that! Although I would have opened it anyway)

  12. Larry says:

    Sorry Tanelia, I didn’t mean to sound critical, but I’m an Enrolled Agent (licensed by the IRS to represent taxpayers) this stuff is in my blood. I’m wondering if maybe you’re confusing a Roth with a Traditional IRA. As a Roth is never actually deductible, it’s beauty lies in the tax free earnings and withdrawals (if the conditions are met: age 59 1/2 etc). Contributions to a Traditional IRA are subtracted from your wages to arrive at your adjusted gross income (as though you never earned the money) but are taxed when you withdraw. For purposes of this article, all the brokers, etc. that I’ve dealt with have the same fees/minimums whether it be Roth or Traditional.

  13. Gopal says:

    Anybody know anything about using Charles Schwab for opening a Roth IRA account? And using their Index Mutual funds as vehicles of investments? Thanks!

  14. Ted Valentine says:

    You DO NOT need a brokerage account to open a Roth IRA. You can go directly to with $1,000 to open one with STAR. (Suggestion: google Finance Buff Roth IRA STAR). The STAR fund has averaged over 9% annualized the past 10 years. Great choice.

    You can also go direct to Fidelity or TROWE and open the account online into their no load funds.

    Otherwise, you’re going to pay fees to a broker you don’t have to. Unless you’re investing more than $10k, an ETF is going to cost you more.

  15. confused says:

    I want to open a Roth IRA account with Vanguard. I want to start with one for $5,000 for my wife and $5,000 for me. I’m 55 years old
    and won’t be retiring until I’m 62 or older. I’m not planning on touching the money but you never know if I’ll be needing it for an emergency. I don’t know what kind of IRA I should go for,
    I really don’t want to loose my money with a risky investment since I don’t have a lot of time to save (I wish I had started a lot younger!).
    I would appreciate any help from you experts in Roth IRA’s.
    Thanks a lot!

  16. wendy says:

    I was told that Roth Ira was only for retiement account if you are working. Present time reading information on Roth Ira account. I do have some investment with Cd at a certain rate that is not making much money. Can I move money into roth Ira account and get a better rate on my money, where can it be done at high rate? Age 55 yrs old and could use all help adviable to better my money ect.

    • Bill says:

      Go to call the 800 number and ask for advice…they won’t pressure you. You need to understand IRA vs. Roth IRA.

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