Best Roth IRA Accounts

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 and robo-advisors 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 Roth IRA accounts:

Fidelity Investments

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 (ETFs).

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.

Charles Schwab

Schwab offers a wide range of assets in which to invest, and excellent options trading tools. Its 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 generate income safely up to your target date and beyond. The investing quiz is worth taking just to see which areas of financial freedom you might want to study further.

Merrill Edge

Merrill Edge’s educational offerings are based on investing experience, life stage, life events, and retirement, guiding clients with articles, videos and webinars, and online courses. Almost all of the tools available take a long-term look ahead with a huge focus on retirement planning, so having an IRA here makes a lot of sense. 

Merrill’s Retirement Evaluator feature is a terrific tool for retirement planning and investing for goals. It’s personalized to each customer and looks at total investments, assesses risks and goals, then recommends an action plan for retirement needs.

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.

Wealthfront

Wealthfront allows you to open traditional IRAs, Roth IRAs, SEP IRAs, and 401(k) rollovers along with a variety of taxable accounts. Goal planning and tracking are where Wealthfront shines. Your dashboard shows all of your assets and liabilities, giving you a quick visual check-in on the likelihood of attaining your goals. As you make life changes, such as a new job, a spouse, having or adopting a child, or buying a house, your Wealthfront plans adjust accordingly. 

Wealthfront’s use of third-party data makes it incredibly useful for all sorts of planning—not just retirement—and you may find yourself running scenarios far beyond your long-term investment needs. You can even figure out how long you can take a sabbatical from work and travel, while still making your other goals work.

Wealthfont appears to be making a strong move to integrate all of its money services in a single platform with its Self-Driving Money concept, where you deposit your pay into the platform and it handles your finances for you. This automated savings plan service is up and running. As a step in this direction, Wealthfront launched a Roth IRA converter that automates the process of moving funds from a traditional IRA into a Roth IRA account.

M1 Finance

M1 Finance offers a unique combination of automated investing with a high level of customization, allowing clients to create a portfolio tailored to their exact specifications. You can create portfolios containing low-cost exchange traded funds (ETFs) or use individual stocks—or both. M1’s target customer has a long-term focus and experience with using a traditional online brokerage to invest in stocks and ETFs.

M1 is offering these potential clients a lower-cost alternative that allows fractional share transactions and a large amount of control over the portfolio contents. This is the key difference between M1 and many other offerings, as you often are giving up much of the control in exchange for the portfolio management services.

With M1, you can build your own or choose one of dozens of portfolios called Expert Pies —M1’s name for the circular charts showing asset mixes in a portfolio—made out of other pies and keep them all balanced to your specifications. Overall, M1 is offering a remarkably flexible platform that includes stock and ETF screeners to help with investment selection. This type of tool and the approach behind it are still rare in the robo-advisory world. 

M1 doesn’t brand itself as an advisory service; rather, it is an automated investing platform designed to take care of the ongoing management of the portfolio you create. This is a do-it-yourself investing platform, and it expects you to know what you are doing and why. As such, M1 doesn’t have many tools for setting goals beyond several dozen articles about retirement savings. This may be jarring to investors expecting more hand-holding, but intermediate investors may welcome the lack of distractions standing in the way of actual portfolio creation. Its offerings have resonated with many investors though.

Betterment

There are several ways to use Betterment: you can sync all of your financial accounts to get an overall picture of your assets without investing, you can invest in one of their portfolios, or you can create a Flexible Portfolio with some of your own specifications. Portfolios are rebalanced when necessary rather than on a set schedule.

Betterment is very much a goal-based platform, and there are many planning tools available to users along with plenty of advice. You can attach a specific investing goal to each portfolio, which can be invested in different strategies. Funds for longer-term goals like saving for retirement can be allocated to one of the higher-risk portfolios, while shorter-term goals, such as funding a down payment on a house, can be allocated to the lower-risk ones.

Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. The asset allocation is displayed in a ring, with equities in shades of green and fixed income in shades of blue. If you’re falling behind on meeting your retirement goals, Betterment will encourage you to put more aside. This can be a helpful prompt, particularly for young investors who may not yet feel the urgency to save for their retirement.

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 of 59½ or older. If you withdraw before the age of 59½ with either a traditional or Roth IRA, you are subject to an additional 10% tax for early withdrawals unless you qualify for an exception.

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 (RMDs)

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 72 (70½ if you reached 70½ before Jan. 1, 2020) 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 2021 ($125,000 if single and $198,000 if married filing jointly, increasing to $129,000 if single and $204,000 if married filing jointly in 2022), 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 $125,000 and $140,000 and $198,000 and $208,000 for those married filing jointly (increasing to $129,000 and $144,000 for singles and $204,000 and $214,000 for those married filing jointly in 2022) 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 59½, 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, you must have a modified adjusted gross income under $125,000 in 2021 (increasing to $129,000 in 2022) to contribute, but contributions are reduced between $125,000 and $140,000 (increasing to $129,000 and $144,000 in 2022).
• If married filing jointly, your modified adjusted gross income must be less than $198,000 (increasing to $204,000 in 2022) with reduced contributions between $198,000 and $208,000 (increasing to $204,000 and $214,000 in 2022).

How Much Can I Contribute to a Roth IRA?

For 2021 and 2022, 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.