A Roth IRA is a saver's best friend. Learn how Roth IRAs work, why they're so great and if you're eligible to contribute.

Before I took a job at SmartMoney Magazine, terms like 401(k), Traditional IRA, and Roth IRA were all investor babble to me. I didn’t know what they were and – to be quite honest – at 22 and with no financial smarts of my own, I didn’t really care. I was in a ton of debt (and I was 22), so I didn’t see retirement as a real priority.

Today, it’s a different story. I’ve learned a lot (with a little patience, leaning the rules of retirement investing wasn’t that difficult) and I’ve since gotten out of debt and realized just how critical it is to get a jump on saving for the future. And the absolute best way to do that, in my opinion, is with a Roth IRA.

The Roth IRA is in many respects the best overall retirement plan available. Unlike other retirement plans, that provide tax-deferred income, the Roth IRA offers tax-free income. Once you reach 59 ½, and have been in the plan for five years, distributions taken from the plan are fully tax-free. That’s why the Roth IRA has become so popular.

If you’re going to have a Roth IRA, you’ll need to have your money in the best Roth IRA investment accounts available. We selected six that we think are the best. They’re not ranked in any specific order, but are based on how they stand out among the competition. Each is either a robo-advisor, or has a robo-advisor program available.

Best Roth IRA investment accounts overview

Roth IRA AccountMain FeaturesBest For
BettermentComplete investment management for just 0.25% per yearHands-off investing
WealthfrontFirst $5,000 managed free; wider investment diversification than other robo-advisors
New Roth IRA investors
M1 FinanceCreate mini-portfolios of stocks and ETFs, and have them managed free of charge
No-Fee Investing
BlooomIRA and 401k managementLow-cost professional management
You Invest by J.P. MorganSelf-directed platform with access to research resourcesSelf-directed investors on a budget
WebullEasy IRA setup, with bonuses for higher investmentsSelf-directed investors eager to learn
Personal CapitalTraditional human investment management at a fraction of the price
Full investment management
StashMinimum investment is just 1 cent
The person who want a Roth IRA but just can’t get going
AcornsAccumulate funding through spending activity, plus full automated investment management
Beginner investors
VanguardSpecializes in mutual funds and ETFs
Passive investors
FidelityNot the best in any category, but excellent in each
The self-directed investor who wants a little of everything
E*TRADE
Outstanding self-directed investment platform with four managed investment options
Self-directed investors looking for commission-free ETFs and funds

The best Roth IRA platform for hands-off investing

Betterment

 betterment 210

Betterment might be the best Roth IRA investment account overall. It works perfectly with a Roth IRA. A major reason is that a Roth IRA is the only retirement plan that’s not subject to required minimum distributions (RMDs), beginning at age 70 ½. It can literally grow for the rest of your life.

What makes Betterment a perfect fit in this regard is that, as a full-blown robo-advisor, they handle all the management responsibilities for you. That’s certainly convenient enough during your working years. But by the time you reach your 70s, you may not be interested in managing your investments at all. No problem, Betterment can handle that for you.

Betterment creates your portfolio, allocating it between about a dozen different exchange traded funds (ETFs) that represents nearly the entire investment universe. They rebalance it, reinvest dividends, and handle all the details for you. And they do it all for a very low annual fee of just 0.25%. That means a $100,000 Roth IRA can be managed for just $250 per year!

There’s no required minimum initial investment. You can open an account, and fund it with monthly contributions, including payroll contributions. It’s just about the easiest diversified investment opportunity available.

Reasons to open an account with Betterment

  • Ability to invest money, without needing to get involved in the details of investment management. It’s automatic pilot investing at its finest.
  • You’re provided with a fully diversified portfolio, that’s invested in virtually thousands of individual securities, including stocks and bonds.
  • No minimum initial investment required.
  • Betterment’s RetireGuide can provide assistance in helping you to plan your retirement.
  • Your entire portfolio can be managed for a very low annual fee.

The main reason to not go with Betterment

You won’t like Betterment if you’re self-directed investor, who likes full control over your own investment portfolio. Betterment is an automated investment platform, and it handles 100% of the investing process for you.

Who is Betterment best for?

Betterment is perfect for the person who doesn’t know much about investing, and has no real interest in learning. All you need to do is fund your account, and Betterment handles all the investment details for you.

Visit Betterment to learn more or read our full Betterment review

Wealthfront

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What makes Wealthfront perfect for new Roth IRA investors is the combination of free investment management and wider than normal investment diversification.

