Best Place To Open A Roth IRA in 2020

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A Roth IRA is one of the very best retirement accounts available. Some even believe it to be the best overall investment plan – bar none.

Either way, a Roth IRA is an excellent plan to have in place.

Much like a traditional IRA, you can hold a Roth IRA in a self-directed account, giving you complete control over your investments. And though you can’t take a tax deduction for your contributions to the plan, your withdrawals 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? I’ll be providing an answer to this question in this guide, along with explaining the many other benefits of a Roth IR.

The Best Roth IRA Accounts

Here are the best Roth IRA Accounts for 2020:

Where to open a Roth IRA is a bit of a complicated question. As you can see, there are several options, and they are good options at that.

You should start by investigating the different broad types of investment platforms where you can open an account. Since different groups of investment companies provide various services and benefits, you’ll need to know exactly how you want to invest when making this decision.

Once you’ve decided on a general type of investment platform, you can then choose one from the options within the group.
But start by carefully evaluating how you want to invest. Once you’re clear on that point, the best place to open a Roth IRA will become easier to determine.

Below, I’ve provided the basic types of investment platforms, as well as several specific companies under each.

Self-Directed Roth IRA Investment Brokers

This is the group you’ll need to consider if you prefer to choose and manage your own investments. By working with a diversified investment broker, you’ll be able to choose among individual stocks, bonds, options, mutual funds, ETFs, and many other investments.

A good investment broker will have a combination of low or no fees, a wide selection of investment types, and plenty of investor tools and resources to help you be more successful in your investing activities.

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

Ally Invest

Ally Invest is a small fry compared to Charles Schwab and Fidelity, but it offers many of the same services. However, it has a specialization in options trading, offering superior trading tools and investor resources in that category.

One big advantage is the tie-in with Ally Bank, which offers some of the most aggressively priced savings instruments in the industry. It’s a good way to add completely safe bank investments to your portfolio.

Ally Invest Features:

  • No minimum initial investment required.
  • There are 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 an account.

Charles Schwab

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

Not only do they offer options to trade in virtually all investments, but they also have a robo-advisor, Charles Schwab Intelligent Portfolios, which will allow you to 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 is the second largest investment broker and offers services very similar to Charles Schwab.

Not only does that include the full range of investment products, but they also offer their own robo-advisor, Fidelity Go. And again, like Charles Schwab, Fidelity offers top-notch customer service, including nearly 200 local branches.

Fidelity Features:

  • No 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 inexperienced investors.

E*TRADE

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

E*TRADE offers trading in all investments, and also provides its own 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 similar to other brokers on this list. But where they’re particularly strong is with their tie-in with TD Bank. The Bank has more than 1,200 branches in 15 East Coast states and a representative from TD Ameritrade on-site at each.

TD Bank also has the distinction of having the most extensive hours of any bank in the country, including Sunday hours. As well, TD Ameritrade has more than 360 local investment branches.

TD Ameritrade Features:

  • No minimum initial investment required.
  • No trading fees on stocks, ETFs and options, 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.

Roth IRA with Robo-Advisors

If you don’t have much experience with investing, or you don’t have either the time or the desire to manage your own investments, you should seriously consider a robo-advisor.

These are automated, online investment platforms that create a portfolio for you, then fully manage it going forward. This includes automatic reinvestment of dividends and periodic rebalancing to maintain target asset allocations.

In addition to the automated management factor, robo-advisors can manage your portfolio at a fraction of the cost of traditional human investment advisors.

As the robo-advisor concept has grown, many platforms are offering specialized investing, such as strategies to outperform the market, rather than simply match it.

Three popular robo-advisors for Roth IRA accounts are as follows:

Betterment

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

Betterment is the first robo-advisor to hit the market, and it remains the largest independent one. At least some of your stock allocations are 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 outsized gains. Apart from value investing, you’ll get a complete balanced portfolio, comprised of the US 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 logo
M1 Finance is a truly different type of robo-advisor. They work on a system called “pies” where each pie is its own distinct portfolio, consisting of as many as 100 ETFs and individual stocks.

They offer 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

Wealthfront is Betterment’s primary competitor among independent robo-advisors. And while the two platforms have many similarities, some differences can affect which one you go with.

Like Betterment, Wealthfront invests your portfolio in stocks and bonds. But they also include 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-free 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 necessarily 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 come to take loans, while investors come to fund those loans for a return on their investments.

That return is considerably higher than what you can get on certificates of deposit and US Treasury securities. They do come with higher risk, but you have a strong measure of 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, being a smaller platform, Prosper has fewer potential investments than Lending Club does. But Prosper does allow you to open 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 are IRAs in most respects. The main difference is that you’re exchanging the tax deductibility of your plan contributions now for tax-free withdrawals in retirement.

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.

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.

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.

Find The Best Brokerage to Open a Roth IRA

best roth ira accounts
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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