Roth IRAs first became available to retirement savers in 1998 and provide an excellent opportunity to diversify your retirement income from a tax perspective to this day. Roth IRAs are tax-advantaged accounts that allow tax-free withdrawals in retirement because the contributions are made with after-tax dollars, meaning you don’t get a deduction for Roth IRA contributions. With a Roth IRA, your retirement distributions won’t be impacted by unknown, evolving tax rates in the future. If you’re concerned about being in a higher tax bracket upon retiring, tax-free withdrawals from a Roth IRA can be an intriguing enhancement to your retirement income strategy. 

Combining the tax advantages of a Roth IRA with a robo-advisor or broker that has exceptional planning tools and reporting features can further improve your retirement readiness. To determine which Roth IRA providers are the best in the industry, we carefully evaluated institutions across a wide range of factors such as fees, account minimums, goal setting, retirement calculators, and investment options. We’ll take a closer look at each of the top options so you can find the platform that’s right for your needs.

Best Roth IRA accounts:

On January 26, 2022, Wealthfront announced that it has agreed to be acquired by UBS, one of the premier brands in wealth management, in a transaction valued at $1.4 billion.

Key Takeaways

  • Roth IRAs provide tax-free retirement distributions in exchange for paying tax on the money used for contributions.
  • Additional Roth IRA tax advantages include tax diversification in retirement and withdrawal flexibility.
  • Investment platforms that offer strong planning tools and goal setting features can help you make the most of Roth IRA tax advantages and increase your retirement readiness.

Fidelity Investments

  • Account Minimum: $0
  • Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
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Fidelity, originally known for their outstanding lineup of mutual funds, offers a well-rounded, full-service platform with a wide range of investment options that can be tailored to fit your portfolio preferences. In addition to the extensive array of self-directed investment options, you can also leverage advisor-guided and digital investment advisor portfolio management strategies. You’ll find that this blend of investment management flexibility combined with Fidelity’s retirement calculators, tools, and reporting features gives a powerful edge to retirement savers at every life stage and level of market experience. 

Those just getting started on their retirement journey have access to excellent educational content in a variety of formats that complement effective goal setting tools. If you’re closer to retirement, Fidelity provides withdrawal calculators and incorporates Social Security distributions that give better insight into your retirement income approach. Overall, investment management flexibility paired with outstanding tools and low costs makes Fidelity one of the premier places to hold your Roth IRA. 

Pros
  • No Roth IRA account minimums

  • Online support via chatbot can address a wide range of inquiries

  • Wide variety of educational articles and retirement planning features

  • Investment management flexibility includes robo-advisor, self-directed, and advisor-guided options

Cons
  • No futures, commodities, or crypto trading ability

  • Navigating certain features and tools can be challenging

  • Non-U.S. citizens or non-residents blocked from account opening

Charles Schwab

  • Account Minimum: $0
  • Fees: Free stock and ETF trading, $0.65 per options contract
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Charles Schwab offers a strong platform for Roth IRA account holders given the variety of investment choices, trading tools, and portfolio management options you’ll have at your disposal. Schwab particularly stands out for its extensive ETF screening capabilities, which include over 150 filtering capabilities that incorporate socially responsible investing (SRI) selections as well. If you’d rather have a less hands-on investment management strategy, financial advisor-driven portfolios and the Intelligent Portfolios robo-advisor offering are available as well.  

Schwab also gives you access to a considerable volume of market data and investment research to help you make more informed portfolio decisions. Financial calculators and other planning tools located in the advice section of the platform can be tailored to your age, financial situation, and background, giving you even more confidence that you’re on track for retirement. All these features are designed to give you more control and insight for wherever you are on your retirement journey.