On the fee side, Wealthfront’s normal advisory fee is 0.25% of your account balance. That means you can have a $10,000 portfolio managed for just $25 per year, or a $100,000 portfolio managed for just $250 per year.

But there’s a special treat for new investors. <em>The first $5,000 of your account is managed free. That means if your portfolio produces a 10% gain – $500 – you’ll keep the whole return in your Roth IRA account. It won’t be reduced by the advisory fee.

The 0.25% kicks in once you exceed $5,000. But even if your account rose to $15,000, you’ll still get the benefit of the first $5,000 being managed free. Only $10,000 of your account will be subject to the advisory fee, which means you’ll be paying $25 per year to have your $15,000 Roth IRA professionally managed for you.

The other major advantage is diversification. Wealthfront invest your money in US and foreign stocks and bonds, just like virtually every other robo-advisor. But they also add real estate, natural resources, and dividend stocks to your portfolio. These are important additions, because each provides its own set of returns.

For example, real estate can perform well even when paper assets aren’t. Dividend stocks can add a combination of growth and income, that can provide more consistent returns than growth stocks. And natural resources can offer protection against inflation. That’s important because a Roth IRA is a retirement plan, that will need to produce growth and income for decades.

Reasons to open an account with Wealthfront

  • You can open a Roth IRA account with as little as $500.
  • Your account is professionally managed for a very low fee of 0.25% of your account balance.
  • The first $5,000 in your account is managed free.
  • Wealthfront offers free financial planning for college planning, retirement, and homebuying.
  • Wealthfront adds additional asset classes to your portfolio that other other robo-advisors don’t. These include real estate, natural resources, and dividend stocks.

The main reason to not go with Wealthfront

The $500 minimum initial investment can be a high hurdle if you have little or no money. But the many benefits offered by the platform can serve as an incentive for you to do what’s necessary to come up with the minimum requirement.

Who is Wealthfront Best For?

New Roth IRA investors who are looking to avoid paying investment fees in the early, ramp up phase of their retirement planning. It’s also an excellent choice for anyone who is looking to add alternative investments to their managed portfolio. Dividend stocks, natural resources, and real estate each add new and important dimensions to a portfolio of stocks and bonds.

Visit Wealthfront to learn more today or read our full Wealthfront review.

M1 Finance

M1 Finance 210is a hybrid between a robo-advisor and a traditional brokerage. They offer a simple platform that makes investing easy and painless while giving you more options than the standard robo-advisor. Choose from a variety of pre-made diversified portfolios or customize your own by investing in individual ETFs or stocks. M1 Finance have an array of services with no management fees or commission, so that you can squeeze the most out of your retirement savings.

How it works

The M1 Finance methodology breaks everything down into “pies” and “slices”. Choose from a pre-made pie (i.e. a pre-made diversified portfolio), or add slices (i.e. individual ETFs or stocks) and determine the percentage of your portfolio you want the slices to make up. M1 Finance also lets you buy fractional shares.

After you’ve divvied up your investment, you just need to fund it. You can set up automated payments or deposit manually. They continuously track your investment so that you don’t even need to think about it.

Reasons to open an account with M1 Finance

  • Absolutely no commission or management fees
  • Option to opt into expert portfolios or invest in stocks or ETFs
  • Set regular deposit schedule to automate your investing
  • Rollover concierge to easily roll over your old 401(k) or transfer another IRA
  • Traditional, Roth & SEP IRAs available

The main reason to not go with M1 Finance

M1 Finance is built for simplicity. It’s a plug and play robo advisor that lets your dive head first into the financial world. But if you’re looking for something more hands on – you want to be buying an selling on the daily, this might not be the best option for you.

Who is M1 Finance best for?

M1 Finance is a fantastic choice is you want a simple, automated approach, with the option of customization. Pick from one of their pre-made portfolios or customize your own. Pay no fees and let their automated intelligence manage your portfolio in the background.

Visit M1 Finance to open an account or read our full M1 Finance review.

Blooom 

 blooom_210

Blooom is an IRA management tool. They’ll rebalance your portfolio when needed, and you’ll even have access to a financial advisor that can answer any questions you may have about your IRA account. 

How it works

Getting your IRA analyzed is completely free, but if you want to use Blooom on a regular basis, you’ll need to pay either $45, $120, or $250 per year. But you’ll have access to professional management and a financial advisor, making that price a good deal. 

When you sign-up, you’ll tell Blooom what your retirement goals are and they will make sure your IRA investments align with your goals.

