Open and fund a Roth IRA

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The checklist — 12 steps

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1. 1.Confirm Roth IRA eligibility — earned income + MAGI under phaseout

   Two thresholds. First, you need **earned income** — wages, salary, self-employment net earnings, or taxable alimony (pre-2019 divorce decrees only). Investment income, rental income, Social Security, and pension distributions do NOT count. Your Roth contribution is capped at the LESSER of the annual limit or your earned income for the year. Second, your **Modified Adjusted Gross Income (MAGI)** must be under the phaseout ceiling. **2025 MAGI phaseouts (IRS Notice 2024-80, Rev. Proc. 2024-40):** Single / Head of Household $150,000–$165,000 (full contribution below $150k, partial in the $15k band, zero at $165k+); Married Filing Jointly (MFJ) $236,000–$246,000. **2026 phaseouts:** verify against the IRS Rev. Proc. released in October 2025 — typically indexed upward by ~2–3%. Married Filing Separately (MFS) has a punitive $0–$10,000 band in both years (forces most MFS filers into the Backdoor path). Pub 590-A has the worksheet for partial-phaseout contributions.

2. 2.Pick a broker — Fidelity, Schwab, or Vanguard

   All three offer zero-fee Roth IRAs, fractional-share investing, zero-commission trading, and strong index-fund lineups. Practical differences: (1) **Fidelity** — zero-expense-ratio index funds (FZROX total market, FZILX international, FXNAX bonds), strongest mobile app, same platform if you already have an HSA or 401(k) there. Best default for most people. (2) **Charles Schwab** — $0 investment minimum on all its own index funds (SWTSX, SWISX, SWAGX), strongest customer service reputation, integrates with a Schwab checking account for seamless transfers. (3) **Vanguard** — the original index-fund house (VTSAX, VTIAX, VBTLX), investor-owned structure, slightly dated web interface. All three are SIPC-insured up to $500k ($250k cash). Avoid Robinhood, SoFi Invest, and Webull for retirement accounts — they work but lack the deep fund lineup and decades-long custodian track record you want for a 40-year holding. Do NOT use a full-service broker (Edward Jones, Ameriprise) — the 1–2% annual fee compounds to hundreds of thousands over a career.

3. 3.Open the Roth IRA account

   At Fidelity: fidelity.com → Open an Account → Roth IRA. Takes ~10 minutes. You'll need Social Security number, employment info, and beneficiary details. No credit check. No minimum deposit to open. Name a **primary beneficiary** (usually spouse) and **contingent beneficiary** (usually children per stirpes). Designate beneficiaries on the custodian form directly — Roth IRA beneficiaries pass by contract OUTSIDE your will, so the custodian form is the controlling document. Schwab and Vanguard have equivalent flows. If you're married, open a **separate** Roth IRA for your spouse even if they have no earned income (see step 11 — spousal Roth).

4. 4.Fund for the current year — use the prior-year window if it's still open

   You have until **April 15 of the following year** (or the next business day if April 15 falls on a weekend / holiday) to make a contribution for a given tax year — 26 USC § 408A(c) / § 219(f)(3). So in January–April 2026, you can contribute to your 2025 Roth IRA AND your 2026 Roth IRA. This is a free ~3.5-month extension on the contribution-year clock. At the custodian, when you initiate the contribution, you select the tax year explicitly — verify it says "2025" (or whichever prior year) before confirming. **2025 annual limit: $7,000 under 50 / $8,000 age 50+.** **2026 limit: verify against IRS Rev. Proc. 2025-XX — typically $7,000–$7,500 under 50, $8,000–$8,500 age 50+.** Do NOT contribute beyond the limit — excess contributions trigger a 6% excise tax per year under IRC § 4973 until corrected.

5. 5.Fund for the next year — automate monthly contributions

   Dollar-cost averaging beats lump-sum emotion-trading for most households. Set a recurring ACH transfer from your HYSA / checking to the Roth IRA. For the 2026 $7,000 limit, that's $583.33/month (or $269.23 / biweekly, $134.62 / weekly). Start the transfer on January 2 or the first business day — earlier funding = more months of tax-free compounding. A household contributing at the start of each year vs. the end of each year earns ~$50,000 more over 40 years on the same dollars, purely from the extra 12 months of compounding per contribution. At Fidelity: Transfer → Recurring → Source checking → Destination Roth IRA → Frequency monthly.

