Updated June 10, 2018

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 for active trading is Ally Invest. Click here to visit Ally Invest or keep reading to learn why.

    Ally Invest

    Get Up to $3,500 Cash Bonus and Commission Free Trades for 90 Days

    Expires 1/31/2019

    New Ally Invest customers only. Account must be funded for at least 60 days to be eligible for cash bonus. Terms apply.

  • Are you an investor who trades often? Are your commission fees taking a toll on your profits? Ally Invest offers low commission fees and no IRA fees.

  • Do you want to invest, but you're not sure where to start? Investing with your own money can be stressful. That's why TD Ameritrade offers a virtual platform that allows you to practice before using real money.

  • Do you prefer to be hands-off? Betterment is a robo-advisor that will automatically choose investments for you based on your goals and risk tolerance.

Save for Retirement

A Roth IRA is an Individual Retirement Account that holds your retirement investments. It can sound complicated at first, but it's really quite simple.

The great thing about a Roth IRA is that it takes advantage of tax savings, keeping the government away from your earnings. 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 more complicated) than a normal bank account.

Roth IRAs are also very flexible and allow you to contribute well past retirement age if you're still earning income. There's no mandatory withdrawal either.

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. However, you can still contribute money into both a 401k and a Roth IRA if you qualify.

If you have a 401k through your employer, but you don't understand or know how to manage it, check out Blooom. Blooom is a dedicated 401k robo-advisor that will analyze your existing 401k and help you manage it.

What is a Roth IRA?

The awesome thing about a Roth IRA is that it acts like a legal tax shelter. You'll almost feel like the government made a mistake.

With a Roth IRA, you are contributing money that has already been taxed in your paycheck, so you will not be taxed again when you take the funds out.

All interest earned is tax-free too. You just have to keep the money 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 and 401k. The difference between a Roth IRA and those is that the Roth IRA contributions are made post-tax. With the other account options, the contributions are pre-tax. You'll avoid paying tax now, but when you withdraw the funds at retirement, you will have to pay normal income tax.

  • Why a Roth IRA
    In addition to the tax benefits, a Roth IRA also gives you flexibility in how you want to invest.

    In fact, depending on your account provider, you can invest in almost anything you want, including money market accounts, stocks, bonds, mutual funds or exchange-traded funds (ETFs). And any gains from those investments are not taxed.

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

  • Can I contribute to a Roth IRA?
    The government has limits for who can contribute and how much can be invested annually as well as when withdrawals can be made.

    These figures change, so check with the IRS each year.

    For 2018, the maximum amount you can invest in a Roth is $5,500, or $6,500 if you're 50 or over (called a catch-up contribution).

    However, there are some stipulations for Roth IRA contributions in 2018:

    • If you're single: You can only make the full contribution if your modified adjusted gross income (AGI) is less than $120,000. You can make limited contributions if your modified AGI is less than $135,000.

    • If you're married: Married couples who file a joint tax return with a total modified AGI of less than $189,000 qualify for the full contribution. You can make a limited contribution if your modified AGI is less than $199,000.

    • If you make more than $135,000 as a single filer or more than $199,000 as a joint filter, you can't contribute at all.

    You have 15 months to make a contribution for the current tax year. So for 2018, you have until April 15, 2019 to make your contributions.

    Did you know: The average contribution is $4,119 in 2014. But only 26.4% of people with an open IRA account contributed to it. We recommend contributing as much as you are able to (along with paying off debt and building an emergency savings fund).

  • Withdrawal from a Roth IRA
    There are strict rules for withdrawal too. First, you cannot touch the funds for at least five years. And then 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 from your contributions without paying anything extra. This flexibility is nice if you suddenly need some extra cash.

    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 sounds pretty simple so far, right? Well, here's where it gets complicated:

    There are many places to open Roth IRA accounts. Some of the most common include:

    ForRoth IRA Provider
    Active TradersAlly Invest
    Buy and Hold InvestorsTD Ameritrade
    Robo AdvisorBetterment

    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 that first-time investors open their accounts with an online broker such as Ally Invest. Online brokers are a good place to start for newbies. Here are some reasons we like online brokers.