Reasons to use Blooom

blooom is perfect for those who don’t have the time to manage their IRAs, or for those who simply don’t want to manage their account on their own.

Blooom takes the difficult out of investment management, and they do so at a reasonable price. So anyone looking for a little help would be a good match. 

Reasons you shouldn’t use Blooom

Blooom is not an investing platform like some of the other companies on this list.

In fact, you don’t even move your money over to Blooom when you sign up for an account. You’ll keep it where it is, and Blooom will manage it from there. 

Who is Blooom best for?

Blooom is best for anyone who is looking for professional retirement account management. But Blooom is especially helpful if you’re a new investor, and you’ve just opened up your first IRA account, but have no idea what to do. Blooom can walk you through it. 

Visit Blooom to open an account or read our full blooom review.

The Best Roth IRA account with lowest commissions for active traders

Webull

You’ll pay no commissions at all on trades with Webull. There’s also no minimum investment, making it a great choice if you want to try it out while maintaining your existing investments.

Your no-cost membership gives you access to Webull’s comprehensive set of research tools. These are available through a dashboard that lets you watch the market, as well as monitor the performance of existing trades.

Webull offers traditional, Roth, and rollover IRAs. If you roll your existing IRA over, Webull will reimburse up to $100 in transfer fees. To get started, you’ll simply sign up for an account, choose the type of IRA you want, and wait for your application to be approved.

In addition to fee-free investing and great tools, Webull offers bonuses for those investing at least $5,000. Deposit or transfer $5,000, and you’ll get a $50 bonus. Invest at least $10,000 and you’ll get a $110 bonus, $25,000 gets you $220, and $100,000 or more earns a bonus of $330.

Reasons to open an account with Webull

  • No commissions or balance minimums.
  • Comprehensive dashboard to monitor your portfolio.
  • Bonuses for IRA deposits and transfers.

The main reason to not go with Webull

If you want a fully-managed portfolio, Webull may not be the best option for you. You’ll be required to take a more hands-on approach with your investing, whereas other options manage everything for you.

Who is Webull best for?

Those who want to learn the market will love Webull’s thorough dashboard. You can add stocks to your watchlist and monitor them for a while before putting money into them.

Download the Webull app to open an account or read our full Webull review.

The Best Roth IRA account for full investment management OR self-directed assistance

Personal Capital

The Best Roth IRA Investment Accounts Of 2020 - Personal Capital

Personal Capital has a free version that will provide you with Roth IRA assistance, as well as its Wealth Management version, that provides comprehensive investment management of your plan.

The free version can work well for self-directed investors. It provides only investment recommendations, while you handle the actual management yourself.

Specific Roth IRA management tools provided include:

  • Asset Allocation Target. Analyzes your asset allocation, and determines if you are either overweight or underweight in any major asset classes. It will help you to achieve better balance in your retirement portfolio.
  • Retirement Planner. Helps you know how much money you will need to retire. It sets a target, then lets you know if you’re likely to reach your goal, based on your current contributions and investment returns. If not, you can make adjustments.
  • 401(k) Fee Analyzer. Analyzes the fees you pay with your various investment funds, then makes recommendations for lower cost options.

If you prefer comprehensive investment management for your plan, you can go with Personal Capital Wealth Management. They’ll handle everything from portfolio selection to periodic rebalancing.

One of the major advantages with this service is that it can manage both your Roth IRA account and your other investment accounts. That will enable them to provide you with a fully integrated investment plan covering all accounts.

Personal Capital Wealth Management fee schedule

  • $1 million or less, 0.89% per year
  • $1 million to $3 million, 0.79% per year
  • $3 million to $5 million, 0.69% per year
  • $5 million to $10 million, 0.59% per year
  • Above $10 million, 0.49% per year

Reasons to use Personal Capital

  • If you have no investment experience, or you prefer to turn the job of managing your Roth IRA over to a professional, Personal Capital Wealth Management can be a good choice.
  • The free version has important tools to help you as a self-directed Roth IRA investor.

The main reasons to not go with Personal Capital

Personal Capital Wealth Management is more expensive than other investment services we’ve presented in this guide. The annual fee of 0.89% on a portfolio of less than $1 million is well above the fee charge by most robo-advisors.

Personal Capital Wealth Management also requires a minimum account balance of $100,000. That will eliminate new and small investors.

Who is Personal Capital best for?

The free version of Personal Capital can help anyone do a better job of managing their IRA.

If you want a higher level of investment service, Personal Capital Wealth Management is strong in this area as well. Though its advisory fee is higher than robo-advisors, it does provide a higher level of service.

