The Best Roth IRAs: Get Tax Free Income in Retirement

The best Roth IRA providers have many investment options including index funds and target-date funds. More importantly, they don’t charge ridiculous investment fees so more of your money is working for you – instead of your broker.

Most brokers let DIY investors invest in most stocks, bonds, and funds commission-free. Many brokers also offer a “robo-advisor” portfolio if you don’t have the time or skill to invest alone.

Vanguard Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $20 annual account fee (avoid this fee by enrolling in paperless documents)
  • Trade commissions: $0 for stocks, ETFs and Vanguard mutual funds
  • Key features: “Admiral Share” funds have reduced expense ratios and fully-automated Digital Advisor Service robo-advisor is available

Vanguard is likely the broker with the most loyal following – the “Bogleheads.” Founder Jack Bogle is famous for making the low-fee index fund a portfolio cornerstone for retail investors and 401(k) plans.

With $6.2 trillion in assets under management (as of January 2020), Vanguard is currently the world’s largest mutual fund provider and the second-largest provider of exchange-traded funds (ETFs). Building your Vanguard portfolio can be easy as there is a plethora of information online to find the best Vanguard funds fitting your investment goals. In fact, the Three-Fund Portfolio is one of the most popular investment strategies and uses three Vanguard funds.

There isn’t a minimum initial deposit to open an account. However, most Vanguard target retirement funds have $1,000 minimum and the index funds require $3,000. You can also buy the ETF version of your desired Vanguard funds if you can only invest small amounts of cash.

Vanguard Digital Advisor is Vanguard’s “robo advisor” and it requires $3,000 to start and invests in a basket of Vanguard funds matching your personal retirement goals. The annual advisory fee is a competitive 0.15% – approximately $4.50 per $3,000 you invest. Check out our full review of Vanguard’s digital advisory service here.

Get started with Vanguard

Fidelity Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0 for US stock, ETF and option trades
  • Key features: ZERO index funds have no fees, fractional investing, Fidelity Go advisor

Fidelity is well-known for the many workplace retirement plans and individual brokerage accounts they manage. This large brokerage is also very popular as you can get free stock trades plus zero-fee index funds.

This broker can be your best Roth IRA option for fee-free investing. The ongoing pricing wars are causing many brokers to waive most trade commissions and account fees. Fidelity goes a step further with its ZERO index fund lineup. These funds have a $1 minimum initial investment and a 0% expense ratio.

As a quick comparison, the Vanguard Total Stock Market Index Fund (VTSAX) has a 0.04% expense ratio and $3,000 minimum initial investment.

Fidelity offers many active mutual funds and target-date funds. It’s possible to buy fractional shares of US stocks and ETFs starting with $1 but only when using their mobile app.

The Fidelity Go robo-advisor offers managed portfolios and costs 0.35% annually. This annual advisory fee is a tad higher than most robos. The good news is that Fidelity Go invests in Fidelity Flex mutual funds that have no expense ratios. Your minimum initial investment is $0.

Get started with Fidelity

Ally Invest Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0 for US stocks and ETFs
  • Key features: In-depth research tools, commission-free Managed Accounts
  • Promotion: Up to $3,500 bonus cash when you open a self-directed account

Ally Invest can be the best Roth IRA for having your investments and bank accounts at the same place. You can stash your cash savings at Ally Bank for one of the best online bank rates.

You get commission-free trades US stocks and over 100 active and passive ETFs from Vanguard, iShares, Invesco, and other fund families. The Ally Invest fund screener and the in-depth research tools can find potentials stocks and funds.

You should avoid Ally Invest if you want to hold mutual funds as you will pay a fee of some kind. No-load funds cost $9.99 per buy and sell order.

It’s possible to earn a cash bonus when depositing at least $10,000 into a new self-directed investing account within 60 days of opening your account. An Ally Invest Roth IRA qualifies for the new account bonus.

Ally Invest also offers commission-free Managed Portfolios. There are no advisory fees and a $100 investment minimum. You have four different investment strategies to choose from, including socially responsible and tax-advantaged approaches.

All Managed Portfolios require a 30% cash buffer to waive the 0.30% annual advisory fee. This buffer is higher than most robo-advisors but your cash balance earns a high-interest yield.

Read our full Ally Invest reviewto learn more about Ally Invest.

Get started with Ally Invest

Betterment Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: 25% (Digital) or 0.40% (Premium)
  • Trade commissions: None
  • Key features: Fractional investing, automatic rebalancing, financial advisor access
  • Promotion: Up to one year of free management

Betterment is one of the oldest and largest robo-advisors offering taxable and retirement accounts. This online broker is a robo-advisor where a team of investing experts use a computer algorithm to manage your portfolio. Robo-advisors decide what index funds to invest in and rebalance your portfolio to prevent portfolio drift.

