Best Place To Open A Roth IRA in 2020

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There’s no doubt a Roth IRA is one of the best retirement accounts in the U.S. Some personal finance experts call Roth IRAs your best investment account, bar none.

Why? Because in a Roth IRA savers control their own investments, unlike in a 401(k) which an employer manages.

Why else? Because even though you can’t deduct your annual contributions to your Roth IRA, as you could with a traditional IRA, your withdrawals from the account will be tax-free once you reach retirement age.

Now that you understand the value of a Roth IRA, the next question should be where to open a Roth IRA? In this post I’ll help you answer this question. Then I’ll explain the many other benefits of a Roth IRA.

12 Best Roth IRA Accounts

Here are the best Roth IRA Accounts for 2020:

  1. Ally Invest
  2. Charles Schwab
  3. Fidelity
  4. E*Trade
  5. TD Ameritrade
  6. Merrill Edge
  7. Betterment
  8. Wealthfront
  9. M1 Finance
  10. Vanguard
  11. Lending Club
  12. Prosper

Deciding where to open a Roth IRA is more complicated than you might think. Why? Because you have several options, and they are all good options!

Different brokers provide different benefits. To find your best Roth IRA option, you’ll need to know exactly which benefits you need.

When you know what you need, and you know the companies that best provide your needs, the best place to open a Roth IRA will become more clear to you.

To help with this process I’ll provide the basic types of investment platforms below, as well as several specific companies under each.

Self-Directed Roth IRA Investment Brokers

If you prefer to choose and manage your own investments, go with a broker from this first list. By working with a diversified investment broker, you’ll be able to choose from individual stocks, bonds, options, mutual funds, ETFs, and many other investments.

You’ll have the most control over your retirement savings account.

A good investment broker will have a combination of:

  • low or no transaction fees to help you meet retirement goals sooner.
  • a wide selection of investment options.
  • plenty of investor tools and resources to help even new investors find success.

Below are six well-known investment brokers for Roth IRA accounts:

Ally Invest

Ally Invest is small potatoes compared to Charles Schwab and Fidelity, but it offers many of the same services — along with a specialty in options trading. Ally Invest has better resources for options traders.

Another big advantage is broker’s tie-in with Ally Bank, which offers some of the most aggressively priced savings accounts and CDs in the industry. You’d have a seamless way to add completely safe, FDIC-insured, bank investments to your portfolio.

Ally Invest Features:

  • No account minimum or minimum initial investment required.
  • No trading fees on stocks, ETFs, and options; $9.95 per trade on mutual funds.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • 24/7 live customer support but no local branches.
  • Currently offering a bonus paying $50 to $3,500 to open account.

Charles Schwab

Charles Schwab, the world’s largest investment broker, supports all account types, including Roth IRAs. The company is known for its outstanding customer service.

Not only does Schwab offer virtually all investment options, but it also has a robo-advisor, Charles Schwab Intelligent Portfolios, which lets you mix self-directed investing with a managed option within the same account.

Charles Schwab Features:

  • No minimum initial investment required.
  • There are no trading fees on stocks, ETFs, and options plus more than 4,000 no-fee mutual funds.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • 24/7 live customer support, and more than 300 local branches.
  • Excellent broker for inexperienced investors.

Fidelity

Fidelity, the second-largest investment broker, offers services very similar to Charles Schwab.

Fidelity provides the full range of investment products and has also added its very own robo-advisor, Fidelity Go. And again, like Charles Schwab, Fidelity offers top-notch customer service, including nearly 200 local branches.

Fidelity Features:

  • No account minimum or minimum initial investment required.
  • There are no trading fees on stocks, ETFs, and options, plus more than 3,700 no-fee mutual funds.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • 24/7 live customer support, and more than 200 local branches.
  • Excellent broker for beginning investors.

E*TRADE

Much like Ally Invest, E*TRADE has created an excellent platform for trading options. That makes sense since E*TRADE acquired one-time options specialist broker OptionsHouse.

E*TRADE offers trading in all investments, and also provides its own low cost robo-advisor, E*TRADE Core Portfolios.

E*TRADE Features:

  • No minimum initial investment required.
  • There are no trading fees on stocks, ETFs and options, and over 4,400 no-fee mutual funds.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • 24/7 live customer support as well as 30 local branches.
  • Currently offers a bonus paying up to $600 cash credit on qualifying new deposits.

TD Ameritrade

TD Ameritrade works like the other brokers on this list, but its connection to TD Bank makes it a great place for your individual retirement account.