Visit Personal Capital to open an account or read our full Personal Capital review.

Best Roth IRA account for the investor who just can’t get going

Stash

Stash Invest 210

Stash is also a micro-savings app. But it works more directly, enabling you to make regular deposits into your Roth IRA account, rather than using the round-up method.¹ As you move money into your account, the money is invested in stocks or ETFs of your choosing.

Stash offers more than 1,800 stocks and ETFs⁶, which includes different investment themes. Some of those investment themes are based on socially responsible investing. For example, you can invest in the Clean & Green theme, which focuses on clean energy. This gives you an opportunity to invest in a way that’s consistent with your own conscience and beliefs.

IRA accounts, including traditional and Roth IRAs, are available from Stash Retire. You need a minimum of 1 cent to invest in a Roth IRA account.² The ability to start with such a small amount, and to make contributions you’re comfortable with can makes it easier to get into the Roth IRA savings process if you never have before.

Stash is different from other robo-advisors in that it doesn’t actually manage your investment account for you. They provide recommendations based on your investing profile and you are then responsible for managing the investments in the account.

Stash has 3 options for monthly plans: the Beginner option is $1 per month and you have access to a personal investment account³; the Growth option is $3 per month where you also have access to tax benefits for retirement investing³; the Stash+ option³ is $9 per month where you have the option to open custodial accounts (UGMA/UTMA) for up to two kids as well as many other benefits.⁴

Reasons to use Stash

Stash can be a great Roth IRA starter account. Even if you’ve never been able to save and invest money in the past, you can use this application to begin saving small amounts. You need no more than a penny for a Roth IRA account.² On the investment side, Stash provides investment guidance, which will be a benefit to anyone who is not familiar with the investing process.

The main reasons to not go with Stash

If you’re looking for a fully managed investment account, Stash will not provide this service and so for folks who are looking for more hand-holding, you may want to try another option.

Who is Stash best for?

Stash is an excellent starter Roth IRA account. You can start basically with pennies² and begin building your account from there. And even though the service doesn’t provide direct account management, it does provide the recommendations that will enable you to successfully invest.

It’s also a very good choice for any small Roth IRA investor who wants to take part in socially responsible investing.

If you open an account with Stash, Stash will match $5 as long as you deposit more than $5 into your investing account.

Terms and conditions apply*

Best Roth IRA account for the passive investor

Vanguard 

 vanguard_210_100Vanguard  is the largest mutual fund provider in the world, and the second largest provider of ETF’s. You can also trade individual securities on the platform, but that’s really a secondary service. Funds are the primary attraction.

Why Vanguard is so good for a Roth IRA is very similar to Betterment. You can invest in index-based ETF’s—which are totally passive investments—and hold them for the rest of your life, even when you no longer feel like managing your account.

Vanguard is the single best source of fund investing. In fact, it’s funds are so popular and efficient, that they are commonly used in robo-advisor platforms.

For example, the Vanguard 500 Index Fund Investor Shares (VFINX) is one of the most popular S&P 500 index funds in the world. It’s commonly used in managed portfolios, including robo-advisors.

You can choose to invest in these funds directly, rather than doing it through a robo-advisor. They even offer more than 2,800 mutual funds that are commission-free.

Vanguard robo-advisor

Vanguard Personal Advisor Services is available if you want automated investment management. It requires a minimum initial investment of $50,000, and has an annual management fee of 0.30%.

Reasons to open an account with Vanguard

Vanguard is made to order for those who want to invest primarily in mutual funds. As the world’s largest provider of mutual funds, they offer more funds than any other investment brokerage. This includes the world-famous Vanguard Funds.

The main reason to not go with Vanguard

You won’t want to hold your Roth IRA account with Vanguard if you prefer to trade individual securities. Vanguard is primarily a mutual fund family, that offers self-directed investing as a secondary option. Their pricing on trading fees is not competitive with other brokerage platforms. It’s particularly unsuitable for high-frequency traders, because they actually increase their commissions for frequent trading.

Who is Vanguard Best For?

Fund investors. You have your choice of funds to invest in, including many with no transaction fees.

Visit Vanguard to open an account.

The best Roth IRA starter account

Acorns

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What’s so great about Acorns? After all, it’s primarily a micro savings account—a way to save money, for people who can’t save money. And that’s exactly what’s so great about Acorns!

It can help people who can’t save for retirement get the process going. Best of all, it’s specifically set up to save money in a way that you won’t even notice. You can set up a Roth IRA in only two minutes through Acorns Later, which is the name of their IRA program.

