We may earn an affiliate commission from partner links on the Entrepreneur Guide. These do not affect our editors’ opinions.
As the world of personal finance evolves, Roth IRA accounts continue to stand out as a powerful tool for retirement planning. With tax-free growth and withdrawals, these accounts offer an enticing way to save for your golden years.
This article explores the seven best Roth IRA accounts of Spring 2023, considering factors such as contribution limits, account fees and investment options. We’ll guide you through the offerings of the best IRA providers to help you make an informed decision.
Related: 4 Ways to Save for Retirement Without a 401(k) | Entrepreneur
1. Ally Invest
Ally Invest is a top pick for those looking to self-direct their investments. Its brokerage account comes with low fees and no account minimum, making it accessible for beginners and experienced investors alike.
Ally offers many investment products, including commission-free ETFs and mutual funds.
What are the benefits of Ally Invest?
Users benefit from Ally’s user-friendly trading platform and robust educational resources, which can guide novice and experienced investors.
For retirement savings, Ally Invest offers traditional IRA and Roth IRA accounts with tax-advantaged benefits. Roth IRA account holders can enjoy tax-free withdrawals in retirement, subject to IRS rules. Ally’s pricing is transparent, with no hidden fees.
2. Betterment
Betterment, a leading robo-advisor, provides hands-off investment management with automatic rebalancing and tax-loss harvesting.
This platform is ideal for those who prefer a hands-off approach to their retirement savings. There’s no account minimum and management fees are relatively low.
What are the benefits of Betterment?
Betterment’s retirement account options include both Roth and traditional IRAs. The robo-advisor’s calculators help users determine their risk tolerance and optimal asset allocation.
Users can also take advantage of Betterment’s certified financial planners for personalized advice. Betterment is known for its customer support and ease of use, which makes it a top pick for beginners.
3. Charles Schwab
Charles Schwab offers various investment options, including low-cost index funds and commission-free ETF trades. The brokerage provides both traditional and Roth IRAs with tax advantages such as tax-free or tax-deductible contributions, depending on the type of IRA.
What are the benefits of Charles Schwab?
Schwab’s Intelligent Portfolios is a robo-advisor service that provides automatic rebalancing and tax-loss harvesting. For those looking for a more hands-on experience, Charles Schwab’s trading platform is user-friendly and packed with educational resources.
Schwab also has human advisors available for personalized financial advice. With no account minimum and low fees, Charles Schwab is a solid choice for your retirement plan.
4. E*TRADE
E*TRADE is a full-service brokerage that offers a variety of investment accounts, including traditional and Roth IRAs. It provides various investment products such as mutual funds, ETFs, and options trades.
What are the benefits of E*TRADE?
E*TRADE stands out with its extensive educational resources, making it an excellent choice for beginners. It offers commission-free trades on stocks, ETFs, and options, with competitive pricing on mutual funds.
The platform provides access to various retirement calculators to help account holders plan for their financial future. E*TRADE’s Core Portfolios robo-advisor service offers automatic rebalancing, tax-efficient investing and professional management at a low cost.
5. Fidelity Investments
Fidelity Investments is a stalwart in the investment industry, offering various investment options for individual retirement accounts (IRAs). With self-directed accounts, Fidelity users can invest in everything from stocks and bonds to mutual funds and ETFs.
For a more hands-off approach, Fidelity Go provides robo-advisory services. Fidelity also offers zero-expense ratio index funds, which can dramatically reduce costs over the long term.
What are the benefits of Fidelity Investments?
Fidelity stands out with its comprehensive educational resources and customer support, making it an excellent option for new and seasoned investors. Additionally, Fidelity’s Roth IRA offers potential tax-free growth and tax-free withdrawals in retirement, subject to certain conditions.
6. Merrill Edge
Merrill Edge, a subsidiary of Bank of America, provides a range of investment products and services, including Roth IRAs. With Merrill Edge, users can access various investment options, such as stocks, bonds, ETFs, and mutual funds.
The platform offers self-directed accounts for investors who prefer to manage their own portfolios and advisor-assisted accounts for those who prefer professional guidance.
What are the benefits of Merrill Edge?
Merrill Edge’s standout feature is its access to Certified Financial Planners (CFPs) for personalized advice. Additionally, Merrill Edge users can take advantage of the seamless integration with Bank of America accounts, offering convenience and easy account management.
7. Vanguard
Vanguard is a pioneer in the investment world, known for its low-cost index funds and ETFs. With Vanguard, investors can open a Roth IRA and choose from various investment options.
Vanguard’s platform is designed for self-directed investors comfortable with making investment decisions.
What are the benefits of Vanguard?
One of the significant perks of Vanguard is its exceptionally low expense ratios, which can significantly enhance returns over time. Vanguard also offers access to financial advisors for personalized advice. However, there is a minimum balance requirement to access this service.
How does a Roth IRA account work?
A Roth IRA (Individual Retirement Account) is a tax-advantaged savings account designed to encourage retirement savings. It operates on a simple principle: you contribute after-tax dollars and your money grows tax-free.
