Your first step is to open a Roth IRA which is the best tax sheltered retirement account available. If you are not sure if you qualify for a Roth IRA or currently have a Traditional IRA check with your tax professional.

Step 1 – Open a Roth IRA

Opening a Roth IRA is easy and can be done online in about 15 minutes. Most brokers require you to be at least 18 years old. I use E-Trade but any reputable discount broker will do. You will need to provide the usual name, address, date of birth, SS#, employer name and address, along with some basic investment profile questions. If they ask if you want options trading just request the cash account only.

Step 2 – Fund Your Roth IRA

Contribute $5,000 a year to your Roth IRA (2012 IRS max contribution amount under age 50). I strongly recommend that you setup an automatic savings program where you contribute to your Roth IRA in smaller even amounts throughout the year. For example, you could have $416.66 ($5K divided by 12 months) transferred each month from your checking account into your Roth IRA account (displayed as cash in your Roth IRA).

Another option would be to have the money automatically deposited from your paycheck, so if you are paid bi-monthly (24 times a year) then you would set this up to deposit $208.33 each paycheck ($5K divided by 24 pay periods). Choose whatever way works out best for you as long as you contribute to your Roth IRA throughout the year. This will enable you to purchase stock throughout the year to take advantage of when our dividend growth stock are trading at a 25% discount to fair value. You also start the fun part which is building your passive income stream by collecting dividends!

If you can’t save $5,000 a year just yet – setup your automatic deposit to an amount you can afford. Then work hard (spend less, earn more) so that you can raise it to $5K per year as soon a possible.

That completes the setup!

Next step is… Build It >

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