TD Bank has more than 1,200 branches in 15 East Coast states and a representative from TD Ameritrade on-site at each branch.

TD Bank’s branches stay open later than any other bank’s, and its branches open on Sundays. Along with its presence in TD Bank branches, TD Ameritrade has more than 360 local investment branches.

TD Ameritrade Features:

  • No minimum initial investment required.
  • No fees on stocks, options, or ETF trades, and over 4,000 no-fee mutual funds.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • 24/7 live customer support as well as more than 360 local branches, and representatives in more than 1,200 TD Bank branches on the East Coast.
  • Currently offering a bonus paying up to $600 cash credit on qualifying new deposits.

Merrill Edge

Bank of America customers who already work with a Merrill financial advisor know about this firm’s excellent financial planning tools.

Anyone can open a Roth IRA and start investing with Merrill Edge. Along with low fees, Merrill has some of the best market research in the industry.

This research includes a “fund story” for mutual funds which lets you see exactly what makes up the fund before you invest.

Merrill Edge Features:

  • Best bond and stock market research in the industry.
  • No minimum opening deposit or investment required.
  • No fees on stocks or ETFs; about 2,700 no-fee mutual funds; options cost 65 cents per contract.
  • Offers stocks, bonds, mutual funds, ETFs, options, and managed portfolio plans.
  • In-person staff at Bank of America branches across the country + 24/7 customer support via phone and app.
  • No account fees except to transfer to another broker ($49.99).

Roth IRAs with Robo-Advisors

If you want to start retirement planning without learning the nuances of investing, consider consider a robo-advisor instead of a full-service broker for your Roth IRA.

Robo-advisors create a portfolio for you and then fully manage your account online. This management includes automatic reinvestment of dividends and periodic rebalancing to maintain your target asset allocations.

Because they rely on computer algorithms instead of human knowledge, robo-advisors can manage your portfolio at a fraction of the cost you’d pay a human financial advisor.

As robo-advisors have grown, many platforms even offer specialized investing strategies. You can choose an algorithm designed to outperform the market, for example.

The best three robo-advisors for Roth IRA accounts are:

Betterment

Best For: Automated investment management with an opportunity to outperform the market.

Betterment was the first robo-advisor to hit the market, and it remains the largest independent robo. At least some of your Betterment stock allocations will be invested in value-oriented stocks, which allows you to outperform the market over the long-term.

Value stocks trade at below their fundamental values, providing an opportunity for out-sized gains. Apart from value investing, you’ll get a complete balanced portfolio comprised of U.S. and foreign stocks and bonds.

Betterment Features:

  • No minimum initial investment required.
  • Your account is managed for an annual fee of 0.25%. A $20,000 portfolio can be managed for $50 per year.
  • Offers specialized portfolios, such as socially responsible investing, an income portfolio, and a Smart Beta option.
  • No trading fees on investments in your portfolio.
  • Live customer support, Monday through Friday, 9:00 am to 6:00 pm, and weekends, 11:00 am to 6:00 pm, all times Eastern.

M1 Finance

Best For: Investors who want automated investment management, but also want to select their own investments.

M1 Finance is a truly different type of robo-advisor. It works on a system called “pies” where each pie is its own distinct portfolio, consisting of as many as 100 ETFs and individual stocks.

M1 offers pre-built pies, but you can also create your own, based on investment themes you select. You can have an unlimited number of pies in your account. Once you set up your pies, the M1 Finance robo-advisor manages each for you. And best of all, it’s a fee-free investment platform.

M1 Finance Features:

  • No minimum initial investment required.
  • There are no fees for managing your account, and no trading fees within your pies.
  • You can create your own portfolios – as many as you want – and then have them fully managed by the platform.
  • Pie investments are limited to ETFs and individual stocks only (no mutual funds or fixed income options).
  • Live customer support limited to regular business hours.

Wealthfront

Best For: Investors looking for automated investing with broader diversification.

Wealthfront is Betterment’s primary competitor among independent robo-advisors. And while the two platforms have many similarities, a few of the differences can affect which robo you choose.

Like Betterment, Wealthfront invests your portfolio in stocks and bonds. But it also includes allocations in real estate and natural resources. This can be a major advantage if inflation accelerates since those two assets tend to perform well during times of rising prices.