You can open an account with a $0 initial deposit and will answer a series of questions about your goals and risk tolerance to suggest a model portfolio of stock and bond index ETFs.

Like most robo-advisors, Betterment’s primary investment philosophy follows the Nobel Prize-winning Modern Portfolio Theory (MPT). This investment strategy holds a variety of domestic and international stock and bond ETFs for these asset classes:

  • US stocks
  • International stocks (developed and emerging markets)
  • Corporate bonds
  • Government bonds

You may also consider Betterment’s socially responsible, Goldman Sachs smart beta, or BlackRock target income portfolios. 

All Betterment portfolios have automatic rebalancing and fractional investing. Taxable accounts can benefit from the tax-loss harvesting to minimize your annual tax bill.

Betterment has two pricing plans, depending on your account balance. If your balance is under $100,00 you are on the the Digital plan with a 0.25% annual fee. Hitting six figures lets you upgrade to Premium that costs 0.40% annually.

Premium benefits include unlimited access for one-on-one CFP access to plan for life milestones and personalized investment advice for stocks, real estate, and 401(k)s. The Digital plan lets you order one-time advice calls with Betterment’s financial advisors and the packages start at $199 for a 45-minute session.

One growing trend among robo-advisors is offering banking alternatives including an interest-bearing cash management account and a no-fee rewards checking account.

Here’s our full Betterment review to learn more.

Get started with Betterment

Wealthfront Roth IRA

  • Minimum initial deposit: $500
  • Account management fees: 25% annual management fee
  • Trade commissions: None
  • Key features: Automatic rebalancing, tax-efficient “PassivePlus” investment strategies, free Path financial advice engine
  • Promotion: Up to $5,000 managed for free

Wealthfront is another long-standing robo-advisor. Until a few years ago, your two “robo” options were Betterment or Wealthfront. Either platform is a good option for managing your Roth IRA and taxable investment accounts. However, Wealthfront and Betterment offer differing advanced investment strategies and financial advice tools.

You will need a minimum $500 initial deposit to open a Wealthfront Roth IRA. One reason for the higher deposit is that Wealthfront only buys whole shares of index ETFs while Betterment buys fractional shares. Wealthfront’s annual management fee is the industry-standard 0.25% of your account balance.

The standard Wealthfront investment methodology adheres to the Modern Portfolio Theory (MPT). Wealthfront uses MPT to recommend your asset allocation investing in stock and bond index ETFs from the US, developed, and emerging markets. Your portfolio may also invest in alternative asset classes including real estate and natural resources. Dividend stocks and US Treasury inflation-protected bonds (TIPs) are a possibility as well.

All members have access to Wealthfront’s free Path financial advice engine. This online financial planning tool analyzes your current financial habits to help you plan for long-term goals.

Wealthfront also offers a free interest-bearing cash management account. The minimum initial deposit is $1 and includes a debit card for purchases. You can enroll in direct deposit to quickly make Roth IRA contributions or fund your taxable investment account.

As each advisor uses a similar methodology, the best Roth IRA robo-advisor can be the one with the lowest fees and best financial tools. Most of the index ETFs that Wealthfront invests in have an expense ratio between 0.06% and 0.13%. These fees are similar to what you pay by investing by yourself while avoiding the robo-advisor annual expense fees.

PassivePlus Investing

Having a $100,000 account balance lets you utilize Wealthfront’s advanced “PassivePlus” investment strategies. Wealthfront doesn’t offer on-demand CPA access like Betterment.

Your Roth IRA can benefit from the Risk Parity strategy that measures risk differently than Modern Portfolio Theory to produce potentially higher long-term returns.

Unlike Betterment, Wealthfront only charges a 0.25% annual fee for PassivePlus investors.

Check out our full Wealthfront review to decide if this the best robo-advisor for you.

Get started with Wealthfront

Charles Schwab Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0 for online US stock, ETFs and most mutual funds
  • Key features: Fractional investing ($5 minimum), In-depth research tools
  • Promotion: Up to $500 bonus cash award

Charles Schwab is one of the oldest and largest discount brokers but has less name recognition than Vanguard and Fidelity. However, Schwab has a great platform with many commission-free investment options for stocks, ETFs, and mutual funds.

The brand-new Schwab Stock Slices feature lets you buy fractional shares of individual stocks and ETFs with at least $5 minimum.

Schwab has plenty of in-depth research and charting tools that make it easy to research fundamental and technical indicators. You can also read analyst reports and fund report cards to compare potential investments.

There’s also an in-house robo-advisor with Schwab Intelligent Portfolios with no advisory fees or trade commissions. However, you need at least $5,000 to start investing and your portfolio has a minimum 6% cash buffer. Betterment or Wealthfront can be a more cost-effective option and you can invest in non-Schwab index ETFs too.

