Best Roth IRA Providers for Beginners
How to Get Started with a Roth IRA
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.
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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.
What is a Roth IRA?
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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.
- 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 2017, 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 2017:
- You can only make the full contribution if you're single and your modified adjusted gross income (AGI) is less than $118,000. You can make limited contributions if your modified AGI is less than $133,000.
- Married couples who file a joint tax return with a total modified adjusted gross income of less than $186,000 also qualify for the full contribution. You can make a limited contribution if your modified AGI is less than $196,000.
- If you make more than $133,000 as a single filer or more than $196,000 as a joint filer, you can't contribute to one at all.
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). - You can only make the full contribution if you're single and your modified adjusted gross income (AGI) is less than $118,000. You can make limited contributions if your modified AGI is less than $133,000.
- 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:
- your bank
- online brokers (like TD Ameritrade or E-Trade)
- mutual fund companies (like Fidelity or Vanguard)
For Roth IRA Provider Active Traders Ally Invest Buy and Hold Investors TD Ameritrade Robo Advisor Betterment 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. - your bank
- 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. They will help explain the investment process and streamline it. But there are some factors to consider when picking the best one for you.The most important factor is the cost of maintaining the account. You're contributing money each year, so 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 access to a 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.
For first-time investors, having a little support is very 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.
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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.
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Here is how TD Ameritrade compares against Ally Invest, our top pick for active investors.
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TD Ameritrade | Ally Invest | |
|---|---|---|
Get 60 Days of Commission-Free Trading - | Get Up to $3,500 Cash Bonus and Commission Free Trades for 90 Days - | |
Benefits and Features | ||
| Stock Trading | $4.95 per trade ($3.95 per equity trade special pricing for high-volume/high-balance traders) | |
| Options Trading | $4.95 base + $0.65 per contract (50 cents per options contract special pricing for high-volume/high-balance traders) | |
| Minimum Deposit | ||
| 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 |
| | |
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.
TD Ameritrade | E*TRADE | |
|---|---|---|
Benefits and Features | ||
| Stock Trading | $6.95 per trade $4.95 per trade if you make 30+ trades a quarter | |
| Options Trading | $6.95 + $0.75 per contract $4.95 + $0.50 per contract if you make 30+ trades a quarter | |
| Minimum Deposit | $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 | 200+ including ETFs from WisdomTree, Global X Funds, and db-X Deutsche Bank | |
| Penny Stocks |  | |
| Broker Assisted Trades | ||
| Customer Service | ||
| Inactivity Fee | ||
| Maintenance Fee | ||
| Banking | Cash 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 | 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) | |
| Locations | More than 100 locations in 34 states | |
| Online Community | ETrade Community lets you exchange trading and investing ideas with other ETrade customers. | |
| Seminars | Live events and educational seminars at local branches. | |
| Virtual Trading | Paper 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 | ||
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.
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.
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.
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.
Motif: Buy 30 Stocks in 1 Motif: $9.95
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.
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.