Acorns works through a process known as Round Ups. It’s an app that’s connected to your checking account, and each time you spend money out of the account, it rounds up the payment to an even number, and holds the difference for savings.

For example, let’s say you make a purchase for $5.17. The charge will be rounded up to an even $6.00. $5.17 will pay the merchant, and $.83 will go into savings. Once at least $5.00 is set aside from roundups, it’s transferred over to your Acorns investment account. If you make 40 or 50 transactions per month through your checking account, you can easily save and invest $20 to $25 or more per month.

The Acorns investment platform is a robo-advisor, which will handle investment selection, and all the management responsibilities for your growing portfolio. All you need to do is spend money, and your Roth IRA account will begin to fill up.

In addition to connecting to your checking account, you can also sign up for Acorns Spend, which will get you a debit card to help you earn Round Ups in real time. The card will work at up to 55,000 ATMs. This will help you move your Round Ups into your IRA account in real time so you can start earning interest.

Reasons to open an account with Acorns

  • $5 minimum initial investment required.
  • It’s an investment platform specifically for people who are unable to save and invest—passive savings through ordinary spending activity.
  • Your account is fully managed for you—all you need to do is fund it.

The main reason to not go with Acorns

If you’re capable of saving money, you don’t need Acorns. You’ll be better served by using one of the other investment brokerages on this list.

Who is Acorns best for?

Acorns is a perfect choice for a Roth IRA if you’ve never been able to save money. The automatic feature of saving money through regular spending turns the accumulation process into a completely passive venture. You don’t need to make any special effort to fund your account, it just happens as you go about your business.

Visit Acorns to open an account or read our full Acorns review.

Best Roth IRA account for the self-directed investor who wants a little of everything

Fidelity

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If you’re a self-directed investor, and you’re looking for a low-cost platform that offers every type of investment, Fidelity should be on your short list.

Not only can you trade stocks, bonds, and options, but Fidelity is second only to Vanguard in the funds department. They offer the full range of ETF’s, and some of the best known mutual funds available, both Fidelity and non-Fidelity funds.

They also have one of the lowest trading fee structures, at just $4.95 per trade for stocks, options and ETF’s. They’re quite a bit higher on mutual funds at $49.95 per trade. But they offer hundreds of commission-free funds as well.

Fidelity has a top-rated trading platform, and 24/7 customer service. But they also have at least 140 local branches in and around major cities across the country.

Fidelity robo-advisor

Fidelity Go offers automated investment management at a fee of 0.35% per year with a minimum initial investment of $5,000.

Reasons to open an account with Fidelity

  • Fidelity is a full-service broker, with all the trading tools and educational resources you’ll need.
  • The commission structure of $4.95 per trade is one of the best among the major brokerages.
  • They offer investing and trading in virtually every type of investment.
  • They’re second only to Vanguard in the mutual fund category, with many funds being commission free.
  • Availability of local branches.

The main reasons to not go with Fidelity

If you plan to use a robo-advisor service for even part of your portfolio, Fidelity isn’t the best choice. The annual advisory fee is above average, and you can do better elsewhere. And though they offer a large number of no-fee funds, their commissions on other funds are at the high end of the industry standard.

Who is Fidelity best for?

Fidelity is really good choice for any investor, and for any retirement plan, including a Roth IRA. That’s because it’s one of the best platforms available for self-directed investing. They give you a very wide investment selection, low trading fees, and excellent customer service, including physical branches.

Visit Fidelity to open an account or read our full Fidelity review.

E*TRADE

The Best Roth IRA Investment Accounts Of 2020 - E*TRADE

E*TRADE is an excellent choice for a Roth IRA, because it’s strong in both self-directed investing and managed portfolios. They have one of the top trading platforms in the industry, particularly for options trading.

The basic trading fee for stocks, options, and ETFs is $0 per trade. They also offer more than 250 commission-free ETFs, and 4,400 no-transaction-fee mutual funds.