Get started with Charles Schwab

Ellevest Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $1, $5 or $9 per month (Only the $5 and $9 plans support IRAs)
  • Trade commissions: None
  • Key features: Goals-based investment strategy for women, coaching access

Ellevest might be the best Roth IRA provider for women as this platform uses a goals-based investment strategy instead of the ubiquitous Modern Portfolio Theory. For instance, Ellevest factors gender pay gaps, career breaks, and longer life expectancies for women when creating an investment plan.

You will invest in stock, bonds, and alternative assets ETFs like other robo-advisors. There is also an impact investing portfolio that holds socially-minded ETFs, when possible. These funds focus on companies that advance women leaders and policies, sustainability, ethics and women-owned businesses.

The Ellevest pricing plan is different than most robo-advisors as you pay a flat monthly fee instead of a percentage of your account balance. The Ellevest pricing plans are below:

  • Essential: $1/month
  • Plus: $5/month
  • Executive: $9/month

Micro-investing apps like Acorns have similar tiered pricing plans. Paying a flat monthly fee can cost less than a percentage-based annual fee when you have a sizable portfolio balance.

You must choose the Plus or Executive plan to open a Roth IRA with Ellevest. Becoming a “Plus” member is cheaper than a Betterment Digital plan when your account balance is at least $24,000.

Two other Plus membership benefits include personalized investment plans and 30% offer one-on-one coaching sessions. All Ellevest members have access to an FDIC-insured bank account and video or email-based financial and career workshops.

Here’s our full Ellevest review if you’d like to learn more.

Get started with Ellevest

M1 Finance Roth IRA

  • Minimum initial deposit: $100 for taxable accounts and $500 for IRAs
  • Account management fees: None
  • Trade commissions: None
  • Key features: Fractional investing for stocks and ETFs, no platform fees or trade commissions, dynamic rebalancing
  • Promotions: Up to $2,500 bonus cash

M1 Finance is a unique free investing app that is a hybrid robo-advisor and self-directed investing app. Your investment options include most US individual stocks, ETFs, and premade “expert pie” portfolios. You decide which assets to add to your investment pie and assign a target percentage to each holding. 

M1 uses “dynamic rebalancing” to align your actual asset allocation with your target allocation. Each time you invest new cash, M1 buys fractional shares of slices that are currently below their target. You must request a manual rebalance for M1 to sell the portion of slices above their assigned allocation.

As M1 Finance isn’t a full-fledged robo-advisor, you build your portfolio yourself. The expert pies make it easier to automate investing as these pies copy target retirement fund and risk-based Modern Portfolio Theory investment strategies.

An M1 Finance Roth IRA is free to open with $0 but requires $500 to make your first investment. This minimum is higher than most brokers, but the fractional investing lets you instantly diversify your portfolio. Subsequent investments require a $25 cash balance.

The free membership tier for M1 Finance has one daily trading window at 9:30 am Eastern. You must submit your trade orders by 9:29 am Eastern if you want them filled that day.

Upgrading to M1 Plus costs $120 per year and you get a 3 pm Eastern afternoon trading window, a rewards checking account, and discount interest charges on your portfolio line of credit.

Like the idea of percentage-based investing? Read our M1 Finance review to learn more about everything this free investing app offers.

Get started with M1 Finance

TD Ameritrade Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0 for online US stock and ETFs
  • Key features: Extensive research and educational tools
  • Promotion: Up to $2,500 cash

TD Ameritrade is a favorite for active traders thanks to its powerful thinkorswim desktop software. This isn’t a platform for buy and hold investors – this is for active traders.  

There are no minimum balance requirements, account fees, or trade commissions for online stock and ETF trades. However, mutual funds can be pricey and broker-assisted trades are expensive too.

There isn’t a robo-advisor option but beginner investors may appreciate the robust research and education tools. Analyst reports and the Morningstar rating screener can help you find opportune ETFs and mutual funds. You can simulate trades with the paperMoney tool to hone your investing strategies.

New and veteran investors can learn new investing skills with Ameritrade’s routine online webinars. These video sessions cover a variety of basic and advanced investing topics.

Get started with TD Ameritrade

E*TRADE Roth IRA

  • Minimum initial deposit: $0 ($500 for Core Portfolios)
  • Account management fees: $0
  • Trade commissions: $0 for online US stock and ETFs
  • Key features: Wide investment selection, research tools, “robo-advisor” Core Portfolios
  • Promotion: Up to $2,500 bonus cash

E*TRADE is an online discount broker that became popular in the 1990s for its low-cost trade commissions. Today, your online trades individual stocks and ETFs are free but mutual funds may be subject to a $19.99 transaction fee. No load, no transaction fee mutual funds are available.