Pros
  • Detailed ETF screening, research, and analysis

  • No transaction fees applied to ETF trading

  • Choose from Schwab Intelligent Portfolio robo-advisor, self-directed, or advisor managed investment strategies

Cons
  • Narrow range of crypto trading, no FX trading, separate futures platform

  • Mutual fund costs and margin rates are higher than some competitors

  • Schwab Intelligent Portfolio has $5,000 minimum, $25,000 for premium

Merrill Edge

  • Account Minimums: $0
  • Fees: $0 per stock trade. Options trades $0 per leg plus $0.65 per contract
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Merrill Edge has a solid blend of investment tools and educational material centered around retirement planning, highlighting its strength as a Roth IRA provider. The Retirement Evaluator and Portfolio Story tools in particular combine a long-term planning outlook with detailed portfolio analysis so you can get a better sense of your retirement preparedness. Since Merrill Edge falls under the Bank of America umbrella, your other accounts within the institution can be aggregated so you’ll be able to enjoy a more holistic portfolio analysis thanks to this full integration.

Merrill Edge also gives you a range of portfolio strategy options you can use to pursue your retirement goals. Within the platform, you’ll be able to leverage self-guided investing, financial advisors, or robo-advisor managed portfolio strategies. No matter which approach you use, you’ll find the Merrill Edge experience will be personalized to your preferences while giving you the insight needed to stay on track for retirement.

Pros
  • Tailored portfolio analysis incorporates Bank of America accounts

  • Fantastic educational material, investment tools, and retirement planning

  • Self-directed Roth IRA accounts have no minimums

Cons
  • Limited, complex options trading

  • Merrill Guided Investing has a $1,000 minimum, Merrill Guided Investing with Advisor has a $20,000 minimum

Wealthfront

  • Account Minimum: $500
  • Fees: 0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers.
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As one of the leading digital investment advisor platforms in the industry, Wealthfront stands out for Roth IRA account holders due to its superior goal tracking, integration features, and digital planning tools. Retirement-driven investors will especially appreciate Wealthfront’s use of third-party data and robust account integration features that give you a more comprehensive understanding of your retirement picture. As a result, Wealthfront’s dashboard makes it easy to understand whether you’re on course to achieve your retirement objectives. 

Wealthfront is also committed to further improving, streamlining, and simplifying the financial planning process. Tools such as Path and Self-Driving Money help you evaluate your financial standing and automate your savings strategy. If you have pre-tax retirement accounts such as a traditional IRA, Wealthfront makes it easy to convert these assets into a Roth IRA as you’re able to transact this request directly on the platform. All these features together give you a powerful tool to maximize the effectiveness of your retirement strategy and Roth IRA approach.

Pros
  • Intuitive and innovative retirement planning tools help you readily assess your strategy

  • Excellent account aggregation functionality provides a well-rounded view of your financial situation

  • Self-Driving Money and Path features help automate the approach to your retirement goals

Cons
  • Accounts with less than $100,000 cannot be customized outside of risk preferences

  • Using robo-advisor strategy is only option, no human financial advisor or self-directed portfolio options

M1 Finance

  • Account Minimum: $100 ($500 minimum for retirement accounts)
  • Fee: 0%
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M1 Finance has built an innovative platform that allows you to manage your money holistically, making it a natural landing spot if you’re looking to have your finances held in one place. Not only will you have access to save, spend, and borrow products, you’ll be able to take advantage of a unique investment management solution that supports extensive portfolio customization while putting the management strategy on auto pilot. The ability to both tailor and automate lets retirement savers invest according to their preferences while giving peace of mind. 

When you invest your Roth IRA through M1, you can choose from over 80 pre-built portfolios (called “pies,'' a nod to portfolio pie charts) or build your own allocation. Either option is available to you with no trading costs or asset management fees. However, if you’re looking for additional help preparing for retirement in the form of human advisors and digital planning tools, you won’t find these options at M1. The experience is best suited for self-directed investors looking to automate their preferred portfolio strategy while maintaining access to other money management tools.