E*TRADE robo-advisors

E*TRADE has four Robo advisor options:

  1. Core Portfolios is the basic stock and bond robo-advisor, but with socially responsible and smart beta variations. The minimum investment is $500, with a 0.30% advisory fee.
  2. Blend Portfolios is an actively managed portfolio of both ETFs and mutual funds. The minimum investment is $25,000, with an annual advisory fee of 0.90% up to $100,000, dropping to 0.65% for accounts with $1 million or more. You’ll work with a dedicated financial consultant.
  3. Dedicated Portfolios. This portfolio adds individual stocks to the basic mix of ETFs and mutual funds. As a managed portfolio, it attempts to outperform the market. The minimum investment is $150,000, with an advisory fee of 1.25% on the first $1 million. The fee declines to 0.95% for accounts over $5 million. You also work with a financial consultant.
  4. Fixed Income Portfolios. If you’re looking for a fully managed fixed income portfolio, this is it. Mixes high-grade corporate bonds with US treasuries for Roth IRA accounts. Requires a minimum investment of $250,000, with a fee of 0.75% on the first $1 million, falling to 0.65% with accounts over $3 million. Also has a laddered version, investing in bonds with staggered maturities. It has a lower fee, starting at 0.45% for the first $1 million, dropping to 0.35% for accounts over $3 million.

Reasons to open an account with E*TRADE

  • Full-service broker with no fewer than four managed investment options.
  • $0 trading fee
  • Open an account with as little as $500.
  • There are no monthly or annual IRA fees.
  • Large number of commission-free ETFs and mutual funds.

Who is E*TRADE best for?

E*TRADE is a solid choice for any type of investor. But it will work best for frequent traders, due to reduced trading fees on the options side; for fund investors, due to the large number of commission-free ETFs and mutual funds; options traders, and especially for investors looking to add managed portfolio options to their self-directed investment activity.

Visit E*TRADE to open an account or read our full E*TRADE review.

What is a Roth IRA?

A Roth IRA is the Roth version of a traditional IRA. That is, it has similar parameters, but very different tax treatment.

Both plans have the same contribution limit as of 2020. You can contribute $6,000 per year, or $7,000 if you are 50 or older. Both plans allow for tax-deferred accumulation of investment income prior to retirement. And both are fully self-directed accounts, that allow you to choose the trustee that will hold the account, as well as the investments within it.

But it’s the tax treatment where the traditional and Roth IRAs go their separate ways.

For starters, contributions to traditional IRAs are typically tax-deductible when made. Roth IRA contributions, on the other hand, are never tax-deductible.

Second, distributions taken from a Roth IRA are tax-free, as long as you are at least 59 ½ years old, and have participated in the plan for at least five years. This is very different from traditional IRAs, in which any distributions taken from the plan are generally subject to ordinary income tax.

This means Roth IRAs can provide you with a tax-free income source in retirement, and that’s why they’re so popular.

The difference between a Roth IRA and a 401(k)

Roth IRAs and 401(k)s are both investment accounts, but they are different in terms of the contribution limits.

The limit for annual 401(k) contributions (as of 2020) is $19,500 for those under 50. Those 50 and older can contribute an additional $6,500 per year.

For Roth IRAs, the maximum annual contribution is $6,000 (as of 2020) for those under 50. Those 50 and up can contribute an additional $1,000 for a total of $7,000 per year. Any individuals earning more than $139,000 per year (or $206,000 for couples) are ineligible to contribute.

For a comprehensive list of differences, here’s a handy table:

 Roth IRA401(k)
Contributions limits
$6,000, plus a $1,000 “catch-up contribution” if you’re 50 or older. Total, $7,000.$19,500, plus a $6,500 catch up contribution if you’re 50 or older. Total, $26,000.
Tax deductibility of contributions
Not tax-deductible.Tax-deductible.
Employer matching contributions
None available.An employer may match between 50% and 100% of the employee’s contribution.
Tax treatment in retirement
Distributions can be withdrawn tax-free.Both your contributions and investment earnings are only tax-deferred. You pay income tax when you withdraw.
Early withdrawals
Contributions can be withdrawn at any time, tax-free and penalty free. Investment income earned subject to income tax and the 10% early withdrawal penalty if taken before age 59 ½.10% penalty.
Loan provision
None. Can borrow up to 50% of the vested value of your plan, up to a maximum of $50,000. Repayment must typically be accomplished within five years.
Investment options
Self-directed.Restricted to the investment selected by your employer.
Required Minimum Distributions (RMDs)
Not subject to RMD'sFully subject to RMD’s

How I came up with this list

We want to make sure we’re objective when it comes to our financial advice, so we simply chose platforms that met a few key standards, including:

  • Low fees
  • Low minimum balance to open an account
  • Investment options
  • Availability of advice and customer service
  • Managed account options
  • A strong history of good business practices

Here at Money Under 30, we want everyone—especially, young folks who may not have a large investment portfolio or a ton of money, to be able to get into the investing game. These platforms are great for experienced and inexperienced investors alike!

Roth IRA FAQs

Q: Can I open a Roth IRA and another retirement account?