6. 6.Choose investments — target-date index fund or three-fund portfolio

   Two valid paths. (a) **Single target-date index fund** — one fund, automatic rebalancing, glide-path-to-bonds as you near retirement. Pick the year closest to when you'll turn 65. Examples: Fidelity FFLEX series (Freedom Index, 0.12% expense ratio), Schwab SWYFX / SWYGX / etc. (0.08%), Vanguard VFFVX / VTIVX / etc. (0.08%). Avoid non-index "target-date" funds with 0.50%+ expense ratios. (b) **Three-fund portfolio** — manual annual rebalancing, total control. Example allocations: 60% US total market (FZROX / SWTSX / VTSAX), 30% international (FZILX / SWISX / VTIAX), 10% bonds (FXNAX / SWAGX / VBTLX). Adjust bond allocation up as you age (rule-of-thumb: age in bonds, though modern guidance is age minus 20 in bonds for long-horizon investors). DO NOT leave the Roth in cash-sweep at 4% — over 30 years, cash vs. equities is the difference between a $300k Roth and a $1.5M Roth on the same $7,000/yr contributions. DO NOT stock-pick inside the Roth — you'll lose the tax-free-growth benefit to underperformance.

7. 7.Set up automatic investment of incoming contributions

   At Fidelity and Schwab, you can set contributions to auto-invest into a chosen fund upon arrival — so the $583 monthly ACH doesn't sit in cash waiting for you to manually buy shares. Fidelity: Account → Automatic Investments → select fund + amount + frequency. Schwab: Trade → Automatic Investment Plan (AIP) — note Schwab AIP works on mutual funds (SWTSX, etc.) but not ETFs (SCHB). Vanguard: Buy & Sell → Automatic Investment → set per fund. If your custodian doesn't support auto-invest for ETFs, use the mutual-fund equivalent (Fidelity FSKAX / FZROX instead of ITOT; Schwab SWTSX instead of SCHB; Vanguard VTSAX instead of VTI). Set it once, check annually.

8. 8.Confirm your MAGI vs. 2025 / 2026 phaseouts before filing

   Before filing your tax return — or by March of the following year at the latest — compute your actual MAGI for the contribution year. **MAGI for Roth purposes** (per Pub 590-A, Worksheet 2-1) = AGI + student loan interest deduction + foreign earned income exclusion (IRC § 911) + foreign housing deduction + savings-bond interest exclusion (IRC § 135) + employer-provided adoption-benefits exclusion (IRC § 137) − Roth conversions / rollovers included in AGI. If MAGI landed inside the phaseout band, your allowable contribution was partial — compute it using the Pub 590-A worksheet. If MAGI landed above the ceiling, you made an **excess contribution** and must act before the tax deadline (including extensions): either (a) withdraw the excess + earnings via a custodian corrective distribution, or (b) recharacterize to Traditional IRA (only possible if you would have been eligible for a deductible Trad IRA — often not for high-income filers with a workplace plan). The 6% excise tax under IRC § 4973 applies annually until corrected.

9. 9.Backdoor Roth mechanics — for above-phaseout filers

   If your MAGI exceeds the Roth phaseout, the Backdoor Roth is the workaround. The mechanics, per IRS guidance and 26 USC § 408A(d)(3): (1) Contribute $7,000 (2025) / verify 2026 limit to a **Traditional IRA** as a **non-deductible** contribution — no income limit on non-deductible Traditional IRA contributions. (2) Wait a few days for the contribution to settle in cash (there's no required waiting period under current IRS guidance — the "step transaction doctrine" concern was effectively resolved by Congress in the 2017 TCJA conference report, but most practitioners still wait 1–7 days for hygiene). (3) Convert the Traditional IRA balance to your Roth IRA. The conversion of non-deductible basis is tax-free; any pre-existing earnings in the Traditional IRA are taxable. (4) File **IRS Form 8606** with your tax return for the contribution year — Part I reports the non-deductible Traditional IRA contribution (establishes basis); Part II reports the conversion. **CRITICAL: the pro-rata aggregation rule under 26 USC § 408(d)(2).** If you have ANY pre-tax Traditional / SEP / SIMPLE IRA balances as of December 31 of the conversion year, the IRS treats all IRAs as ONE POOL for computing the taxable portion of the conversion. Example: $50,000 pre-tax rollover IRA + $7,000 new non-deductible → ~87.7% of the $7,000 conversion is taxable. Fix before attempting Backdoor: reverse-rollover the pre-tax IRA into a 401(k) / 403(b) / 457(b) that accepts incoming rollovers, leaving only the non-deductible basis in IRAs. Roth 401(k) and inherited IRAs are NOT aggregated.

