Updated September 2, 2016

Best Roth IRA Providers for Beginners

How to Get Started with a Roth IRA
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Opening a Roth IRA is one of the best money moves you can make. But where should you open an account? Here are our top recommended Roth IRA providers.

Tip: Our favorite Roth IRA provider is Scottrade. Click here to visit Scottrade or keep reading to learn why.

To put it plainly, a Roth IRA (Individual Retirement Account) is an account that holds your retirement investments. It can sound complicated, but it's really quite simple.

The great thing about a Roth IRA is that it takes advantage of tax savings. This keeps the government away from your earnings (we explain more below). Of course, there are certain rules that must be followed. But once you get going, you'll find that opening and maintaining a Roth IRA isn't much different (or harder) than a normal bank account.

Tip: Does your employer offer a 401k? Before you open a Roth IRA, you may want to check to see if your employer offers matching. That's free money you're passing up.

What is a Roth IRA?

The awesome thing about a Roth IRA is you almost feel like the government made a mistake. These accounts are like legal tax shelters designed by Uncle Sam.

With a Roth IRA, you are putting in money that have already been taxed. For example, like when you got taxed on your paycheck. So you will not be taxed again when you take the funds out.

All interest earned is tax-free too. You have to keep them in the account for a certain timeframe. Then, upon retirement, you can withdraw the money and all of it goes straight to your pocket.

Tip: You probably have heard of other retirement options, such as a Traditional IRA or a 401(k). The difference between a ROTH IRA and those is that the contributions are made post-tax. With the other account options, the contributions are pre-tax. You avoid paying tax now, but when you withdraw the funds at retirement, you will have to pay normal income tax.

  • Why a Roth IRA is better
    In addition to the tax benefits, a Roth IRA also gives you flexibility in how you want to invest. You can invest in almost anything you want. Options include money market accounts, stocks, bonds, mutual funds or exchange-traded funds (ETFs). And remember, any gains from investments are not taxed.

    Tip: Investing for the long term is great. But you also want to make sure your short term house is in order. Don't forget to build an emergency fund and pay off your student loans.

  • Can I contribute to a Roth IRA?
    Not everyone can take advantage of a Roth IRA. The government has limits for who can contribute and how much can be invested annually. And also for when withdrawals can be made.

    Make Contributions: For 2016, the maximum amount you can invest in a Roth is $5,500. Or $6,500 if you're 50 or over.

    • You can make the full contribution if you're single and your modified adjusted gross income is less than $117,000.
    • Married couples who file a joint income tax return with an income of less than $184,000 also qualify for the full contribution.
    • If you make too much, you may not be able to contribute to one at all.

    These figures do change, so it's best to check with the IRS each year.

  • Withdrawal from a Roth IRA
    There are strict rules for withdrawal too. First, you cannot touch the funds in the account for at least five years. And you need to wait until you're 59½ to withdraw tax- and penalty-free. Anything earlier will cost you in taxes and a 10% penalty.

    But this only applies to your earnings. You're allowed to withdraw your contributions without paying anything extra. This flexibility is nice if you suddenly need some extra cash, such as for an emergency.

    Tip: If you're near retirement, you may want to consider investing in a money market account through your Roth IRA. Money market accounts typically don't offer as much growth potential as stocks and bonds, but they're more stable.

  • Where to open a Roth IRA?
    Everything so far sounds pretty simple, right? Here's where it gets complicated:

    There are many options out there for where to open Roth IRA accounts. Some of the most common places include:

    • through your bank
    • online brokers (like Scottrade or E-Trade)
    • mutual fund companies (like Fidelity or Vanguard)

    We recommend that first-time investors open their accounts with an online broker. Here's why.

    Tip: Consider setting up automatic investing. This is an easy way to make contributions on a regular basis. Many mutual funds will allow you to setup automatic investing with no commission. For brokerage accounts, consider automatic investing in no-fee ETFs. Commission -free ETFs are popular for new investors.

  • Why an online broker?
    We recommend online brokers as a good place to start for newbies. Online brokers will help to streamline and explain the investment process. But there are some factors to consider to pick the best one for you.

    The most important factor is cost. You're contributing money each year, and the last thing you want is to see your returns gobbled up by fees. As a result, we've chosen brokers with some of the lowest fees on the market. The best one for you will depend on your investment style.

    You'll also want to have access to a wide variety of investment choices. In our opinion, for the most part, the selection doesn't vary much from broker to broker. Still, if you have a specific mutual fund or type of investment (like ETFs or options) in mind, examine the selection before signing up.

    For first-time investors, a little support is much needed. The following is our top recommendations for the average investor. All of them give you access to research, education and support.

    Tip: Instead of purchasing individual stocks, take a look at investing in exchanged traded funds (ETFs). ETFs generally track an index, such as the S&P 500 and allow you to invest in a basket of assets at a low cost. But pay attention to expense ratios. Mutual funds and ETFs charges an expense ratio to cover their expenses. The seemingly little fee can add up to a big amount over the lifetime of your retirement account.

