Opening a Roth IRA with No Minimum

Empty pocketsSeveral years ago I wrote an article on Opening a Roth IRA on a budget. That article is basically obsolete now, as some of the options either don’t exist or have been updated. So, here’s an update with better options.

You’ve likely heard about all the benefits of having a Roth IRA, and you want to take advantage of that tax-free growth. But what if you’re a college student working part time, or just started your first job and don’t have the thousands of dollars required to open a Vanguard or Fidelity account? Is it possible to open a Roth IRA with no minimum, and are there any decent choices available?

Yes. Before we begin, allow me to clarify the issue of no minimum. Quite simply, this means that you do not need to hand over any money just to open an account. If any funds within the account require a minimum investment, I will clarify further.

You can always keep saving until you have $3,000 or so to invest, but here are two good choices for places where you can open an account NOW, not later.

Option 1 – Capital One 360 / Sharebuilder

  • Required to open an account: $0
  • Two choices available: Savings or Investment IRA
  • For Investment IRA, some funds require a minimum investment of $250

For a no-minimum IRA, it’s hard to beat Capital One 360 / Sharebuilder. You have two choices when opening an IRA with them: a savings account/CD (Capital One 360) or an investment account (Sharebuilder). An IRA is just a container, after all, and you can fill that container with whatever investment you like. The Savings option literally has no minimum, as you can contribute pennies at a time if you like. The Investment IRA also has no minimum, but if you actually want to invest in a mutual fund, most of them require at least $250 to open.

My preference? I’d lean toward the Sharebuilder side, especially if you’re young, as a savings account inside an IRA is an extremely conservative investment. You can also get a ShareBuilder $100 Promo when you open an account.

Capital One 360 - Sharebuilder Retirement

If you’re just starting a Roth IRA, don’t sweat too much what type of investment to choose. It’s more important to take advantage of that tax-free space, and I’d rather see someone regularly contribute to a savings-based IRA with Capital One 360 than not open an account at all. If you want my advice on specific investments, I’d look at their No Transaction Fee (NTF) funds, especially those with an expense ration of 0.50 or lower. Something like ACIVX would be a decent choice.

Option 2 – Schwab

  • Required to open an account: $0
  • Schwab mutual funds require a $100 minimum investment, and only $1 for additional contributions

It’s no secret that I like Schwab (see review). Their website states that the required minimum to open a Roth IRA is $1,000 (or $100 automatically every month), but there’s an easy way around that. I just chatted with one of their CSRs for confirmation. Here’s how it works.

Open a Roth IRA online. You are not required to fund the account immediately, so no money is required upfront. Once the account is open, use their MoneyLink feature to link your existing checking or savings account to Schwab. After you verify the trial deposits, transfer in however much you want – hopefully at least $100. If you don’t even have $100, why are you looking at a Roth IRA again? 🙂

You can then use their Automatic Investing Plan (AIP) to schedule monthly investments. Schwab mutual funds only require $100 to open, so pick a fund of your choice (SWTSX is a great choice, as it’s a low-expense index fund that covers the total US stock market) and schedule your $100 automatic investment.

Automatic investing with Schwab

Two examples

But… but…, you’re asking, I thought this was supposed to be about no minimums? You’re telling me I have to commit to $100 every month? Rabble… rabble, RABBLE!

Calm down. The beauty of this system is that Schwab does not pull directly from your checking account. You first transfer the money into your Schwab Roth IRA, and then the money is automatically invested on the specified date. If insufficient money is available, no investment will be made for that month. Here’s the fine print on their site:

Cash up front is required for Automatic Investment Plan trades. If there is no money in the account on the day of the Automatic Mutual Fund Investing transaction, no trade will be placed (unless there is sufficient margin cash available). Automatic Mutual Fund Investing instructions will remain in effect until you delete them.

So drop your pitchfork. Throw in as much money into your Roth IRA as you can, and Schwab will automatically invest it for you each month. If you miss a month or two, no big deal. This is a little more complicated than, say, an ING Direct savings account, but the investment choices with low expense ratios are much more broad.

Other Thoughts

You no longer have any excuses not to open a Roth IRA, and I certainly don’t want to hear anything about how I don’t have enough money to open an account anywhere. Wah! Yes, you do. Even if you’re a college student working a part-time job, you can now afford to open an IRA. Just skip the movies or the bar tonight and toss the money into a Roth instead. You’ll thank me 30 years from now. 🙂

If you know any other good places where you can open an IRA with no minimum, let me know in the comments. Happy investing!

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10 thoughts on “Opening a Roth IRA with No Minimum

  1. Thank you very much for writing this article! 🙂 It is very helpful and will allow both my boyfriend and I to start investing now instead of having to wait. Thanks again! 🙂

  2. I just have one question. Do I have to invest the money I put into the Roth IRA? I just want an IRA account that I can put the money I have left over at the end of every paycheck into. I am all new to this whole IRA thing, and I don’t want to invest money that I could lose. Thank you for any help.

    • Hi Mandi,

      An IRA is simply a container. The money can be “invested” in whatever you like, so if you don’t want to take any risk at all, you can leave it in a money market/savings account inside the IRA. Something like the ING/Capital One Savings option would suit you perfectly.

      Best of luck!

  3. Hi, great article. So the question is: which Option should I choose? I’m trying to set up a Roth IRA to diversify my family’s retirement portfolio. We have about $500 (after taxes) per month to invest right now. Should I do Schwab or ING? Thanks!

    • Hi Thomas,

      My preference is for Schwab, as I think it’s a better long-term option. Their funds (especially the ETFs) have THE lowest expense ratios in the industry right now, undercutting even Vanguard.

      You could easily set up a diversified portfolio using Schwab mutual funds and automatic investing, as described in the article. SWTSX and SWLBX are all you need to cover the entire US stock and bond markets.

      If you want to investigate ETFs, then SCHB and SCHZ are pretty much all you need. Their respective expense ratios are second to none, and you can easily set up a balanced, long-term portfolio using only those two funds.

      No matter what you choose, best of luck!

      • Thanks! Getting ready to open the account after the 1st of the month. — Tom

  4. Thank you for taking the time to write this for all of us newbies. I’m starting my first “real” job and want to begin my Roth right away. Your article really helped. Thanks.

  5. listen people you miss the big hole in the IRA story ok you open it and with no money swab drafts you for 100 buck and that money you have no money for the auto invest and bam you not making money you are loosing it because your bank will hit you with a INF insufficient fund fee which can vary from 25-36 dollars.

    banks make th money you lose

    • Robert – That’s not how it works. Did you even read the article?

      Schwab does not pull directly from your external account for the $100 automatic transfer. You have to manually transfer in your $100 (or more) to your Schwab account if you want it to be automatically invested. Nothing happens if you don’t have the $100 minimum in your Schwab account on the automatic investment date.

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