What Is a Roth IRA?
A Roth IRA is a special retirement account that you fund with post-tax income (you can’t deduct your contributions on your income taxes). Once you have done this, all future withdrawals that follow Roth IRA regulations are tax free.
There is no up-front tax deduction for Roth IRA contributions, as there is with a traditional IRA, On the other hand, Roth distributions are tax-free when you follow the rules. And because every penny you stash in a Roth IRA is your money—not a tax-subsidized gift from Uncle Sam—you can tap your contributions (but not your earnings on those contributions) at any time, tax-free and penalty-free.
Like beauty, the benefit of a Roth IRA is in the eye of the beholder. It all depends on the beholder’s tax bracket—both now and when he or she retires.
Best Overall: Charles Schwab
Charles Schwab has education resources beginners will need to navigate investing, while its sophisticated tools will attract active traders. Schwab offers low commissions paired with high-quality research and a broad range of investment options.
Point-of-Emphasis: For cost-conscious investors, Schwab offers $4.95 commissions, putting it right in line with the other big-name full-service brokers. For ETF investors, it does even better, offering more than 250 commission-free ETFs. So you can get in the ETF game completely free, saving those extra dollars to invest even more. And mutual fund investors can find something to love in the broker’s offering of more than 4,000 no-load, no-transaction-fee funds. With no account minimum, it’s even easier to get started.
Best Robo-Advisor: Betterment
Betterment offers a broad range of goal-oriented and helpful investment options for anyone looking to have someone else make their investment decisions. Betterment is a trusted name in the robo space, and is much cheaper than many of its competitors.
Point-of-Emphasis: As one of the oldest and largest robo-advisers, Betterment is a trusted name in the robo space. The company offers two tiers of service: Digital and Premium. Betterment Digital manages your investments from a selection of about a dozen exchange-traded funds and charges just 0.25 percent of your assets annually, still cheaper than many rivals. You’ll get automatic rebalancing, so that your portfolio stays in line with its target allocation, and access to financial advisers via in-app messaging. If you want the Premium package, you’ll need $100,000 in your account and will pay 0.4 percent, but you’ll receive unlimited access to a team of certified financial planners.
Best for New Investors: Fidelity
With its clean layout, helpful customer representatives, competitive trading commissions and all-around low fees, Fidelity is an excellent broker for beginning investors or those opening their first Roth IRA.
Fidelity also features a well-developed educational section, which is great for customers who are new to the new investing game and want to get up to speed quickly.
Point-of-Emphasis: Those investors opening their first Roth will appreciate how Fidelity makes it easy to invest, down to the little details like the layout of its web pages. It’s easy to place an order or find information. Fidelity also takes a customer-first approach with its fees. The broker has slashed nearly all its fees, including pricey transfer fees, making Fidelity customer-friendly. It’s also chopped fees on its mutual funds, becoming the first broker to bring the annual expense of mutual funds to zero (for a handful of its own funds.) It’s all great for newer investors.
Cheapest Roth IRA: Vanguard
Vanguard is best for investors who are looking to minimize their investing costs like trade fees and commissions. Vanguard is best for buy-and-hold investing, as it offers incentives for holding positions over time.
Point-of-Emphasis: The interesting part is where Vanguard incentivizes you to trade infrequently. For clients with less than $50,000 in their accounts, the first 25 trades in a year cost $7 per trade, in line with other brokers. If you want more trades than that, they’ll cost $20 per trade. If you have more than $50,000, the trades start at $7 and become cheaper as you have more assets.