A Roth IRA offers many benefits to retirement savers. Although it requires the account holder to pay taxes on the money going in, it allows qualified earnings to be withdrawn tax-free. This gives workers a chance to contribute to a tax-advantaged account, let the money grow tax-free and never pay taxes again on withdrawals.
That’s why many experts think it’s the ideal investment during tax season.
Best Roth IRA accounts to open in February 2020:
- Charles Schwab: Best overall
- Betterment: Best robo-adviser
- Fidelity: Best for beginners
- Interactive Brokers: Best for active traders
- Fundrise: Best for alternative investments
- Vanguard: Best for low costs
- Merrill Edge: Best for in-person help
A Roth IRA requires you to contribute after-tax savings to the account, rather than pretax savings, as with a traditional IRA. You pay taxes today in exchange for keeping your savings tax-free in the future. That’s one of many ways that a Roth IRA beats a traditional IRA.
It’s best to think of a Roth IRA as a “wrapper” that can go around many types of accounts to protect them from the taxman. Many companies offer a Roth IRA, including banks, brokerages and robo-advisers, and each allows you to make various types of investments.
What you can earn in a Roth IRA all depends on what you’re invested in. At a bank, for example, you can invest in CDs, which are safe and protected by the government so that you won’t lose principal. At brokerages and robo-advisers, you can invest in assets such as stocks and bonds that earn more over time but aren’t protected and can lose money. While a CD specifies what you’ll earn each year, these other investments can fluctuate.
Overview: Top Roth IRA accounts in February 2020:
If you’re looking to maximize your retirement savings, here are several of the best Roth IRA Accounts to consider:
Charles Schwab: Best overall
Charles Schwab does it all — great education and training for newer investors, high-caliber tools for active traders, responsive customer service and competitive trading commissions.
Schwab shines all around, and it remains an excellent choice for a Roth IRA.
Point-of-emphasis: For cost-conscious investors, Schwab makes a compelling case, recently lowering its commissions on stock, ETF and options trades to zero, though the company still charges a $0.65 per contract fee for options. So you can get in the game completely commission-free, saving those extra dollars to invest even more. And mutual fund investors can find something to love in the broker’s offering of more than 4,000 no-load, no-transaction-fee funds. With no account minimum, it’s even easier to get started.
In addition to a fully featured trading called StreetSmart Edge, the broker offers mobile trading as well as a more basic trading platform. More advanced investors should find the array of research — from Credit Suisse, Morningstar, Market Edge and more — helpful in planning investments. Schwab offers an excellent level of service for a great price.
For more information, read Bankrate’s Charles Schwab review.
Betterment: Best robo-adviser
If you’re looking to have someone else do the investing and portfolio management for you, Betterment is an excellent choice.
Betterment is a robo-adviser that does all the heavy lifting — selecting the appropriate investments, diversifying the portfolio and allocating funds — so that you can focus on something else. And it does that at a reasonable cost, too.
Point-of-emphasis: As one of the oldest and largest robo-advisers, Betterment is a trusted name in the robo space. The company offers two tiers of service: Digital and Premium. Betterment Digital manages your investments from a selection of about a dozen exchange-traded funds and charges just 0.25 percent of your assets annually, still cheaper than many rivals. You’ll get automatic rebalancing, so that your portfolio stays in line with its target allocation, and access to financial advisers via in-app messaging. If you want the Premium package, you’ll need $100,000 in your account and will pay 0.4 percent, but you’ll receive unlimited access to a team of certified financial planners.
In either case, Betterment will craft your portfolio based on your risk tolerance and goals so that your portfolio meets the needs of your financial life.
Fidelity: Best for beginners
With its clean layout, helpful customer representatives, competitive trading commissions and all-around low fees, Fidelity is an excellent broker for beginning investors or those opening their first Roth IRA.
Fidelity also features a well-developed educational section, which is great for customers who are new to the new investing game and want to get up to speed quickly.
Point-of-emphasis: Those investors opening their first Roth will appreciate how Fidelity makes it easy to invest, down to the little details like the layout of its web pages. It’s easy to place an order or find information. Fidelity also takes a customer-first approach with its fees. The broker has slashed nearly all its fees, including pricey transfer fees, making Fidelity customer-friendly. It’s also chopped fees on its mutual funds, becoming the first broker to bring the annual expense of mutual funds to zero (for a handful of its own funds.) It’s all great for newer investors.
When you’re ready to advance, Fidelity can also provide research, offering reports from nearly 20 providers. You get all this for zero commission, too.
To learn more, read Bankrate’s Fidelity review.
Interactive Brokers: Best for active traders
Interactive Brokers does everything that traders and professionals need, and does it at high quality.
It excels at low trading commissions, global trading and reach, speedy execution and its advanced trading platform. In short, Interactive Brokers is great for advanced traders.