Investing can be easy with the E*TRADE Core Portfolios. The minimum initial investment is $500 and the annual management fee is 0.30%, plus ETF fund fees. This fee is slightly higher than other robos but you only have a 1% cash buffer. These portfolios adopt the Modern Portfolio Theory investing strategy. Socially responsible and smart beta strategies are available.

Get started with E*Trade

Merrill Edge Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: None
  • Trade commissions: $0 for US stocks and ETFs
  • Key features: In-depth research tools and Bank of America Preferred Rewards
  • Promotions: Up to $900 bonus cash

Merrill Edge is one of the best Roth IRA options if you qualify for Bank of America Preferred Rewards. Your BofA and Merrill account balances let you enjoy enhanced banking bonuses.

A Merrill Edge Self-Directed Roth IRA has a $0 minimum initial deposit and all stock and ETF trades are free. You have access to Merrill’s industry-leading research tools.

Guided Investing portfolios require a $5,000 starter balance and have a 0.45% annual advisory fee. Other robo-advisors are more cost-efficient if you prefer a hands-off investing approach.

Get started with Merrill Edge

WeBull Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0 for stocks and ETFs
  • Key features: Simulated trading tools and extended hours trading
  • Promotion: Two free stock shares

WeBull is a free investing app similar to Robinhood but with more extensive research tools and account options. You can open a Roth IRA with a $0 initial investment and receive a free share of stock worth up to $1600.

All stock and ETF trades are free with WeBull. Extended hours trading is available too but your buy and sell prices during this time may be unfavorable as there is less liquidity. WeBull offers advanced research tools, unlike most free apps that only provide a basic historical price chart and recent news headlines. You can simulate trades to test potential trades without risking real money.

Get started with WeBull

SoFi Invest Roth IRA

  • Minimum initial deposit: $0
  • Account management fees: $0
  • Trade commissions: $0
  • Key features: Fractional self-directed investing (Stock Bits), fee-free robo-advisor
  • Promotion: $50 in free stock with a minimum $1,000 deposit

SoFi Invest is a relatively new fee-free investing app and part of the broader SoFi community. Other member benefits include student loan refinancing and the SoFi Money cash management account.

You have the option to open a SoFi Invest self-directed account or an automated investing account. You can certainly have both as there is only a $1 initial deposit and there are zero account fees.

A self-directed Active Investing account lets you buy stocks and ETFs with $1 per trade. This minimum investment is lower than most online brokers that require at least $5 per trade.

An Automated Investing account also only requires a $1 initial investment. Automatic portfolio rebalancing is standard but SoFi Invest doesn’t offer tax-loss harvesting. SoFi recommends an asset allocation depending on which life event investing goal you choose.

There are no account management fees or trade commissions for Automated Investing. Your only expense is the index fees that are between 0.03% and 0.08% per fund – like all the other robo-advisors. Investors wanting to avoid fees may decide that Sofi Invest is the best Roth IRA for self-directed and automated investing.

Get started with Sofi Invest

Who is Eligible for a Roth IRA?

Most brokers let adults age 18 or older who earn taxable income to open a Roth IRA. Some brokerages offer custodial Roth IRAs for minors.

You might not be able to make direct contributions to a Roth IRA if you earn a high income. In 2020, the income threshold for making the full $6,000 annual contribution ($7,000 if you’re 50 or older) is $124,000 for single taxpayers and $196,000 for joint tax filers. There’s still hope of investing tax-free as high-income earners can qualify for a backdoor Roth IRA.

The best Roth IRA providers don’t charge annual account fees or trade commissions for self-directed accounts. Robo-advisors may charge an approximate annual account management fee (advisory fee) of 0.25%. Some advisors charge a slightly higher fee and some are fee-free.

The pricier platforms can still cost less than hiring a financial advisor. Their annual advisory fees are at least 1%, in most cases for a local advisor – who may likely invest in similar assets.

Can I have Two Roth IRAs?

Yes, it’s possible to open multiple Roth IRAs. For instance, your first Roth IRA may be a self-directed account to buy individual stocks and ETFs. Your second account can be with a robo-advisor offering a fully automated investment service if you don’t have the time or skill to be a DIY investor.

You can also invest with a Traditional IRA with pre-tax income. It’s possible to have multiple Traditional IRA accounts as well.

Regardless of how many IRAs you have, you can only make up to $6,000 in combined Roth and Traditional contributions each year (in 2020). Investors age 50 or older can make an additional $1,000 “catch-up contribution.”

Summary

One way to find the best Roth IRA is to look for the fewest fees. Most brokers no longer charge trade commissions and have low (or non-existent) initial account minimums. You may prefer a broker offer fractional investing or in-depth research and education tools. A robo-advisor can be the right choice if you want to invest but don’t have the time or knowledge to go it alone.

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Originally posted at https://wallethacks.com/best-roth-ira/

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