A: Yes! You can contribute to a Roth IRA, 401(k), traditional IRA, and as many other accounts you want—in fact, we encourage you to.

But, you should understand the different tax rules associated with each. Tax-deferred accounts include 401(k)s, 403bs, traditional IRAs, solo 401(k)s, and SEPs. Post-tax accounts include: Roth 401(k)s and Roth IRAs.

Q: How do I open a Roth IRA?

A: First, you need to know if you’re eligible. Next, just pick one of the accounts above, fill out the online application (many of them take just a few minutes), make your investment decisions (of you don’t want to use a robo-advisor, and set up automatic transfers over to your account.

Q: Are there income limits to make a Roth IRA contribution?

A: There are income limits that apply to Roth IRA contributions. These are unlike the limits for traditional IRAs. With traditional IRAs, you can still make an IRA contribution even if you exceed the income limits. But your contribution will be either partially or completely nondeductible.

The situation is very different with Roth IRA income limits. Once you exceed the income limits, you are not permitted to make a Roth IRA contribution at all. Whether or not you are covered by an employer-sponsored retirement plan does not affect your ability to make a contribution to a Roth IRA.

Here are the income limits for 2020.

Q: What can I invest in with a Roth IRA?

A: Much like a traditional IRA your investment options in a Roth IRA are close to unlimited. You can invest in stocks, bonds, options, futures, mutual funds, exchange traded funds, foreign securities, certificates of deposit, and real estate investment trusts. The IRS has a very short list of prohibited IRA investments, mainly collectibles and insurance contracts.

Q: What’s a Roth IRA conversion?

A: A Roth IRA conversion is simply another way to fund your retirement account. Instead of making annual contributions, you take funds from other tax-deferred retirement plans, like traditional IRAs, 401(k) plans, and 403(b) plans, and roll the balances over into a Roth IRA account. One of the biggest advantages of doing a conversion is the fact that you can convert a very large retirement balance to a Roth IRA very quickly.

Q: How do I access money in my Roth IRA?

A: Roth IRAs are easy when it comes to withdrawals. At any time, you can sign in to your account and withdraw your contributions to a Roth penalty-free. It’s the earnings on your investments that you can’t withdraw without getting hit with a 10% penalty.

The penalty on the investment earnings portion of your withdrawal will apply unless you are at least 59 ½ years old, and have had the account for at least five years.

Q: Are Roth IRAs subject to required minimum distributions (RMDs)?

A: IRS regulations require that virtually all retirement plans are subject to RMD’s. Beginning at age 70 ½, you must begin taking annual distributions from your retirement plans, based on your life expectancy in each year a distribution is made. The one exception is the Roth IRA.

You can literally have a Roth IRA continue accumulating investment income for the rest of your life. This will enable you to a) avoid outliving your money, and b) retain a larger estate to leave to your loved ones upon your death. The absence of the RMD requirement is a major reason why people do Roth IRA conversions from other retirement plans.

Summary

Whichever Roth IRA investment account you choose, be sure to take advantage of this retirement plan. Most people underestimate the amount of income they’ll receive in retirement, particularly since they’ll probably have multiple income sources. The tax-free income feature of a Roth IRA is a great way to avoid unexpectedly high tax liability in retirement.

Everyone should have a Roth IRA account, so pick a platform, and get started today!

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14 comments

Great Advice! I max out my Roth IRA at the beginning of the year as a birthday present to myself. As a single person I do wish they would at least double the amount you can contribute annually. For me I see the most important benefit of a Roth IRA is having the ability to control the money during retirement – meaning there are no required minimum distributions so you can allow the money to continue compounding.

Rachel says:

Thank you for posting such interesting article. Keep it up!

Personally, I don’t really know how anyone is going to be in a higher tax bracket by the time they retire. I’m much more comfortable aiming to max out my 401k than invest in a Roth IRA, which has a pretty measly cap, anyway.

I don’t think that this is sound advice if your employer will match your 401k contributions. That’s free money. You can’t beat free money.

Jimmy says:

With the new year just rolled in, I’m wondering whether I should contribute to my Roth IRA account in annuities so that I gradually max out my 5500 limit, or max out the account up front so that I have 5500 in my Roth IRA on day 1 (or at some other early dates in the calendar). I suppose it wouldn’t make any difference on the long run, but suppose I’d like to practice trading semi-actively, it’d be more advantageous with more asset in the account early on, right?

I just started working last year, and have been buying ETFs only. Does it make sense to use the IRA account for active trading?