    • Low account fees. 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.

    • Wide variety of investment choices. For the most part, the selection doesn't vary much from broker to broker. But if you have a specific mutual fund or type of investment in mind (like ETFs or options), examine the selection before signing up.

    • Education for beginners. Online brokers will help explain the investment process and streamline it. Many have robust education centers to help you make informed decisions. Some even have virtual platforms where you can learn before going in.

    For first-time investors, having support is important. The following are 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 bundle of assets at a low cost. But pay attention to expense ratios. Mutual funds and ETFs charge an expense ratio to cover their costs. The seemingly small fee can add up to a big amount over the lifetime of your retirement account.

Best Online Brokers for Roth IRA (for Active Traders)

Our Pick: Ally Invest

  • Fees: $4.95 stock trades, $4.95 ETF trades

If you're an active trader, you'll want a broker with lower commission fees. Ally Invest charges $2 less per trade than TD Ameritrade and E*TRADE, which can really add up if you're making a lot of trades.

Ally Invest also offers an impressive variety of research and trading tools. But new investors may find the amount of information intimidating. This is why we think Ally Invest best for active investors who want a more hands-on approach in managing their Roth account.

Very active traders get a discount. If you make over 30 trades per quarter, stocks and ETFs are just $3.95 per trade.

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

Best Online Brokers for Roth IRA (for Buy and Hold Investors)

Our Pick: TD Ameritrade

  • Fees: $6.95 stock trades
  • Investment Choices: hundreds of mutual funds with no transaction fee; 100+ commission-free ETFs.
  • Minimum: No account minimum deposit for retirement accounts

TD Ameritrade has a top-notch Thinkorswim trading platform that is available to every user. The platform offers advanced tools and superior research offerings. If newbies find it too overwhelming, they also offer a more beginner-friendly Trade Architect platform. We also like Ameritrade's virtual platform, where you can practice before committing with real money.

It's $6.95 to trade stocks and $49.99 for no-load mutual funds. The pricing is on the higher side, but the wealth of information and research makes up for it.

Here is how TD Ameritrade compares against Ally Invest, our top pick for active investors.

 TD AmeritradeAlly Invest
 Visit SiteVisit Site
 

TD Ameritrade

Ally Invest

SPECIAL OFFER
Get 60 Days of Commission-Free Trading - Learn More

SPECIAL OFFER
Get Up to $3,500 Cash Bonus and Commission Free Trades for 90 Days - Learn More

 

Benefits and Features

Stock Trading
$6.95 per trade
$4.95 per trade ($3.95 per equity trade special pricing for high-volume/high-balance traders)
Options Trading
$6.95 + $0.75 per contract
$4.95 base + $0.65 per contract (50 cents per options contract special pricing for high-volume/high-balance traders)
Minimum Deposit
$0
$0
Mutual Fund Trading$0 for no-transaction-fee mutual funds
$49.99 for no-load mutual funds
$0 for load mutual funds
$0 to buy/sell load mutual funds
$9.95 to buy/sell no load mutual funds
 Visit SiteVisit Site

TD Ameritrade: Pricing information from published website as of 03/13/2017

Ally Invest: Pricing information from published website as of 09/18/2017

Runner-Up: E-Trade

  • Fees: $6.95 stock trades
  • Investment Choices: 4,400+ mutual funds with no transaction fee; 100+ ETFs with no transaction fee
  • Minimum: No account minimum deposit for retirement accounts

E*TRADE has better trading tools and a wider variety of investments. It has a huge selection of no-fee mutual funds and 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 TD Ameritrade 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.

