The Simple Dollar’s Top Picks for Best Roth IRA Accounts
- Best Overall: TD Ameritrade
- Best for Beginner Investors: Wealthfront
- Best for Experienced Investors: Fidelity
The Best Roth IRA Accounts
Best Overall: TD Ameritrade
It’s almost a misnomer to callTD Ameritrade a “discount online brokerage” like some of the other investment providers it competes with. TD Ameritrade does offer low fees and a slick online interface, but those features have become standard practices across the industry in the last decade or two. What makes it special is that it remains competitive with its web interface and fees while supporting hundreds of brick-and-mortar locations nationwide and providing best-in-class customer service. TD Ameritrade has won multiple awards from the likes of investment magazine Barron’s to consumer research firm J.D. Power & Associates.
Some financial services firms have been forced into a niche in the era of lower fees and higher competition. But TD Ameritrade still manages to offer the professional, one-stop service of traditional investment providers without the additional cost and red tape.
Five reasons TD Ameritrade stands out:
Excellent customer service: Confused about how to get started? Have an investment that isn’t doing so well, and want an expert opinion? Then stop by your local branch and talk to an expert, use interactive online chat tools, or simply pick up a phone. TD Ameritrade is serious about service and loves to help advise its customers.
Full-service platform: TD Ameritrade doesn’t just offer stock trading and IRAs, but a full suite of investment services — from online banking to 401(k) rollovers to aggressive day-trading accounts. Once you settle in with TD Ameritrade, you have access to other investment ideas, not just Roth IRAs.
Easy dividend reinvestment: If you’re investing in a Roth IRA, you’re looking to compound investment returns over the long term. TD Ameritrade helps you do exactly that with its dividend reinvestment plan (DRIP). In a nutshell, TD Ameritrade will let you take dividends from your investments and automatically reinvest that money. This can save big on commissions over time, and cut out the hassle and complexity of manually reinvesting those quarterly distributions on your own.
In-depth educational resources: Don’t exactly understand what dividends are, or why you should be reinvesting them? No worries — just check out TD Ameritrade’s educational resources, with immersive classes, calculators, investment research, on-demand videos, and a host of other educational tools. There also are client education events at your local branch location if you prefer a human touch.
Low cost structure: It costs nothing to open a Roth IRA, there are no annual maintenance fees, and TD Ameritrade has thousands of commission-free mutual funds perfect for investors looking for diversified, long-term investments. If you want something more sophisticated, commissions on online trades are only $6.95 for stocks and ETFs. That’s cheaper than most of the other providers currently available. Brokers like Ally Invest admittedly may be a hair cheaper at $4.95 a transaction, but you sacrifice a lot of the aforementioned perks like tools and customer service to get to that lower fee structure.
Best Roth IRA for Beginners: Wealthfront
Just as TD Ameritrade helped upend traditional financial service firms by offering a cheaper and more customer-friendly way to invest, new “fintech” companies like Wealthfront are disrupting the space by cutting out, even more, cost and complexity.
The concept is simple: Give your money to Wealthfront and the company will manage your portfolio for you, with almost no effort on your part. And if you sign up through a referral through the Wealthfront Invite program, your first $5,000 is managed 100% free of charge for you and a friend.
For beginners who don’t have a lot of money or market knowledge, this kind of platform is a godsend. Even investment geeks who love to pore over market research and take ownership in their investment strategy will find it undeniable that many Americans have no desire to spend their time doing this, too.
Four reasons to like Wealthfront:
Free for low-balance investors: Yes, that’s right — if you sign up through a referral, Wealthfront is free if you have less than $5,000 in your account. On top of that, you can get another $5,000 managed free with every friend or family member you refer. You may be wondering, “What’s the catch?” Honestly, there isn’t one — it’s a tactic Wealthfront uses to gobble up market share now. It’s betting on success later when it squeezes out the competition. It does make money by charging a 0.25% annual fee on portfolios more than $5,000, but this is a fair fee of $24 annually for every $10,000 invested. And it will take some time for the typical newbie to grow a $10,000 investment account anyway.
Completely hands off: Based on your financial goals and income, Wealthfront sets you up in a fixed group of investments, and then automates its services with a proprietary software system. Investors admittedly sacrifice some customization when you opt for automated “robo advisors” like Wealthfront, but 99% of beginners have simple needs and don’t require complex strategies. So why not let this platform do everything for you?
No cut-rate strategies: Once again, you may be wondering if it’s a trick. Even small accounts are managed with an eye towards diversification, tax efficiency, and low-cost passive strategies — tactics that even top-tier wealth managers employ. So don’t worry that robo advisors tweaking your portfolio are using second-rate techniques. After all, a lot of investment strategy is all about math. Since Wealthfront is looking in the right places, there’s no reason a computer can’t do the calculations instead of a person.