Best Online Brokers for Roth IRA (for Most Investors)

Our Pick: Scottrade

  • Fees: $7 stock trades
  • Investment Choices: 3,000+ mutual funds with no transaction fee

We like Scottrade because it has some of the lowest fees. And it has more physical locations nationwide than our runner-up. With Scottrade, there are no costs to opening a Roth IRA. Of course you'll need to put money in to purchase investments, but you can open an account right now for free.

One of its biggest benefits is that it has 500 nationwide locations. Whenever you need help or have a question, just stop by one of their offices. This in-person approach makes you feel like you're getting the services of a full-size firm for the price of a discount brokerage.

To get started with Scottrade, the minimum required deposit is $500.

    Scottrade

    Scottrade: Get 90 Days Free Trades

    New clients only. To qualify, you must make $50,000 minimum deposit into a new account within 60 days. Commission-free trades must be used within 90 days of being made available, up to a maximum of 700 commission-free trades.

Runner-Up: E-Trade

    E*TRADE

    E*TRADE: Get 60 Days of Commission-Free Stocks and Options Trade

    Open a new account by 12/31/2017 and fund within 45 days of account opening with a minimum deposit or transfer of $10,000 to $24,999. No cash compensation for any unused free trade commissions. Terms apply. See E*TRADE website for details.

    Expires 12/31/2017

  • Fees: $9.99 stock trades
  • Investment Choices: 1,3000+ mutual funds with no transaction fee; 90+ ETFs with no transaction fee

E-Trade's fees are slightly more expensive. But it has better trading tools and more variety of investments. It has a huge selection of no-fee mutual funds and ETFs. Scottrade has more no-fee mutual funds, but it doesn't offer no-fee ETFs.

We picked E-Trade as our favorite overall brokerage firm. It's a solid choice for any investment style. It also has some physical locations (more than two dozen) scattered across the country. However, we think that Scottrade's lower prices and larger nationwide presence make it a smarter pick for opening a Roth IRA.

Tip: For an E-Trade IRA, there is no account minimum required to maintain your account. And there is no annual IRA fee. But of course, you're still responsible for any transaction fees, fund expenses, brokerage commissions and service fees.

 

Scottrade

E*TRADE

 

Benefits and Features

Stock Trading
$7 per trade
$9.99 per trade
$7.99 per trade if you make 150-1499 trades a quarter
$6.99 per trade if you make 1500+ trades a quarter
Options Trading
$7 + $0.70 per contract
$9.99 + $0.75 per contract
Mutual Fund TradingNo Fee to Buy/Sell/Exchange No-Load, No-Transaction Fee Funds
$17 to Buy/Sell/Exchange No-Load Funds
$0 to Buy Load Funds and $17 to Sell/Exchange Load Funds
$0 for no-load, no-transaction-fee funds
$19.99 for transaction-fee funds
Commission Free ETFs 118 including ETFs from WisdomTree, Global X Funds, and db-X Deutsche Bank
Penny Stocks$7 per trade + 0.5% principal for any stock trading under $1
Broker Assisted Trades
$32
$25 + Regular Commission
Inactivity Fee
$0
$0
Maintenance Fee
$0
$0
Minimum Deposit$2,500 for brokerage accounts
No account minimum for retirement accounts
$500 for brokerage accounts
No account minimum for retirement accounts
BankingScottrade Bank has no monthly maintenance fees, ATM reimbursement program, online bill pay, and mobile banking.Checking account offers no minimum balance requirements, free online bill pay, and unlimited debit card and check transactions.
Mobile App
Desktop AppScottradeELITE (requires you execute 9 or more stock or option trades during the past 3 months, have $25,000 in your primary account, or have $15,000 in your primary account and combined linked assets of $25,000 or more)E*TRADE Pro (requires you execute at least 30 trades during a calendar quarter or maintain brokerage account balance of at least $250,000)
Forex Trading 
Futures Trading 
Customer Service(800) 619-7283 (Monday to Friday 6am to 1am Eastern; Saturday and Sunday 9am to 7pm Eastern)
(650) 599-0125
Locations
More than 500 branch locations
30
Online Community ETrade Community lets you exchange trading and investing ideas with other ETrade customers.
SeminarsIn-person branch seminars, online events and live webinarsLive events and educational seminars at local branches.
Virtual TradingScottradeELITE offers virtual trading 
Stock Trading
Options Trading
Banking
Mobile App
Commissions and Fees
Customer Service
Ease of Use
Research
Trading Platform
Online Community

Blank fields may indicate the information is not available, not applicable, or not known to CreditDonkey. Please visit the product website for details.

Scottrade: Pricing information from published website as of 12/11/2016

E*TRADE: Pricing information from published website as of 01/19/2015

Tip: You get what you pay for. Generally speaking, discount brokerage firms and robo advisors don't offer as many resources. If you are a long-term investor, the higher trade fees of more expensive brokers may be worth it. If you like making frequent trades, a low-cost discount broker may suit you better.

Best Online Brokers for Roth IRA (for Active Traders)

TradeKing

  • Fees: $4.95 stock trades, $4.95 ETF trades, $9.95 mutual fund trades

If you're an active trader, then you want a broker that charges lower commission fees. TradeKing charges $2 less per trade than Scottrade, which can really add up if you're making a lot of trades.