Wealthfront Features:

  • $500 minimum initial investment required.
  • Your account is managed for an annual fee of 0.25%. A $20,000 portfolio can be managed for $50 per year.
  • In addition to investment allocations in stocks and bonds, your portfolio also includes real estate and natural resources.
  • No trading fees on investments in your portfolio.
  • Live customer support, Monday through Friday, 11:00 am to 8:00 pm, but on weekends.

Roth IRA Fund Investing

Maybe you don’t want to engage in self-directed investing, but you’re not keen on rob-advisors either?

You do have another choice. You can choose to open your Roth IRA account with a fund family that offers mutual funds and exchange-traded funds.

Each of these funds represents a pre-selected, professionally managed portfolio of related stocks. You can even invest in index funds that match the general market. Funds can be either actively managed, in an attempt to outperform the market, or passively managed to match the market.

Vanguard is the single best choice for a Roth IRA if you prefer to invest in funds.

Vanguard

Vanguard offers some of the biggest and most popular funds in the investment universe. They’re so well-respected that their funds appear in almost every robo-advisor portfolio in the industry, as well as many traditional human investment advisors guided portfolios.

Unfortunately, Vanguard isn’t a good broker choice for trading individual securities. They offer that service, but they’re one of the last major firms still charging a trading fee on stocks. But this is the perfect platform if you only want to invest in funds.

Vanguard Features:

  • No minimum initial investment required to open an account, but individual mutual funds may require a minimum of $1,000 to $3,000 to invest.
  • $2 to $7 on stock trades, based on account size; 1,800 no-fee ETFs and over 3,000 fee-free mutual funds.
  • Stocks, bonds, options, ETFs, mutual funds, annuities, and CDs offered.
  • Live customer support, Monday through Friday, 8:00 am to 10:00 pm Eastern time.

Roth IRA Peer-to-Peer (P2P) Investing

If you don’t want to invest in stocks but aren’t thrilled with the relatively low interest rates currently being offered on bonds, bank investments, and other fixed-income securities, you can choose to invest in peer-to-peer lending.

These are online marketplaces for personal loans (though many platforms offer other types of loans as well). Consumers visit the site to take out loans, while investors come to fund those loans for a return on their investments.

That return is considerably higher than what you can earn from certificates of deposit and US Treasury securities. But P2P investing comes with higher risk, although you do have control over the type and quality of loans you invest in.

And even after adjusting for loan defaults, the investment returns are still well above those of traditional fixed-income investments.

The two largest and most popular peer-to-peer investment platforms are as follows:

Lending Club

Lending Club allows you to invest in a variety of loans, including personal loans, medical loans, and even business loans. You can choose which individual loans you’ll invest in, as well as the risk grades assigned to each.

Be aware, however, that some states impose accredited investor requirements, while others have their own income and net worth requirements.

Lending Club Features:

  • Minimum investment requirement for IRAs is $6,000.
  • No annual fee to maintain an account, but a 1% management fee will be deducted from your investment earnings.
  • Offers tools to help you screen and select loans you want to invest in.
  • Each loan you invest in has a term of between 36 and 60 months.
  • Not available in Alaska, New Mexico, North Carolina, Ohio or Pennsylvania.

Prosper

Prosper is the second largest P2P site, after Lending Club. And as you might expect, the two platforms are very similar. However, Prosper offers investments only in personal loans, not business loans.

Also, as a smaller platform, Prosper has fewer potential investments than Lending Club. But Prosper does allow you to open and claim the tax benefits of a Roth IRA account with far less money.

Prosper Features:

  • Minimum investment requirement is $25.
  • No annual fee to maintain an account, but a 1% management fee will be deducted from your investment earnings.
  • Offers tools to help you screen and select loans you want to invest in.
  • Each loan you invest in has a term of between 36 and 60 months.
  • You may be able to redeem your notes early through an arrangement with Folio Investing, but it may be for less than the full amount of your investment.
  • Not available in all states.

What is a Roth IRA?

Roth IRAs work like traditional Individual Retirement Accounts in most respects. Anyone who earns income from work can open a Roth IRA and contribute retirement savings.

Both kinds of IRAs have tax benefits. With a traditional IRA you can deduct the money you deposit (up to the $6,000 contribution limit) from your earned income at tax time.

With a Roth IRA you do not get this tax benefit, but you will be able to withdraw money tax free after you reach retirement age.

As long as you’re at least 59 ½, and have participated in a plan for at least five years, your withdrawals from a Roth IRA – both contributions and accumulated investment earnings – can be taken free from ordinary income tax.

Roth IRAs also have an annual IRA contribution limit of $6,000 ($7,000 if your’e 50 years old or older).

