Roth IRAs and traditional IRAs are very similar, but they differ in how they are taxed. With a traditional IRA, contributions will be taxed upon the withdrawal of funds from the account. With a Roth IRA, you pay taxes on the contributions you place in the account and you do not pay a tax once you withdraw the money at the age 59 ½ or older. If you withdraw before the age of 59 ½ with either a traditional or Roth IRA, you are subject to an additional 10% tax for early withdrawals unless you qualify for an exception.
Both Roth IRAs and traditional IRAs provide tax-free growth of your contributions until you retire, which is why finding the right online broker to build your retirement wealth is crucial. The brokers we selected have excellent retirement planning and reporting tools. We also looked at low or no annual fees for managing your IRA, so you can keep that money growing for your retirement.
Best for Roth IRAs
Our list of the top five brokers for Roth IRAs:
- Merrill Edge
- Fidelity Investments
- TD Ameritrade
- Charles Schwab
- Account Minimums: $0
- Fees: $0 per stock trade. Options trades $0 per leg plus $0.65 per contract
Merrill’s Portfolio Story feature is a terrific tool for retirement planning and investing for goals. It’s personalized to each customer and displays your asset allocation and your progress towards your goal in an inviting layout. You can drill down for more information about a particular holding using Merrill’s Stock Story feature, which also provides details on a company’s environmental, social and governance (ESG) ratings. A hypothetical trade calculator projects how a trade could impact your entire portfolio.
Merrill has made a huge investment in its mobile apps, reflecting the number of customers who access its services using smartphones and tablets. The mobile apps also include a wealth of guidance and retirement planning content.
Merrill Edge also received awards for Best Web Trading Platforms, Best for Beginners, Best Stock Trading Apps, and Best for IRAs.
Personalized portfolio analysis
Top-notch retirement planning and life stage planning tools
Customizable news feed with content from more than 35 providers
Complex options trading is limited
Self-directed investors may get annoyed by the seemingly constant push towards hiring a financial advisor
- Account Minimum: $0
- Fees: $0 for stock/ETF trades, $0 plus $0.65/contract for options trade
Fidelity is improving its retirement planning tools intended to engage Millennials with a game called Five Money Musts, which encourages new investors to get into the markets using exchange-traded funds. For those who are further down the road toward retirement, there are tools to help get organized as one’s retirement date approaches, including a clear explanation of how and when to take Social Security payments. Fidelity offers everything from managed accounts to self-service, and its robo-advisory, Fidelity Go, can be used for IRAs.
Rolling an employer’s 401(k) balance into an IRA is a process that can be cumbersome and full of twisty passages, but Fidelity spells out the necessary steps clearly. Its retirement calculators and goal-setting tools are written in plain English and are easy to use.
Fidelity also received awards for Best Overall Online Brokers, Best for Beginners, Best Stock Trading Apps, Best for ETFs, Best for Penny Stocks, Best for IRAs, Best for International Trading, and Best Web Trading Platforms.
Low transaction fees, plus terrific order-routing technology that lowers the cost of a transaction by seeking out price improvement
Abundant online help, including a chatbot that can answer most customer queries
A wide range of assets can be traded, and you can choose from 265 commission-free ETFs
The platform suffered some outages during heavy trading days in 2017 and 2018, but Fidelity has been investing heavily in the infrastructure to keep this from happening in the future
Automatic dividend reinvestment is set for the entire account; to change it for a particular security, you must call customer service
Finding a particular tool or feature can be difficult due to the platform's menu system
- Account Minimum: $0
- Fees: Free stock, ETF, and per-leg options trading commissions in the U.S., as of October 3rd, 2019. $0.65 per options contract.
TD Ameritrade customers can analyze the holdings in their retirement plans, via the company’s partnership with financial consultant FeeX, and are encouraged to generate higher returns by getting rid of expensive mutual funds and ETFs and replacing them with ETFs with lower management fees. The firm offers more than 300 ETFs that trade commission-free. You can go it alone and make your own investment decisions, or partner with one of TD Ameritrade’s financial planners, to set goals and track your progress. TD Ameritrade’s retirement calculator is available to the general public, so non-customers can check out the planning tools before opening an account.
TD Ameritrade also received awards for Best Overall Online Brokers, Best for Day Trading, Best for Options Trading, Best Web Trading Platforms, Best for Beginners, Best for ETFs, Best for IRAs and Best Stock Trading Apps.
The education offerings are designed to make novice investors more comfortable with a wider variety of asset classes
Wide availability of commission-free ETFs
Numerous tools for fixed-income investing, including over 40,000 bonds and more than 400 bond ETFs, of which approximately 300 can be traded commission free
Income Estimator tool shows interest and dividends coming up in the next 12 months
Commissions are higher than most other brokers and margin rates are very high
Tools are spread out over several websites, downloadable platforms, and mobile apps, and you may have trouble finding your favorites
- Account Minimum: $0
- Fees: Free stock, ETF and options trading commissions in the U.S., as of October 7th, 2019. $0.65 per options contract.
Schwab offers a wide range of assets in which to invest and—after integrating the optionsXpress platform—also has some terrific options trading tools. It's Retirement and Planning section of the web platform helps customers understand the types of accounts available, including how to roll over an old 401(k) to an IRA. You can go it alone or sign on with a professional advisor to guide you on your journey.
Schwab’s robo-advisory, Intelligent Portfolios, can be used with any kind of IRA if you’d prefer to use its no-fee automated service. As retirement nears, Schwab’s site is full of ways to design an approach to generating income safely. Its Retirement Income Quiz is worth taking just to see which areas of financial freedom you might want to study further.