I fell in love your blog David after I did the search “how much should I contribute to my 401k” on Google, and I hope you and your family will have a wonderful year in 2013!

Siv says:

Hi,

I am relatively young (26 y/o) and am trying to learn about all of my retirement options. The Roth IRA sounds like a great idea and is something that I want to start putting some of my savings in. I make a bit over 120K (but my annual income is under 125K) a year and am single, do you know what my contribution limit is?

Thanks so much!

Haylee says:

So if I am married but filing seperately I am not allowed to contribute? Although I am well under then income limit.

David,

I very much enjoy your website, and despite this being an older post, I’m looking seriously into the Roth IRA at the moment. I currently earn below the income limit of 105,000, which would allow me to contribute. What I’m struggling to find, however, is information as to what happens once you reach the income limit? My current belief is that you simply cannot contribute any further to the account. Is this real? Are there better strategies out there for higher earnings?

Regards,
Carson Boddicker

David Weliver says:

Good question Carson. Once you hit the limit, you’re right, you cannot contribute money to a Roth IRA. There is a phase out…so if you make between X and X you can contribute some (but less than $5,000).

Higher earners can look to their employers’ 401(k) or similar plan. More and more companies are offering a Roth 401(k) option. There are no income limits on 401s, and you can put in up to $16,500 annually.

If you’re self employed, you have a couple of options. You can contribute up to 25% of your annual profit and that contribution reduces your taxable income. There is no Roth option with a SEP IRA however.

The other option if you are self employed with no employees is a solo 401(k), which may allow Roth contributions and has higher contribution limits ($16,500 of your salary and up to 25% of your profit). Here’s some more info from Fidelity:

https://www.fidelity.com/retirement/small-business/self-employed-401k

(Not necessarily an endorsement of Fidelity but a quick link I found with some more info). As for figuring out which one is right for you when you hit that income level, it’s probably a more sophisticated analysis that I can do in a blog comment and a good conversation to have with a tax advisor or financial planner. Good luck.

Rebecca says:

What about Roth 401(k)’s? Do you know if they have any income caps? I know the contribution limit is higher for sure – following a traditional 401(k).

Would you also be able to invest in your choice of mutual funds instead of 10 or so preselected by your employer if you were to get them from a firm outside of your company (i.e. T. Rowe Price, Vanguard, etc)?

David Weliver says:

Roth 401(k)s are gaining popularity among employers and employees, which is great. They offer the same tax benefit as a Roth IRA but with higher contribution maximums and NO income limit. If your employer offers a 401k plan, you can contribute no matter how much you make.

In 2011, the contribution max is $16,500 for everybody 50 and under. (If you’re over 50 you can make an addition $5,500 catch up contributions).

The downside to any 401(k) is you usually must invest in a small number of funds offered by your employer’s 401(k) plan provider. With an IRA, you can invest in anything you want.

drew says:

I know nothing about stocks or mutual funds. What I would like to do is contribute 200 bucks a month into some kind of interest accruing account so 30 years down the road when im around 55 I have some money saved up. I dont like to gamble I just want to slowly accrue wealth, should i do a roth ira or some other kind of account.

Susan says:

Rolling the old 401(k) into an IRA will diversify your portfolio, by allowing you the freedom of greater investment options of the IRA, not limited by your former company’s selected plan funds. You will also be able to make further contributions to the account.

Whether or not you decide to make that rollover into a traditional or Roth IRA is totally up to you. I recommend having both ultimately, and maybe even at different brokerages.

Keeping the 401(k) can be limiting and risky. It is limiting because you cannot make further contributions to the account since you have left your former employer. It is risky because if your employer decides to close their plan with the brokerage (they go out of business, for example) your balance may be sent to you in a lump sum payment, at their discretion, causing you the hassle of the penalties and taxes. Save yourself the hassle of scrambling to deal with that and make the change of your own accord, as you will be more informed if you plan ahead.

Miranda says:

Very informative reply. Mind blowing in fact. 🙂
Thank you.

Samir says:

OK, so ever since the first day that I could, I’ve been participating in a 401k. When I left my first job about 1.5 years ago, I left my 401K with the original brokerage account (Charles Schwab). Now, with my new company, I contribute to a 401K at Fidelity. At this point, I can either:

A. Roll over the Chuck Schwab 401K into a traditional IRA at Fidelity
B. Roll over Chuck Scwab 401K into a Roth at Fidelity
C. Keep 401K as is and continue letting it grow with the market (it’s allocated almost entirely in stocks and funds).

Any thoughts?