How Do Roth IRAs Work?

You can make an annual contribution of as much as $6,000 per year, or $7,000 if you’re 50 or older. Once you decide where to open a Roth IRA, you’ll be free to invest the funds anywhere you want. That’s because a Roth IRA is a self-directed account.

Roth IRA contributions are subject to income limits. If your income reaches or exceeds those limits, your contribution will either be limited or completely disallowed.

The Roth IRA contribution income limits for 2020 are:

  • Single, head of household, or married filing separately and you didn’t live with your spouse, allowing up to an income of $122,000, gradually phases out up to $137,000, after which it’s no longer permitted.
  • Married filing jointly, allowed up to an income of $193,000, gradually phases out up to $203,000, after which it’s no longer permitted.
  • Married filing separately and you lived with your spouse gradually phases out up to an income of $10,000, after which it’s no longer permitted.

Every year or two the IRS changes these income limits and IRA contribution limits.

Traditional IRA vs. Roth IRA – What’s the Difference?

When it comes to a Traditional IRA vs. a Roth IRA, the main differences are as follows:

  • Contributions to a traditional IRA are generally tax-deductible; contributions to a Roth IRA are not.
  • Retirement withdrawals from a traditional IRA are taxable as ordinary income; retirement withdrawals from a Roth IRA are free from ordinary income tax.
  • Roth IRA contributions can be withdrawn at any time, free from taxes and the 10% early withdrawal penalty. Withdrawals taken from a traditional IRA before age 59 ½, are subject to ordinary income tax and the 10% early withdrawal penalty.

Traditional IRAs are subject to RMDs (see next section) beginning at age 70 ½; Roth IRAs are not.

What Are the Benefits of a Roth IRA?

We just discussed the primary benefit that Roth IRA withdrawals are tax-free. But there are other benefits.

Since Roth IRA contributions are not tax-deductible, they can be withdrawn at any time before reaching 59 ½, without being subject to either ordinary income tax or an early withdrawal penalty.

The IRS even allows you to withdraw all your contributions before including accumulated investment earnings. This will enable you to access your funds if the need arises before retirement.

Roth IRAs are also not subject to required minimum distributions (RMDs). In fact, Roth IRAs are the only retirement accounts that are not subject to RMDs.

RMDs must begin at age 70 ½. The intention is to force money out of tax-sheltered retirement plans, where it will be subject to income tax. Since Roth IRAs are not subject to this requirement (and the distributions wouldn’t be taxable anyway), you can let the account grow for the rest of your life.

Should I Open a Roth IRA?

Generally speaking, a Roth IRA is recommended for those who expect to be in a relatively high tax bracket in retirement. Though most people expect to be in a lower tax bracket, the opposite is possible.

If you have retirement income from multiple sources – Social Security, pensions, taxable investments, rents, or even some earned income – you may be in a higher tax bracket than you expect. A Roth IRA can provide tax-free distributions that will lower your tax liability.

It’s also an excellent choice if you think you may need to access the funds in your account before retiring. Once again, you can withdraw your contributions without creating a tax liability or being subject to an early withdrawal penalty.

Finally, a Roth IRA is a recommended strategy if you’re concerned about outliving your retirement savings. Since you’re not required to begin taking distributions at age 70 ½, your Roth IRA can function as an income source of last resort.

You can draw funds out of all other accounts, and allow your Roth IRA to continue growing while other accounts are becoming depleted.

Can I Change my Traditional IRA to a Roth IRA?

This is one of the most common FAQs. The answer is yes, you can convert your traditional IRA into a Roth IRA but there is a catch.

You have to pay taxes on the money you move into the Roth IRA since Roth IRA contributions come from after-tax money and the money in your traditional IRA was never taxed.

Can I Convert my 401(k) to an IRA?

Employers manage 401(k) accounts on behalf of their employees. If you’d like to move your 401(k) into an IRA, ask your broker about a rollover.

In many cases, a rollover is tax-free, although rolling a traditional 401(k) into a Roth IRA will expose your savings to taxation.

Find The Best Brokerage to Open a Roth IRA

If you don’t have a Roth IRA already, you’re missing out on one of the best investment plans ever created. Sure, you may not get the tax deduction that comes with contributions made to traditional IRAs and other retirement plans.

But you’ll be getting the benefit of tax-free income when you finally begin taking distributions in retirement.

Review this guide carefully and select the best place to open a Roth IRA. As the years pass, you’ll come to realize it was one of the smartest financial decisions you ever made.

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