Charles Schwab also received awards for Best Overall Online Brokers, Best Web Trading Platforms, Best for International Trading, Best for Options Trading, Best for Penny Stocks, Best for Beginners, Best for IRAs, Best for ETFs, and Best Stock Trading Apps.
No-cost robo-advisory, Schwab Intelligent Portfolios, is a good place to start investing for retirement
More than 200 ETFs can be traded without incurring transaction fees
ETF research center also has a screener for closed-end funds, which can be used to generate income in retirement
Certain mutual funds incur a $76 fee when purchasing
There is no report spelling out expected income
$0 to open an account only applies if you have opened a Schwab One checking account
- Account Minimum: $0
- Fees: No commission for stock/ETF trades. Options are $0.50-$0.65 per contract, depending on trading volume.
E*TRADE has made a concerted effort over the last two years to improve its retirement planning services. To that end, it offers its E*TRADE Complete IRA account for those who are eligible to begin withdrawing cash, including the ability to write a check and have that amount counted towards the client’s RMD. All the options capability from the OptionsHouse platform is now built into Power E*Trade, including education and guidance. E*TRADE was one of the few larger brokers that survived the trading surges of 2017 and 2018 relatively smoothly as well.
E*TRADE also received awards for Best Web Trading Platforms, Best for Options Trading, Best for ETFs, Best Stock Trading Apps, Best for IRAs, and Best for Beginners.
Terrific guidance, with dozens of short videos, available in the Planning section
Mobile apps include all of the retirement planning tools, including tracking progress towards your goal
200 ETFs that can be traded without incurring a commission
No forex or international investments (besides targeted ETFs) available
Certain advanced trading capabilities are only available on Power E*Trade
Automatic dividend reinvestment requires broker assistance
Commissions are higher than average, at $6.95, but frequent traders qualify for $4.95 fees
Why You Should Consider a Roth IRA
Roth IRAs are fantastic investment vehicles. This is because they are heavily advantaged against taxes. Here are some reasons that a Roth IRA can be a great opportunity:
- Tax-advantaged: Pay taxes on your contributions now and not when you withdraw your money. This also means that not only do the earnings your account makes grow tax-free while they're in the account—you will not be hit with capital gains tax—but that when you withdraw money from your account at retirement, you will pay zero taxes on it. If you believe you'll be in a higher tax bracket when you retire then this is a huge advantage.
- No required minimum distributions (RMD)s: There is no age at which you are forced to withdraw money due to RMDs. This means that you can leave the entire account to a child or grandchild, providing years of tax-free distributions.
- Ability to withdraw contributions: With your taxes already paid, you can withdraw your contributions at any time, both tax and penalty-free. Contributions refer to the money that you put in and not investment earnings on those contributions. It also lets you use your Roth as a backup emergency fund, should you need it.
- Tax Diversification in retirement: When you begin to withdraw from retirement accounts, such as your 401(k) and traditional IRA, your taxable income will rise. This could cause your tax bracket to rise as well. But because the money in the Roth account is not taxable income, it lets you shuffle distributions so that you do not push yourself into a higher tax bracket. This is especially useful in the years before you hit 70½ when RMDs kick in.
Who Are Roth IRAs Best For?
Roth IRAs are best for those whose modified adjusted gross income (MAGI) is under the limit for 2020 ($124,000 if single and $206,000 if married), and for those who believe that they will be in a higher tax bracket when they retire than they are now.
Regardless, it's always beneficial to have your retirement savings tax-diversified. Note that singles with MAGIs between $124,000 and $139,000 ($196,000 and $206,000 for those married filing jointly) can make reduced contributions to a Roth IRA.
Tax diversification means having a variety of retirement accounts with the goal of maximizing withdrawals without pushing yourself into a higher tax bracket. Here's how it works: When you can withdraw penalty-free money from your retirement accounts starting at age 59 ½, you withdraw from your traditional IRA savings just up to the limit of the next tax bracket. You can then take additional savings out of your Roth IRA, as it does not add to your taxable income because it was already taxed when it was first contributed. This lets you keep your taxable income low while being able to take a larger sum out of your retirement accounts.
How Do You Qualify for a Roth IRA?
- If single: must have a modified adjusted gross income under $139,000 to contribute, but contributions are reduced starting at $124,000.
- If married filing jointly: modified adjusted gross income must be less than $206,000, with phaseout starting at $196,000.
How Much Can I Contribute to a Roth IRA?
For 2019 and 2020, you can contribute a maximum of $6,000 ($7,000 if you’re 50 or older by the end of the year) or your taxable compensation for the year, if it's below the permitted number.
How Does a Roth IRA Grow?
A retirement account—whether it is a traditional IRA, Roth IRA, or 401(k)—builds up as you contribute to the account. These accounts also grow over time due to compounding interest. Compounding means that every year your contributions earn interest, your balance increases. The following year, you earn interest on the increased balance. As a result, the total amount of interest earned increases each year, even if you are no longer contributing to your account.
In addition to interest-bearing accounts, retirement money, including funds in your Roth IRA, can be invested in the markets. These funds could be placed into stocks, ETFs, mutual funds, and a number of other financial assets. When these assets go up in value, they can significantly grow the value of your retirement account.
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In addition, every broker we surveyed was required to fill out a 320-point survey about all aspects of their platform that we used in our testing. Many of the online brokers we evaluated provided us with in-person demonstrations of their platforms at our offices.
Our team of industry experts, led by Theresa W. Carey, conducted our reviews and developed this best-in-industry methodology for ranking online investing platforms for users at all levels. Click here to read our full methodology.