 

TD Ameritrade

E*TRADE

 

Benefits and Features

Stock Trading
$6.95 per trade
$6.95 per trade
$4.95 per trade if you make 30+ trades a quarter
Options Trading
$6.95 + $0.75 per contract
$6.95 + $0.75 per contract
$4.95 + $0.50 per contract if you make 30+ trades a quarter
Minimum Deposit
$0
$500 for brokerage accounts
No account minimum for retirement accounts
Mutual Fund Trading$0 for no-transaction-fee mutual funds
$49.99 for no-load mutual funds
$0 for load mutual funds
$0 for no-load, no-transaction-fee funds
$19.99 for transaction-fee funds
Commission Free ETFs
300+ Commission-Free ETFs
200+ including ETFs from WisdomTree, Global X Funds, and db-X Deutsche Bank
Penny Stocks
Broker Assisted Trades
$44.99
$25 + Regular Commission
Customer Service
(800) 669-3900
(650) 599-0125
Inactivity Fee
$0
$0
Maintenance Fee
$0
$0
BankingCash Management account offers free ATM withdrawals, no monthly maintenance fees, free online bill pay, and free check writing.Checking account offers no minimum balance requirements, free online bill pay, and unlimited debit card and check transactions.
Mobile App
Desktop App
thinkorswim
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$2.25 per contract (plus exchange & regulatory fees)
LocationsMore than 100 locations in 34 states
30
Online Community ETrade Community lets you exchange trading and investing ideas with other ETrade customers.
Seminars
Online webcast
Live events and educational seminars at local branches.
Virtual TradingPaper Trading to practice/test strategies and ideas. 
Stock Trading
Options Trading
Banking
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.

TD Ameritrade: Pricing information from published website as of 03/13/2017

E*TRADE: Pricing information from published website as of 03/13/2017

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

Our Pick: Betterment

Maybe you don't understand anything about investments or trading, and 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.

That's where robo-advisors can help. In the past, you'd have to hire a real life 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 are low.

Betterment is relatively new on the market. It was founded in 2010. But it's quickly 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 information 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 allocations as you get closer to retirement. It's one thing to invest in all growth stocks when you are in your 20s, but it's a different thing as you get closer to retirement.

The low fees are very reasonable too. Betterment charges 0.25% for their Basic service up to $100,000, 0.40% for Plus service up to $250,000, and 0.50% Premium service for investments over $250,000. There is no minimum balance required. This is a good option for those who wish 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 benefits 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.

Runner up: Wealthfront

Wealthfront is another popular robo-advisor. It has a $500 minimum deposit and a low flat service fee of 0.25% no matter what your balance is. Wealthfront even manages the first $10,000 for free. This may entice new investors.

However, Betterment has the slightest edge for us. it has a goal setting feature, which Wealthfront lacks. This allows you to set multiple goals (such as retirement, a house, etc.) and create multiple funds that work towards the goals.

Have $2,500 to start? Ally Managed Portfolios is another good option. The service fee is slightly higher at 0.30% for all balances. But the good thing about Ally is that you can fill out the short form and see your recommended portfolio profile before signing up for an account. This way, you don't have to enter any personal information if you don't like it.

Best Unique Investing for Roth IRA

Our pick: Motif

  • Fees: $9.95 motif trades; $4.95 stock and ETF trades
  • Minimum: No account minimum deposit for retirement accounts

Motif has an interesting concept - kind of a cross between robo-advisor and do-it-yourself. You can invest in "motifs", which are a collection of up to 30 stocks and ETFs revolving around a common industry. You can select pre-built motifs, customize it, or completely build your own from scratch. Others can also choose to share their motifs and you can invest in it as well.

A motif is $9.95 per trade. This is a bargain since each motif is made up of 30 stocks and ETFs. You can also just trade regular stocks and ETFs at $4.95 a trade. You can also choose to do automated investing starting at $4.95/month for 1 motif.

Ross Frasier is a research analyst at CreditDonkey, a stock broker comparison and reviews website. Write to Ross Frasier at ross@creditdonkey.com

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy 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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