The robo revolution: So much of wealth management involves a dispassionate look at the numbers and the discipline to stick with proven strategies for the long term instead of chasing the latest fads. And frankly, computers are better at both of those things. Companies like Wealthfront are making huge strides to cut the human error out of finance. Being familiar with this space will serve you well as more companies and investment products incorporate techniques like this into their offerings.
Best for Experienced Investors: Fidelity
Fidelity is one of the biggest and most pedigreed investment providers in the U.S. Founded in 1946, the Boston-based company has grown to manage over $2.5 trillion in total assets. Yes, that’s trillion with a T.
Of course, big businesses like this can often forget the little guy. And if you’re a small-time investor without a lot of means or market knowledge, then Fidelity probably isn’t for you.
But, if you have a substantial account balance or you’re a sophisticated investor, you can expect a gold star experience through Fidelity that other Roth IRA platforms simply can’t match. For example, you can link accounts between immediate family members to stay involved in the finances of spouses, parents, or children. Or you can use Fidelity as your bank of choice through its “cash management” option, seamlessly linking your day-to-day budgeting with retirement planning and college savings. This kind of integration is very attractive to higher-end investors.
Four other big reasons to consider Fidelity:
Tons of commission-free funds: Since Fidelity is such a big name, it has plenty of in-house mutual funds you can invest in commission-free. Its relationships with other providers also provide access to thousands of outside mutual funds and almost 100 exchange-traded funds that are commission-free, too. Any experienced investor can easily navigate this massive menu of investments to find what they are looking for and invest in a cost-effective way.
Best-in-class tools: You can use Fidelity’s mutual fund screening tool to find the best investment for your portfolio, and delve into the prospectus of upcoming IPOs in Fidelity’s research center — and you’ll want to, even if you’re not trading in a Fidelity account. That’s how valuable its research and tools are. A lot of investment firms sacrifice extras like the timeliness of their research or the quality of their online tools in order to keep costs down, but when you’re a big dog like Fidelity you don’t have to cut corners.
Contribution matching: Under one of Fidelity’s current promotional offers, opening up a new Roth IRA account there entitles you to matching contributions going forward. (Up to $1,950 in additional cash over the next three years!) Obviously, if you don’t have a lot of money to invest in a Roth, then you won’t get much back here, but for those who have the means to save significant amounts consistently, Fidelity offers a huge perk via this gift of matching funds.
One-stop shop: If you have a decent account balance, not only does Fidelity provide perks specific to its Roth IRA platform, but the investment firm is also eager to cross-sell you into other products with similar bonuses. Take the Fidelity Rewards Visa card, which deposits an unlimited 2% cash back directly into your Fidelity accounts with no annual fee. You already have a credit card, why not get a 2% rebate on your purchases to help save for retirement? When you get older and want to open up a 529 college savings plan for your kids or buy an annuity for yourself, Fidelity has you covered there too, at highly competitive rates. That kind of stuff is admittedly a non-issue for a 23-year-old grad student, but those who have more complex financial needs and a bit more cash in the bank will see a ton of benefit to doing business across the board with Fidelity.
What Is a Roth IRA?
If you’re a newbie, you may be wondering what a Roth IRA is, and what the difference is between a Roth IRA and a traditional IRA. Both are tax-advantaged accounts designed to help you save for retirement, but their tax breaks are almost total opposites of each other:
- A traditional IRA allows you to make before-tax contributions to retirement savings, reducing your taxable income (and therefore your tax bill) this year. When you withdraw funds from a traditional IRA in retirement, however, it will be taxed as income.
- With a Roth IRA, you contribute after-tax dollars, and you can withdraw your funds (including any gains) tax-free in retirement. Unlike a traditional IRA, there are no upfront tax deductions for your contribution to a Roth IRA.
A Roth IRA makes a lot of sense if you’re in a low tax bracket now and expect that your tax rate could be higher after you retire. It also offers some flexibility that a traditional IRA doesn’t — for example, you can withdraw funds penalty-free for educational expenses.
Roth IRA vs. Traditional IRA
|Traditional IRA||Roth IRA|
|Age requirements:||Contribute until age 70 1/2.||No age limit.|
|Income restrictions:||No income limits.||For 2019, eligibility begins to phase out after $137,000 (or 203,000 for married couples).|
|Tax benefits:||Tax-deductible contributions, tax-deferred growth.||Tax-free withdrawals in retirement, tax-free growth.|
|Early withdrawal penalties:||Possible 10% penalty if you withdraw before age 59.5.||Earnings withdrawn before age 59.5 may be subject to taxes, plus a 10% penalty (contributions can be withdrawn tax- and penalty-free).|
|Taxes on withdrawals:||Withdrawals are taxed as ordinary income.||Withdraw contributions tax free and pay no federal taxes on investment gains withdrawn after age 59.5.|
Why Invest in a Roth IRA?
