Reader Question: Roth IRA Minimums?

by Kevin on April 25, 2008

Chris commented on my post, One Simple Step to Retiring with $1,000,000, with a question about Roth IRA minimums.

You say the max is $5,000 is there a minimum? If I can’t afford to do the $416.67 per month, what is the lowest that I can go without any kind of penalty. Or can you go without putting anything in for a year or two, not that you would want to do that. Just curious, I’m not completely familiar with the way the Roth works. Thanks Kevin!

The best answer? It depends.

There could be a few different minimums: minimum to invest in a mutual fund, minimum amount required to open the account with the firm, or minimum amount you can add additional funds to your account with.

There are a multitude of places you can setup your IRA/Roth IRA. A bank, brokerage firm, or directly investing with a mutual fund/investment firm are a few options that come to mind. Each is going to have different requirements of you to open up an account.

For example, we use Vanguard for our Roth IRAs. To invest in Vanguard’s mutual funds — through Vanguard or a brokerage firm — you need $3,000 as a minimum to invest in that mutual fund. The only exception is the Vanguard STAR fund with a minimum of $1,000. Everything else you need $3,000 to get started. However, after that the smallest amount of money you can then add to that fund is $100 if I remember correctly. You don’t have to save up $3,000 at a time unless you want to use multiple funds. We are currently invested in a Target Retirement Fund to get started, so we have no need for another fund right now.

If you setup an account with a bank or brokerage firm you would have an array of options to invest in. Some would have higher minimums than others. Some of the firms may even require you to have a certain amount just to open the account regardless of how much you invest in each mutual fund or stock.

It really does all depend. We have been completely satisfied with Vanguard in the short time we’ve been with them. We didn’t have $3,000 saved up initially, but just set aside money each month until we reached the minimum.

My advice? Just get started today. Do whatever it takes. Set the money aside in an online saving account like ING until you have enough to start investing. Step by step you will get there. Just remember the first step is always the hardest.

{ 11 comments }

Philip April 25, 2008 at 8:34 am

I have my 401k with vanguard and have not yet opened a Roth IRA. One thing that would be nice to know for sure is after I have that $3000 minimum in there, do I have to have another $3000 minimum the next year, or does it all roll in together. I have wondered that for a while without ever looking it up or seeing it in the blogosphere.

Kevin April 25, 2008 at 8:52 am

@Philip: The $3,000 minimum is to invest in the fund initially. Other contributions after that can be as small as $100.

If you wanted to invest in a second fund, you would need to save up $3,000 to start investing in it, then you could contribute $100 at a time.

Ben @ Trees Full of Money April 25, 2008 at 9:16 am

Good advice, the sooner you start out the better. I made a lot of dumb moves when I was younger, but the one thing I did that I was most proud of (financially) was always max out my 401k (just started my Roth).

morningstar.com has an excellent tool under “tools” that allow you to screen funds by there “minimum initial purchase” amounts. some of them are as low as $500 if I remember correctly.

Mom @ Wide Open Wallet April 25, 2008 at 10:19 am

I’m going from memory here but I believe T. Rowe Price will waive their initial minimum investment if you sign up for the automatic investment, which I recommend anyways. And their minimum monthly contribution is $50. It’s a great place to invest when your just getting started.

chris.pund April 25, 2008 at 4:20 pm

Thanks for the response Kevin! I graduate next week and will be looking more into then when I get home and am ready to start saving up!

Stephanie @ PoorerThanYou April 25, 2008 at 5:11 pm

Great advice! I completely agree with the idea of saving up money at ING (or any savings account) until you have enough to invest. Most people put it off because they can’t afford the minimum or it’s too complicated to deal with now – the best thing to do while you’re putting it off for those reasons is to save in the meantime!

Foxie April 26, 2008 at 9:27 am

I’ve got a question! First, I was pretty sure Vanguard will waive the minimum if you sign up for their automatic deduction plan, I believe it was $80/month minimum for that. I may not be right, since I looked at their site a while ago…

Onto my question. 🙂 Since I can’t swing the $3k to open a Roth IRA with Vanguard, I was planning to open one with Sharebuilder. Is it possible to simply roll the IRA over from Sharebuilder to Vanguard? I wanted to get my first retirement account started this year (I turn 20) but won’t be able to save up enough for Vanguard’s. (Or afford the monthly minimum once classes start in the fall again.)

HerMoney April 26, 2008 at 7:17 pm

I got started years ago with Ameriprise (when it was still American Express Financial Advisors) and did $50 a month. While that only gives you $600 a year it’s better than nothing. Over the years I have bumped it up a little at a time and now max it out each year.

Tim April 26, 2008 at 11:10 pm

I have my Roth through Ameritrade. I started with a $1,000 investment in a dodge and cox mutual fund, and then invest the minimum $50 per month thereafter.

Morgan June 22, 2008 at 9:47 pm

I’m currently saving for a Vanguard fund at ING, but instead of using a regular savings account I’m using their IRA Savings. They have no minimum and because it’s an IRA you will get those nice tax advantages. Even if you only end up saving $1,000 your first year. Of course it only pays %3 right now, but it’s better than not doing anything.

Doris October 1, 2008 at 12:13 pm

Can you roll over a portion of your Ira in one institution to another ? Can you break it up if you’re not 59 1/2…And if you are withdrawing under 72t rules??(Annual SEPP) I have the entire IRA at Fidelity conservative money market,wanted it divided mostly into cd’s. The rep I delt with has done nothing with my account…so, It is earning less than 2%. I saw an ad for Millennium for 6% on a one year cd. FIdelity truly has no fees just like they advertise,but right now I’m not earning enough. Also, how safe is your money in a brokerage fund??

Comments on this entry are closed.