TradeKing offers an impressive variety of research and trading tools. But new investors may find the amount of information intimidating. In our opinion, it's best for experienced investors who want a hands-on approach toward managing their Roth account.

    TradeKing

    TradeKing: Get $1,000 in Free Trade Commissions When You Open a TradeKing Account

    To qualify, you must fund your account with $5,000 or more within 30 days of account opening. $5,000 minimum funds must remain in the account (minus any trading losses) for a minimum of 6 months.

    Commission credits are good for 60 days from award date. Commission credits cover equity, ETF and option orders (including the per contract commission). Exercise and assignment fees still apply. You will not receive cash compensation for any unused commission credits.

    For new customers only.

OptionsHouse

  • Fees: $4.95 stock trades, $4.95 ETF trades, $9.95 mutual fund trades

OptionsHouse has similar investment choices for the same low prices of TradeKing. It has more of an emphasis on trading options. However, if you're not interested in options trading, it may not be worth the learning curve just to open a Roth IRA.

 

TradeKing

OptionsHouse

 

Benefits and Features

Stock Trading
$4.95 per trade
$4.95 per trade
Options Trading$4.95 base + $0.65 per contract (only one base charge per spread)$4.95 + $0.50 per contract (only one base charge per spread, straddle, or combo)
Mutual Fund Trading$0 to buy/sell load mutual funds
$9.95 to buy/sell no load mutual funds
$20
Commission Free ETFs 
5 from O'Shares
Penny Stocks$0.01 per share on the entire order for stocks priced less than $2.00. Maximum commission per order not to exceed 5% of the trade value, with minimum commission of $4.95. Minimum investment of $100 per order in OTCBB and Pink Sheet stocks.Additional fee of $0.005 per share of stock traded for stocks priced $2.00 or less that are not options eligible.
Broker Assisted Trades
$20 + Regular Commission
$25 + Regular Commissions
Inactivity Fee$50 annual charge if you have not made any trades in the last 12 months and the combined household value of your accounts is less than $2,500
$0
Maintenance Fee 
$0
Minimum Deposit
$0
$0 minimum funding level to open a new account.
$2,000 minimum funding for a margin account
$2,000 account minimum to establish checking writing privileges and $10,000 account minimum to establish debit card privileges
Mobile App
Forex Trading
 
Futures Trading 
Customer Service(877) 495-5464 (Monday to Friday 8am to 6pm Eastern)
(877) 598-3190
Online CommunityTrader Network to connect with other investors 
Seminars 
Trading webinars
Virtual Trading 
Stock Trading
Options Trading
Mobile App
Commissions and Fees
Ease of Use
Online Community
Research
Trading Platform

Blank fields may indicate the information is not available, not applicable, or not known to CreditDonkey. Please visit the product website for details.

TradeKing: Pricing information from published website as of 01/19/2015

OptionsHouse: Pricing information from published website as of 01/26/2015

Tip: Watch out for maintenance fees and inactivity fees. Some online brokers may charge a low commission, but charge a maintenance fee to keep an account open. For example, some Fidelity accounts have a maintenance fee.

Best Robo Advisor for Roth IRA (for Hands-Off Investors)

Maybe you just don't understand anything about investment or trading. You're afraid you're going to mess up if you try to do it yourself. Or maybe you just don't have the time to research and stay on top of trends. Don't worry, you're not alone.

That's where robo-advisors can help. In the past, you'll have to hire a human financial advisor to guide you in your investment choices, but not everyone has the funds to do so. Robo-advisors use automated computer algorithms, so the fees can be kept low.

Betterment is new on the market, having just been founded in 2010. But it's already become the most popular robo-advisor. All you have to do is set up your timeline, your goals, and how much risk you're willing to take. Betterment will take that info and come up with an investment strategy for you.

Tip: Not using a robo advisor or financial professional? Make sure you keep a sharp eye on your asset allocation as you get closer to retirement. It's one thing to invest in all growth stocks when you are in your 20s, but a different thing as you get closer to retirement.

The low fees are very reasonable too. Betterment charges 0.35% for up to $10,000, 0.25% for $10,000 - $100,000, and 0.15% for over $100,000. If you have less than $10,000 in your account, you are required to make a monthly deposit of $100. OR you pay an account fee of $3 per month. This is good option for those who wishes to take a hands-off approach.

Did you know: Some people prefer to save for retirement with a cash value life insurance. This is when you take out money as a loan and let your future death benefit pay off the loan after you die. But you should consult a life insurance advisor to factor in your individual circumstances.

Generally speaking, a Roth IRA would grow faster. But with Roth IRAs you'll have to deal with the contribution limits, eligibility requirements and withdrawal restrictions. With a cash value life insurance, it doesn't matter what your income is and you can take a loan against your money without waiting until you are 59 1/2.

Ross Frasier is a research analyst at CreditDonkey, a stock broker comparison and financial education website. Write to Ross Frasier at ross@creditdonkey.com. Our data-driven analysis has been recognized by major news outlets across the country and has helped families make savvy financial and lifestyle decisions. (read more)

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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