10. 10.Mega Backdoor Roth — check your plan's SPD

    The Mega Backdoor Roth is a workplace-plan feature, not a personal-retirement-account feature. It lets you contribute UP TO the full IRC § 415(c) annual-additions limit (**$70,000 in 2025**, ~$71,000–$72,000 projected in 2026) through the 401(k), far above the $23,500 elective-deferral limit (2025). Required plan features — read your **Summary Plan Description (SPD)** for both: (1) **After-tax (non-Roth, non-deductible) contributions** permitted above the $23,500 deferral limit. Distinct from "Roth 401(k) contributions" — after-tax is a separate contribution bucket. (2) **In-service withdrawal** of after-tax sources OR **in-plan Roth conversion** of after-tax sources. Without (2), dollars are stuck until separation, growing tax-deferred but not tax-free. Process: contribute after-tax → immediately (same pay period) convert to Roth 401(k) in-plan OR withdraw to external Roth IRA → Form 1099-R at year-end shows the conversion. If your SPD is silent on either feature, call the plan administrator — plans like Fidelity NetBenefits, Empower, Vanguard, Schwab Workplace sometimes support it by participant request even when the SPD is ambiguous. Mega Backdoor alone can Roth-ify $40,000+/year for high-income employees at supportive employers (Google, Microsoft, Meta, NVIDIA, financial-services firms commonly support it).

11. 11.Spousal Roth IRA — fund both accounts even if one spouse has no earned income

    Under 26 USC § 219(c), a married-filing-jointly couple where one spouse has earned income can fund BOTH spouses' Roth IRAs up to the full annual limit each ($7,000 + $7,000 = $14,000 in 2025; verify 2026), so long as the working spouse's earned income exceeds the combined contribution. The non-earning spouse's Roth IRA is their own individual account — not jointly titled, not a spousal-sub-account. Open it in the non-earning spouse's name with their SSN at the same custodian. The MAGI phaseout applies to the household's joint MAGI ($236k–$246k in 2025 MFJ); if above, BOTH spouses use Backdoor Roth. A stay-at-home parent building their own Roth for 20 years accumulates meaningful tax-free wealth in their own name — important for divorce-resilience and for retirement-income flexibility. Spousal Roth is also available with a non-working minor-aged-under-24 spouse so long as MFJ filing is elected.

12. 12.Name beneficiaries + annual review

    Roth IRA assets pass to the named beneficiary by contract OUTSIDE your will — the custodian's beneficiary form is the controlling document. Name **primary** (usually spouse — spouses uniquely can treat the inherited Roth as their own with no 10-year drawdown requirement) and **contingent** beneficiaries. For children / non-spouses, the SECURE Act 10-year rule applies (SECURE Act of 2019, confirmed by SECURE 2.0 Act of 2022 Regs): non-spouse beneficiaries must empty the account within 10 years of the original owner's death — though Roth distributions remain tax-free (the distinction: Trad IRAs drain under 10-year rule AND pay ordinary income tax; Roth drains under 10-year rule but pays NO tax). **Annual review tasks** (pick a date — tax-filing season, your birthday, or New Year's Day): (a) confirm the year's $7,000 contribution landed and was invested, (b) rebalance three-fund allocations if they drifted 5+ points off target, (c) verify beneficiary designations still match your intent (marriage, divorce, death of original beneficiary, birth of children all trigger updates), (d) project MAGI for the coming year to decide direct contribution vs. Backdoor path.