Here’s a step-by-step guide to how a Roth IRA works:
Open an account.
First, choose a Roth IRA provider. This could be a brokerage, a robo-advisor like Betterment, or a traditional bank. The best provider for you depends on your personal finance goals and investment preferences.
Make a contribution.
Once your account is open, you can start making contributions. The contribution limits for 2023 are $6,000 if you’re under 50 and $7,000 if you’re 50 or older. These contributions are made with after-tax income.
Choose your investments.
After contributing, you can choose how to invest your money. Most Roth IRA providers offer various investment options, from stocks and bonds to exchange-traded funds (ETFs) and cryptocurrency. If you’re unsure what to choose, consider consulting with a financial advisor.
Watch your investments grow.
Over time, your investments will hopefully grow. The essential advantage of a Roth IRA is that this growth is tax-free. You won’t pay income tax on profits when you withdraw them in retirement.
Withdraw your money.
Once you reach age 59.5, you can start making withdrawals from your Roth IRA without penalty. Because you’ve already paid taxes on your contributions, these withdrawals are tax-free.
Remember, Roth IRAs also have income limits. As of 2023, individuals with a modified adjusted gross income of more than $140,000 (or $208,000 for married couples filing jointly) can’t contribute directly to a Roth IRA.
However, they may still be able to take advantage of a “backdoor” Roth IRA, where they contribute to a traditional IRA and then convert it to a Roth IRA.
Related: Considering a Backdoor Roth IRA? Here’s Why You May Want to Reconsider | Entrepreneur
Roth IRAs also come with some flexibility. You can withdraw your contributions (but not your earnings) at any time, for any reason, without paying taxes or penalties. This makes them a more flexible savings tool than other retirement accounts.
It’s also important to note that Roth IRAs aren’t just for retirement. They can also be used for other financial goals, like buying a first home or paying for education, without incurring early withdrawal penalties.
Whether you’re just starting your retirement savings journey or looking to diversify your portfolio, a Roth IRA could be a valuable addition to your personal finance strategy.
Related: What Is a Roth IRA? How It Works and How to Get One Started | Entrepreneur
What are the benefits of opening a Roth IRA account?
Tax-free growth
One of the primary benefits of a Roth IRA is the potential for tax-free growth. Unlike traditional IRAs, where pre-tax dollars are contributed, Roth IRAs are funded with after-tax dollars.
This means the money in your Roth IRA grows tax-free, and you won’t owe the IRS anything when you withdraw in retirement.
Withdraw contributions penalty-free
Roth IRAs offer flexibility in terms of accessing your funds. You can withdraw your contributions (not the earnings) at any time, for any reason, without incurring penalties or taxes.
This is not common in other retirement accounts and makes Roth IRAs a good option for those who want some liquidity in their savings.
No age limit
Unlike Traditional IRAs, which prohibit new contributions starting the year you turn 72, Roth IRAs have no age limit. This allows individuals to continue contributing to their account balance and taking advantage of tax-free growth as long as they have eligible income.
Potential to qualify for additional tax credits
Depending on your income and filing status, you might qualify for the Saver’s Credit if you contribute to a Roth IRA. This credit could reduce your tax bill or potentially increase your refund.
Related: Should I Use a Roth IRA to Pay for College? | Entrepreneur
Roth IRA account FAQs
How much can you contribute to a Roth IRA?
For 2023, the contribution limit for a Roth IRA is $6,000 or $7,000 if you’re 50 or older. However, your Roth IRA contribution might be limited based on your filing status and income.
How much interest does a Roth IRA earn?
The interest or return on a Roth IRA depends on your chosen investments. Stocks, bonds, ETFs, mutual funds, and even crypto or fractional shares can all be part of a Roth IRA portfolio. Each has its own potential return and associated risk.
Do Roth IRAs have required minimum distributions (RMDs)?
Unlike traditional IRAs, Roth IRAs do not have required minimum distributions during the owner’s lifetime. If you don’t need the money, you can let it grow tax-free throughout your lifetime, making it an excellent wealth transfer tool. However, after the owner’s death, beneficiaries may be subject to RMDs.
Related: Do You Know the Difference Between a Traditional IRA, a Roth IRA and a 401k? | Entrepreneur
Which Roth IRA account is right for you?
Choosing the right Roth IRA provider depends on your personal finance goals, investment style, and comfort level with investing. If you prefer a hands-off approach, robo-advisors like Betterment or services like Fidelity Go and Schwab Intelligent Portfolios could be a good fit.
For self-directed investing, Fidelity, E*TRADE, and Vanguard offer a wide range of low-cost investment options. For access to personalized advice, Merrill Edge and Vanguard provide access to certified financial planners.
Related: Best Retirement Plans – Broken Down By Rankings | Entrepreneur
The best place to start is the list of IRAs discussed above. You can also check out the various IRA programs offered by other financial institutions such as Wealthfront, SoFi, and TD Ameritrade.
Remember, the best Roth IRA account for you is the one that aligns with your financial goals and investment style.
If you want to learn more about investing for the future, check out some of Entrepreneur’s other articles for more information.