Pros
  • Zero fees incurred for account management and trading

  • Superb range of investment selections, customization, and portfolio automation options

  • Fractional shares are supported, allowing you to be fully invested in your Roth IRA

Cons
  • Minimal financial tools, calculators, and goal-tracking features

  • Lacking external account aggregation for investment allocation purposes

  • Human financial advisors are not available for additional retirement help

Betterment

  • Account Minimum: $0
  • Fees: 0.25% (annual) for digital plan, 0.40% (annual) for the premium plan 
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If you prefer a digital investment advisor with some portfolio flexibility that also automates your retirement strategy, Betterment provides a strong management option for your Roth IRA. As one the premier robo-advisors in the industry, Betterment’s strength is based on expansive planning tools, intuitive progress tracking dashboards, and account aggregation features that can help set you up for retirement success. You can also take advantage of human financial guidance at an extra cost for additional support to assess your retirement readiness. 

Betterment further distinguishes itself for retirement planning by prompting you to change your savings strategy and contribution amounts if fine tuning is needed. Investment selections are limited to ETFs, but you’ll be able to maintain some portfolio flexibility in the form of adjusting risk, opting into socially conscious strategies, and adapting allocations to specific financial situations such as an Income Portfolio. A wide range of educational material and digital advice is also readily accessible, making Betterment an all-around excellent platform.

Pros
  • No Roth IRA account minimums

  • Portfolio tools and planning functionalities are easy to navigate

  • External account aggregation lets you view your entire retirement picture

  • Seamless account setup and portfolio transparency before depositing

Cons
  • No self-directed retirement investment options, assets limited to ETFs

  • Margin account and borrowing products are not available

  • Human advice has additional fee between $199 - $299 per consultation

  • Premium plan requires $100,000

TD Ameritrade

  • Account Minimum: $0
  • Fees: Free stock, ETF, and per-leg options trading commissions. $0.65 per options contract.
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TD Ameritrade is one of the original discount online brokers that attracts Roth IRA investors of all backgrounds looking for a platform with a clear retirement focus paired with high-powered trading tools. The trading experience itself is highly dynamic and customizable, featuring a full range of investment options to select for your portfolio via the thinkorswim platform. You’ll also have the opportunity to leverage TD Ameritrade’s robo-advisor, Essential Portfolios, if you’d rather turn over your asset management strategy. 

TD Ameritrade has one of the deepest education libraries in the industry which powers investors with the knowledge they need to take more control over their retirement journey. Beginner investors will find the content and tools especially helpful to better understand market and trading dynamics. Even if you have above beginner-level investment experience, investors of all backgrounds, strategy dispositions, and portfolio preferences will be impressed by the breadth of TD Ameritrade’s offering.

Pros
  • Extensive investment selections and trading functionality

  • Charts, research, and trading tools balance comprehensive nature with ease of use

  • Wide-ranging educational tools to empower investor knowledge

Cons
  • TD Ameritrade doesn’t offer fractional share trading

  • Higher fees than similar competitors

Why Should You Consider a Roth IRA?

Roth IRAs are a powerful variation on the traditional IRA from a tax perspective. Unlike a traditional IRA where you receive a tax deduction based off of your contributions up to the limit, Roth IRA contributions are made after tax dollars. This means the tax on the money in your Roth IRA is already paid, so there is no tax owing when you withdraw your money. Simply put, all the growth in a Roth IRA is tax-free. You will not pay capital gains on it in retirement as long as you keep to the qualified distribution guidelines. 

While many people choose to take the deduction now and pay taxes on retirement savings when they withdraw funds in the future, this strategy is disadvantageous if you have income from other sources in retirement. If you have a 401(k), pension, investment portfolio, rental real estate, or simply choose to continue to work into your golden years, traditional IRA distributions can push you into paying more back in taxes than you would with a Roth IRA. As it is difficult to accurately picture your income sources decades in the future, there is a mechanism for converting a traditional IRA to a Roth IRA. Even though these conversions have a tax implication, it often makes sense to do it sooner than later if your income in retirement is looking to be higher than what you’re currently making. If you aren’t sure, it is usually worth talking to a financial advisor about your unique situation.

