Banks and Roth IRAs: 4 Essential Facts for Optimal Retirement Planning


Many people wonder whether they can open a Roth IRA at their banks. It’s a great question, but it should be accompanied by several others. For example, if the thought of building a nest egg for retirement has been popping around in your brain, you’ve probably given consideration to opening a Roth IRA.

Rather than the single question, “Can I open a Roth at my regular bank?” you should also try to find answers to the following:

  1. What is a Roth IRA?
  2. Am I legally allowed to contribute to a Roth?
  3. Is my bank the best place to open one?
  4. What questions should I ask the financial institution where I want to open my IRA?
Banks and Roth IRAs The Essential Facts

Get the answers to those questions, and you’ll be ready to take action by opening a tax-deferred IRA at the financial institution that best suits your needs. Plus, you’ll know exactly what to ask when you call around and investigate your options.

Finally, even before you begin the sleuthing part of the task, you will know whether you even qualify to open a Roth (some people can’t, based on high levels of income).

Okay, let’s dig in and get those questions answered so you can start making calls as soon as you’re done reading this guide.

The Roth IRA Answers…

In order, here are the answers to the above queries:

What is it?

A Roth IRA is a special kind of retirement account that you don’t get a current tax deduction for. In other words, any money you put into it is “after-tax.” That sounds like a bad deal, but it’s not.

Why is it such a good deal? Because every penny you place into your Roth IRA grows tax-free, AND all your withdrawals are tax-free. As long as you follow the rules about not over-contributing, and wait until retirement to withdraw the funds, you’re good.

Can you contribute?

Unless your income is very high, you can contribute to a Roth IRA. There’s a complex mathematical schedule about phase-outs and such, but the general rule is that if you are single and have a modified adjusted gross income, MAGI, less than $198,000, you are legally able to contribute to a Roth. If your MAGI is greater than $208,000 (as a couple), then you can’t use a Roth at all.

For single folks, a MAGI under $125,000 is safe, but if your MAGI is above $140,000, you can’t contribute at all. The amounts between the upper and lower MAGI limits for couples and single people are “phase-out” zones, where you can only contribute a limited amount to a Roth.

Are banks best?

Nothing against banks, but there are lots of financial institutions where you can open a Roth. Don’t “default” to your current bank just because you know the drive-through teller by name. For most people, a Roth IRA is a good way to use stocks and other growth investments to build up a large retirement savings.

Often, banks only offer a limited number of investment choices for Roth account holders. However, brokerage firms tend to have much larger menus from which to choose your Roth investments.

phone each one and ask what kinds of investments you can buy from them to place into the Roth IRA

What questions should you ask?

When shopping for an institution to park your Roth IRA, phone each one and ask what kinds of investments you can buy from them to place into the Roth IRA. Next, ask if there are any costs associated with opening an account or keeping it active (account maintenance fees).

Also, ask about IRA customer service and whether you can get questions answered in person, online, or over the phone. Finally, if they offer stocks, ask the rep if there are any trading fees. This is a key question because if you’ll be buying and selling lots of different corporate stocks, fees could be substantial.