A Roth IRA differs from tax-deferred plans like a “traditional” IRA or a 401(k) in that your contributions come from after-tax dollars. That means you’ve already paid your share to Uncle Sam with money from your paycheck, and thus your eventual withdrawals from a Roth IRA aren’t subject to taxes.
Why does this matter? Well, because tax rates get bigger the more money you make. Take a look at tax brackets for 2019:
|Single Filers||Married Joint Filers||Head of Household Filers|
|$0 to $9,700||$0 to $19,400||$0 to $13,850|
|$9,701 to $39,475||$19,401 to $78,950||$13,851 to $52,850|
|$39,476 to $84,200||$78,951 to $168,400||$52,851 to $84,200|
|$84,201 to $160,725||$168,401 to $321,450||$84,201 to $160,700|
|$160,726 to $204,100||$321,451 to $408,200||$160,701 to $204,100|
|$204,101 to $510,300||$408,201 to $612,350||$204,101 to $510,300|
|$510,301 and up||$612,351 and up||$510,301 and up|
If you and your spouse are making six figures apiece, then it makes sense to defer your taxes with an investment vehicle like a 401(k). After all, you’re already near the top end of the tax bracket, so there’s a good chance you’ll be paying a lower tax rate come retirement when you’re “earning” comparatively less, perhaps living off a combination of Social Security and nest-egg withdrawals.
But if you’re only making $35,000 a year at your first job, then you’re paying an effective tax rate of 12% or less on your earnings. So, why not lock in that super-low rate in by investing after-tax wages in a Roth IRA?
Remember, a traditional IRA or 401(k) defers your taxes — so you’re not paying the known 12% tax on your investment funds now, but will pay an unknown tax amount when it’s withdrawn in retirement. So, if you have a good stream of investment income in a few decades or, if Congress raises taxes in the intervening years, then Uncle Sam can take a significantly bigger piece of the pie.
It’s important to know that even those with higher incomes could potentially benefit from a Roth IRA, too, since the staggering national debt and low tax rates by historical standards make it more likely taxes will go up than down in the future. It might be better to pay a known tax rate now than a potentially higher one down the road. There are income limits that determine eligibility for Roth IRAs, though; if you make more than $137,000 as a single filer or $203,000 as a married couple, you won’t be able to contribute the full amount.
Every situation is specific to your family budget, tax situation, and retirement plans, of course. But generally speaking, a Roth IRA is a powerful way for most Americans to lock in a low tax rate and guarantee it’s YOU reaping the rewards of your savings and investment plan in the future — not the IRS. To learn more about IRA accounts, read our guide to the best IRA accounts.
How We Chose the Best Roth IRA Accounts
In researching the best Roth IRAs, we looked at nine popular brokerages, investment firms, and robo-advisors, including:
- Charles Schwab
- Interactive Brokers
- Merrill Edge
- TD Ameritrade
We looked for platforms that offered the following:
- Ease of use: Staying disciplined with your savings is hard enough without the added hassle of figuring out how your Roth IRA provider works. A good Roth platform will have an intuitive interface so you can easily find out your account balance, move money with ease and stay in control. Otherwise, your savings won’t be growing as fast as they could.
- Tools: Picking specific investments can be intimidating, so a good Roth IRA platform offers software or screeners that uncover the best investment options for you. And in addition to helping you grow your investments, good tools also explain costs in a transparent way so you can keep more of your money.
- Educational materials: Researching individual investments is important, but so is understanding how the markets function and what other tools and tactics you could be employing. Even investors who consider themselves veterans are still curious about the latest tips and tricks to make a buck. A good Roth IRA platform will grow your knowledge as well as your nest egg.
- Flexibility across asset class: Of course, it’s one thing to learn about investment strategy and another to actually put those strategies into practice. A good Roth IRA platform won’t give you just education and research about other techniques, but also let you make those trades in a cost-effective way.
- Low fees: We can’t overstate the importance of low fees: It’s the single best predictor of future investment returns. The less you pay your investment provider, the more money you keep in your investments to grow over time. Even seemingly small fees can add up, so a cost-effective structure is a key part of any good Roth IRA platform.
The Bottom Line
When you’re young and not making much money, saving for retirement is way down on your list of priorities. But a Roth IRA is a great way to pay a low tax rate now and save more of your hard-earned cash down the road. And in some cases, even higher income investors can benefit from a Roth by opting for current tax rates in order to protect themselves from the risk of higher taxes in the years to come.
Thankfully, there are a host of great providers out there to fit your personal Roth IRA goals. TD Ameritrade is an amazing one-stop shop for many investment needs, including Roth IRAs. For beginners, Wealthfront offers hassle-free, automated investment management and financial planning at no additional cost (or effort) to you. And for those experienced investors who want to get into the nitty-gritty of their investments, the research and contribution matching of Fidelity make it a powerful platform for Roth IRA investing.