Point-of-emphasis: Interactive Brokers might be best known for its $1 commissions on trades up to 200 shares, and the broker charges a half-cent per share for additional shares. If you’re rifling through shares as an active trader, though, you may appreciate the broker’s volume-based discounts. Options pricing has no base commission and a per-contract fee of 65 cents, making it highly competitive. Interactive Brokers also does surprisingly well on mutual funds, offering more than 4,100 without a transaction fee, and you can also trade about 50 different ETFs commission-free. In addition, the company recently announced a “lite” version of its service, which charges no commissions on stocks or ETFs and has no account minimum.
At Interactive Brokers, you can trade almost anything that trades on a public exchange: stocks, bonds, forex, futures, metals and more. Plus, you can access virtually any world market to make a trade, so the investing world is really at your fingertips. The stripped-down trading interface works for those who know exactly what they need and an easy way to access it. Altogether, these attributes make Interactive Brokers the best for active traders.
Read Bankrate’s Interactive Brokers review to learn more.
Fundrise: Best for alternative investments
Fundrise is a relatively new player on the scene, and it’s known for getting investors into alternative assets, in this case real estate.
Real estate is a popular investment, and because it tends to pay cash dividends, it can be a smart investment inside a Roth IRA, where dividends are earned tax-free. Fundrise won’t be a good choice for all investors, but for those looking for this niche, it could be a snug fit.
Point-of-emphasis: Fundrise creates real estate investments trusts, or REITs, using investors’ money to buy real estate or mortgages. It also offers a more speculative set of funds that use investors’ money to develop residential real estate. These investments tend to offer sizable dividends and some opportunity for appreciation over time. Like many alternative investments, Fundrise’s offerings require you to lock in your money for years, though you may be able to get it out with a penalty.
Fundrise’s returns have been solid so far, earning 12.3 percent annually over the past 20 years. And it’s relatively easy to get started with an account minimum of $500.
Vanguard: Best for low costs
Vanguard is great for investors who are looking to minimize their costs, especially if they’re long-term buy-and-hold stock investors.
Vanguard has long been known for its low-cost mutual funds and exchange-traded funds, and it’s expanded that reputation into its brokerage, too. The company offers commission-free trading stocks and ETFs, while also providing more than 3,400 mutual funds without a transaction fee.
Point-of-emphasis: Vanguard was founded on the principle of helping investors take advantage of the stock market in a low-cost way. So not only does the broker offer zero commissions on stock and ETF trades, it also offers its whole range of cheap mutual funds and ETFs. The brokerage adds to its reputation with education and planning tools. Investors will find videos, podcasts and articles that provide market commentary and help them make sound investment decisions. You’ll find tools to help you plan for retirement as well as for college and other financial goals, too.
For more details, read Bankrate’s Vanguard review.
Merrill Edge: Best for in-person help
Merrill Edge is the web-based broker from the storied and well-regarded Merrill, now owned by Bank of America.
Merrill Edge is a great fit for those who already have an account at the bank. And for those who need customer service in person, it might be just what they need.
Point-of-emphasis: Merrill is a solid, full-service broker that does a lot right. It provides deep research from the broker’s large team of analysts, and it offers solid educational resources for new investors looking to get up to speed. But where it really out-distances the competition is its ability to provide in-person assistance to clients. If you’re near one of more than 2,500 Bank of America locations offering the service, you can access customer support right at the bank. And if you need a more personalized financial plan, Merrill’s team can also manage that.
Merrill is a great fit for current customers of Bank of America, because your accounts are seamlessly integrated on one platform. You can access it all from the bank’s webpage.
Read Bankrate’s Merrill Edge review for more information.
How much do you need to open a Roth IRA?
That all depends on your provider. Every bank, brokerage and robo-adviser has its own requirements. However, it’s usually not difficult to find one that will allow you to open an account with no money.
While minimums aren’t a problem, one of the most important parts is not contributing too much. Investors need to be aware of what the maximum contribution is, and be sure not to go over. The maximum amount tends to grow over time, and you’ll need to watch for changes. For tax year 2019 and 2020, you can contribute $6,000 to a Roth IRA as long as your income doesn’t exceed a certain amount.
One thing you won’t have to worry about, however, is having too many Roth IRA accounts. You’re allowed to have as many as you like, but you may not contribute more than the annual maximum. So if the annual limit is $6,000 and you have three Roth accounts, you can divide that amount among the accounts in any way you see fit.
The Roth IRA is a powerful retirement tool, and so it’s important that you pick the Roth IRA provider that’s going to give you the best results. Here are the seven best Roth IRAs to open.
|Provider||Highlights||Commissions||Minimum to open||How to begin|
|Charles Schwab||Best overall||$0||$0||Open account|
|Fidelity||Best for beginners||$0||Open account|
|Betterment||Best robo-adviser||0.25% of assets||$0||Open account|
|Interactive Brokers||Best for active traders||$1/$0 with IBKR Lite||$0||Open account|
|Fundrise||Best for alternative investments||Varies||$500||Open account|
|Vanguard||Best for low costs||$0||$0||Open account|
|Merrill Edge||Best for in-person help||$0||$0||Open account|