Can You Have a Robo Roth IRA?

Financial technology (fintech) continues to be one of the fastest-growing industries in recent years. With younger, tech-hungry generations now hitting the age when some are saving for retirement, robo-advisors are increasing in popularity as people find that they don’t need the personal touch and high fees of a human advisor, but still want the advice and management of an outside expert.

One of the most popular retirement accounts, the Roth IRA, is becoming more common to combine with robo-advising into a robo Roth IRA.

Key Takeaways

  • A robo Roth IRA is a software-managed, post-tax individual retirement account that grows tax free and has tax-free withdrawals in retirement.
  • Robo-advisor accounts often have expense ratios or may charge a membership fee for their services.
  • Robo Roth IRAs allow individuals to get all the benefits of a human advisor without the high cost. 
  • Robo Roth IRA advisors offer convenience and flexibility while being armed with the latest tax legislation.
  • Robo Roth IRA advisors may be susceptible to security breaches, poor investment options, and outdated information.

What Is a Robo-Advisor?

A robo-advisor is a service that provides automated investment advice and management based on proprietary software and algorithms. Customers generally start using the service by filling out surveys that determine goals, risk tolerance, and time horizons. The company then will use its own software to determine the appropriate asset allocation and, depending on the service, will give advice to the customer on when and how much they will need to contribute to meet their goals.

Once the robo-advisor has assets under their management, they usually will periodically use an automated process to rebalance the portfolio to meet designated metrics for performance and potentially do some tax-loss harvesting. Rebalancing done by a human advisor is much more expensive, as it takes time and each rebalancing generates transaction fees. Robo-advisors rebalance and harvest tax losses through an automated, low-cost system.

What Is a Roth IRA?

A Roth IRA is a powerful investing tool for everyone who qualifies for them. It is an individual retirement account (IRA) in which you put after-tax dollars, which grow tax free and are withdrawn tax free in retirement. Contributions, but not gains, can be withdrawn tax free at any time, and rollover contributions can be withdrawn tax free after five years. Roth IRAs also are inherited tax free by your heirs, which can make your contribution to them a form of life insurance.

Roth IRA contribution limits for 2022 are $6,000 and for 2023 is $6,500 for individuals under age 50. Individuals 50 and older can contribute an additional catch-up contribution in either year for $1,000. You cannot contribute to a Roth IRA if you are either over the individual income limit of $144,000 or a married couple filing jointly with income over $214,000.

Note that for 2023, the limit rises to $6,500 and to $7,500 for those aged 50 and over. The income threshold rises to $153,000 for individuals and $228,000 for married couples filing jointly.

What Is a Robo Roth IRA?

A robo Roth IRA is a Roth IRA that is invested using a robo-advisor. Most of the major robo-advisor services, including all of those on Investopedia’s Best-Robo Advisors of 2022 list, have an option for a Roth IRA. Additionally, many traditional investing platforms now offer robo-advising services, such as Vanguard Digital Advisor. A robo Roth IRA will still do things like goal setting, asset allocation, and automated portfolio rebalancing, but it will not do tax-loss harvesting. That’s because there is no benefit to tax-loss harvesting in a tax-free account.

Advantages and Disadvantages of a Robo Roth IRA

Pros of a Robo Roth IRA

One of the primary draws to roboadvisors is that they typically charge lower fees than traditional financial advisors. This is because they use automated technology to manage investments, reducing the need for human advisors and overhead costs. Roboadvisors can also easily manage investments online or through a mobile app without the need for face-to-face meetings.

As more investors become more comfortable with online investing platforms, roboadvisors have made investing more accessible to a wider range of investors. In addition, due to naturally smaller balances due to contribution limits of an IRA, roboadvisors can now taken on clients with lower account balances (with some even requiring no minimum investment balances).

Because robo Roth IRA advisors are programmed to know the latest tax implications, these types of advisors are often more tax efficient. They'll be well-versed in tax-loss harvesting strategies to minimize your overall tax situation. As opposed to a human who may know adequately know all of the tax laws, a roboadvisor is more likely to come armed with this information.

Cons of a Robo Roth IRA

There are a number of downsides to using a robo-advisor for your Roth IRA. Because there is limited human interaction, you may have specific questions that pertain to your investment style or life circumstances. Many robo Roth IRA advisors lack customization and do not take into consider your very specific preferences. Many roboadvisors also lack a true diversification of investment options.

Because robo Roth IRA advisors rely heavily on algorithms, these types of advisors may be prone to errors. They also place an overreliance on what has happened in the past and may not property take into account circumstances when unexpected events impact your investments.

All types of roboadvisors are also impacted by security concerns. Because of the nature of robo Roth IRA advisors, they may be a target for extracting sensitive information. Though all types of online brokerage accounts are at the same risk, the roboadvisor is simply one additional means of obtaining your sensitive information.

  • Often charge lower fees than human portfolio managers

  • Allow for more convenient, accessible management

  • May still offer a certain level of personalized and customized service

  • Is often armed with the most tax efficient strategies

  • May fail to provide personalized guidance in specific, complex situations

  • May over-rely on algorithms that fail to correctly assess new situations

  • May come with limited investment options

  • Often poses as one additional fail point for security breaches

Fast Fact

Vanguard Digital Advisor is the robo-advisor with the largest number of assets under management: about $207 billion in 2022.

What Are the Two Individual Retirement Account (IRA) Types?

There are two individual retirement account types: the Roth IRA and the traditional IRA. In a Roth IRA, post-tax dollars go in, grow, and are withdrawn tax free in retirement. The traditional IRA is funded with pretax dollars. The money goes in, grows, and is taxed when withdrawn in retirement.

What Is the Main Advantage to a Robo Roth IRA?

The biggest advantage to a robo Roth IRA is being able to get quality, personalized asset management at a low cost. For individuals who want their investments to perform well and do what they need to do but also want to spend as little time as possible researching, learning, and managing investments, a robo Roth IRA is a great choice.

What Are Alternatives to a Robo Roth IRA?

Instead of using a robo Roth IRA, investors can use a human advisor working independently or through a firm (which will cost much more), or they can manage their IRA themselves by buying assets directly (which will usually cost slightly less than a robo-advisor option).

The Bottom Line

A robo Roth IRA could be a great account for the busy person who doesn’t want a personal touch and is too intimidated or too occupied with life to learn how to invest on their own. The robo-advising industry is growing rapidly, and we are likely to see a huge rise in the number of people using robo-advising services.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. "Roth IRAs."

  2. Internal Revenue Service. “Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): Roth IRAs.”

  3. Internal Revenue Service. “Retirement Topics — IRA Contribution Limits.”

  4. Internal Revenue Service. “401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500.”

  5. Forbes Advisor. “Top Robo-Advisors: 10 Robos with the Most Assets Under Management.”

  6. Internal Revenue Service. “Traditional and Roth IRAs.”

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