Do Roth IRAs Have Required Minimum Distributions (RMDs)?

One huge advantage to structuring your retirement account as a Roth IRA is that there are no required minimum distributions (RMDs). This means you can simply leave the money in the Roth IRA if you don’t need it immediately in retirement. Should you pass on before fully using up the money in your Roth IRA, it would transfer to your designated beneficiary. If this is your spouse, the same rules apply as for you (no taxes and no RMDs). The Roth IRA can actually be passed on to your heirs without incurring estate taxes, although there are some rules around how and when they have to start drawing it down. 

Can I Use a Roth IRA as an Emergency Fund?

An often overlooked feature of a Roth IRA is its ability to operate as a de facto emergency fund. Because you’re making contributions with after-tax dollars, you can withdraw those contributions back out without any tax implications. This only applies to the amount contributed, of course, and any earnings on that money have to stay in the account until you can make a qualified distribution. Still, the contribution space allows you to have the peace of mind of a sizable retirement fund that doubles as an emergency fund if you need it to.

How Do Roth IRAs Offer Tax Diversification in Retirement?

A lot of people assume that your taxable life ends with your working life, but taxation covers your entire life and a little ways beyond. As your working income phases out and you begin to withdraw from a 401(k), for example, those distributions become your reported taxable income. Any other income, including dividends, royalties, bond interest, and so on, will push that taxable income upwards. 

Taking a part-time contract, something much more common for retirees now, can also overlap with required minimum distributions (RMDs) from traditional IRAs. This results in an uncomfortable situation where every dollar earned through enjoyable work in retirement is lessened by taxes, discouraging some retirees who want to continue doing meaningful work from doing so. In a Roth IRA, however, you can still supplement any retirement income with your retirement savings without affecting your tax situation.

Who Are Roth IRAs Best For?

Roth IRAs are best for those whose modified adjusted gross income (MAGI) are below or within the ranges, but the contribution space is reduced as you reach the upper bounds of the ranges. The limits for 2022 are:

  • $6,000 ($7,000 if over 50) for those earning equal or less than $129,000 as single filers with a phase out to zero contributions at $144,000
  • $6,000 ($7,000 if over 50) for married filing jointly taxpayers earning up to $204,000 with a phase out to zero at $214,000 

Roth IRAs also make sense if you expect to have significant income into retirement. A common strategy is to withdraw any taxable contributions from other plans to stay within a set tax bracket and then use the Roth IRA as a top up when needed for lifestyle reasons. From a tax perspective, your goal into retirement is to have accounts with a tax burden drawn down to zero by the end of your life and have your financial legacy set up in such a way that it minimizes the estate taxation for your heirs. The Roth IRA is an ideal tool for that role.

How Do You Qualify for a Roth IRA?

As a single taxpayer, you simply need to have a modified adjusted gross income (MAGI) under $129,000 to make the maximum contribution. The contribution amounts are reduced as your income nears $144,000, whereupon you no longer qualify for a Roth IRA. For married filing jointly taxpayers, the full contribution is available up to a MAGI of $204,000 with reductions to a complete phase out at $214,000.

How Does a Roth IRA Grow?

A Roth IRA grows like every other investment account—through the magic of compounding. Your contributions in a Roth IRA are invested to earn interest and that interest helps to increase your overall portfolio balance, thereby helping earn more interest. The more time your money has in the market, the better the opportunity for greater returns over time. The money in a Roth IRA can continue to grow even after you stop making contributions as the ongoing returns continue to add to the balance and get reinvested. The financial institutions reviewed for this article all provide resources and guidance on diversifying a portfolio to ensure the right balance of risk and reward to intelligently grow your retirement savings in a Roth IRA.

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