Roth IRA Fund Options from E-Trade

BKAG and BKLC are simple, strong foundations

E-Trade offers online trading and discount brokerage services to retail investors. The company is owned by Morgan Stanley (MS), a financial services company. While E-Trade does not offer its own fund family, it does provide a variety of funds from other companies.

E-Trade was founded in the early 1980s and purchased by Morgan Stanley in an all-stock transaction in October 2020. As a discount broker, E-Trade offers free commissions for online U.S.-listed stocks and exchange-traded funds (ETFs).

Investors in the United States have access to several tax-advantaged saving plans, including 401(k)s, individual retirement accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. This means that contributions to Roth IRAs are not tax deductible, where they are with traditional IRAs. But unlike a traditional IRA, where withdrawn funds are taxed, a Roth IRA allows investors to withdraw funds tax free.

Key Takeaways

  • E-Trade was founded in the early 1980s and offers thousands of mutual funds and exchange-traded funds (ETFs) from parent Morgan Stanley and other companies’ fund families.
  • When making a retirement account, a broad stock fund and a broad bond fund provide a good foundation, either as the entire basis for investing or to build upon with more complex investments.
  • Roth individual retirement accounts (Roth IRAs) allow you to avoid paying taxes on investment returns by investing after-tax income now.
  • BKLC and BKAG can serve as good starting points when looking for Roth IRA investments from E-Trade.

Below, we take a closer look at a broad-based stock fund and a broad-based bond fund available to E-Trade investors. As mentioned, E-Trade is not a fund provider with its own fund family available. For that reason, we’ve selected the least expensive broad-based funds, as index funds provide largely similar products if they are functioning correctly and tracking the same or similar indexes. In these cases, cost is a major determining factor.

Figures below are as of Feb. 28, 2022, except where indicated.

BNY Mellon U.S. Large Cap Core Equity ETF (BKLC)

BKLC tracks the Morningstar U.S. Large Cap Index, an index composed of large-capitalization U.S.-listed stocks. The passive ETF’s primary portfolio managers are David France, Todd Frysinger, Vlasta Sheremeta, Michael Stoll, and Marlene Walker Smith, who have managed the fund since October 2020.

BKLC has approximately 229 holdings. Nearly 100% of them are mega-cap companies with market capitalizations of $25 billion or more, and all are U.S.-based. Information technology (IT) companies make up just under a third of the portfolio, followed by healthcare and consumer discretionary companies.

Broad-based equity funds carry risk but also fairly strong growth potential. A broad-based stock fund like BKLC usually can be used as the foundation of most investment portfolios. However, investors with very low risk tolerance or who are nearing retirement may seek a more income-oriented portfolio instead.

BNY Mellon Core Bond ETF (BKAG)

  • Expense Ratio: 0.00%
  • Assets Under Management: $259.7 million
  • One-Year Trailing Total Return: -2.6% (as of Feb. 25, 2022)
  • 12-Month Yield: 1.61% (as of March 2, 2022)
  • Inception Date: April 22, 2020

BKAG seeks to track the performance of the Bloomberg Barclays US Aggregate Total Return Index, which offers broad exposure to the overall U.S. bond market. The passive ETF’s primary portfolio managers are Gregory Lee and Nancy Rogers, who have managed the fund since its founding.

The fund has approximately 2,302 holdings with a weighted average maturity of 8.6 years as of Jan. 31, 2022. Broken down by industry as defined by BNY Mellon, about 39.5% of the portfolio is Treasurys, followed by 27.6% agency fixed rate, with the remaining third in banking, consumer noncyclical, technology, communications, and other areas. All of the ETF’s bonds are investment grade, including 71.8% rated AAA, and the next biggest category, BBB, making up 15.2% of the portfolio.

A broad-based bond fund is typically a much safer, but lower-return, type of investment compared with a stock fund. These funds have a lower risk of losing money, although the risk is not zero. They tend to rise slower than other funds, but they have smaller swings. Bonds are useful both for more risk-averse investors and to diversify a portfolio to include asset classes that are uncorrelated. Investors with a higher risk tolerance or a longer time until retirement may wish to choose a smaller bond allocation.

Does E-Trade have fees for individual retirement accounts (IRAs)?

E-Trade does not charge commissions on stock or exchange-traded fund (ETF) trades for its Roth individual retirement accounts (Roth IRAs). Bond trades are $1 per bond for online secondary market trades. Also, there is no required minimum distribution (RMD) for investors on a basic Roth IRA.

Does E-Trade offer both Roth IRAs and traditional IRAs?

E-Trade offers a variety of IRA options. Besides Roth and traditional IRAs, the company offers rollover IRAs, IRAs for minors, beneficiary IRAs, and other options.

Can you withdraw money from an E-Trade Roth IRA?

Yes, you can withdraw money from an E-Trade Roth IRA at any time. However, withdrawals typically have a three- to five-day processing time and may be subject to early withdrawal fees.

The Bottom Line

A Roth IRA offers investors certain tax advantages. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short, funds invested in a Roth IRA can grow tax free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and how much time and energy they have to research various investments.

For investors in that category, one option is to go with a few large and diversified funds, allocating part of their money to a broad-based stock fund and another part to a broad-based bond fund. These large, diversified funds also may create a solid foundation for many investors who do have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific niches of the market.

Article Sources

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  8. E-Trade. “Mutual Fund Research,” sort by “Gross Expense Ratio, Ascending.”

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  11. Morningstar. “BNY Mellon US Large Cap Core Equity ETF: BKLC: Quote.”

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  14. BNY Mellon Investment Management. “BNY Mellon Core Bond ETF (BKAG).”

  15. Morningstar. “BNY Mellon Core Bond ETF: BKAG: Performance,” select “Trailing Returns: Month End.”

  16. Morningstar. “BNY Mellon Core Bond ETF: BKAG: Quote.”

  17. BNY Mellon Investment Management. “BNY Mellon Core Bond ETF (BKAG),” select “Portfolio, Asset Allocation: By Industry.”

  18. BNY Mellon Investment Management. “BNY Mellon Core Bond ETF (BKAG),” select “Portfolio, Asset Allocation: By Credit Quality.”

  19. E-Trade. “Roth IRA.”

  20. E-Trade. “Our Accounts: Retirement.”

  21. E-Trade. “Frequently Asked Questions: Retirement Planning,” select “Contributions: How can an investor withdraw a distribution online?”

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