Best Place to Open a Roth IRA

Best Place to Open a Roth IRA

Having an individual retirement account, or IRA, is a smart way to plan for retirement and defer paying taxes on your money.

There are three basic types of IRAs: traditional, Roth, and rollover. Each of them have their own advantages and disadvantages. While traditional IRAs force you to take minimum distributions, and pay taxes on withdrawals just like regular income, in a Roth IRA you’ve already paid the taxes and can take distributions when you want to, potentially making it a much better move for some. The tax rate you expect to have in the future is what best determines the right type of IRA for you; if you expect a higher standard of living later, a Roth IRA is your best bet.

With thousands of banks, investment firms, and financial institutions offering IRAs, however, how do you know where to open your account? And what should you be investing in? There are a few financial institutions that rise above the competition when it comes to Roth IRAs. Some offer hands-on management, and others cater more to investors who would rather just contribute without having to spend a lot of time fiddling with the investments in it. We’ll look at both.

What Are Some of the Best Roth IRA Providers?

One financial company that gets high marks all around is Ameritrade. With no account minimum and a large investment selection, it’s a great choice for someone already familiar with investing. Ameritrade also offers free research, if you’d rather take the reins yourself as opposed to paying for broker-assisted trades.

The downside to Ameritrade, however, is that the trade fees aren’t cheap -- $6.95 per trade – so if you need to do some shuffling, those fees could add up quickly. In addition, if you don’t feel comfortable jumping into the mix yourself and prefer to have help from a broker, that could get expensive quickly.

Charles Schwab is another firm with excellent reviews and a stellar reputation built over time. Their fees are lower, at $4.95 per trade, but Schwab also has a $1,000 minimum account balance. They’ll waive that minimum if you’re making automatic deposits of at least $100 per month, and also offer a large selection of index funds your IRA can invest in.

If you’re looking for a deep-discount broker, Ally Invest might be the right choice for you. They offer free account setup, no annual fee, and no minimum account balance, with trade fees of $4.95 and mutual fund fees of $9.95. Ally is online-only, like Ameritrade, but they have a variety of browser tools that will help you get started choosing the right things to invest your IRA in.

Etrade is another well-known name in the investment community. Their trade fees are a bit higher at $6.95, and they require a $500 minimum account balance. They have a tiered fee structure that caters more to hands-on investors who want to trade big and often – if you’re a more casual investor or trading smaller amounts, you could end up paying a lot in fees.

If you’re looking for a place that will let you contribute to an IRA without having to babysit it or spend a lot of time researching the market, Betterment might be the best option for you. They offer no account minimum, and automated account management algorithms that optimize your earnings while staying within the risk parameters that you set.

How Can You Get Help with Opening a Roth IRA?

There are two main avenues to opening one of the best Roth IRAs if you want help with the process, and the path you choose largely depends on how much help you want or need setting it up. Some of it depends whether you’ll want to be hands-on, or just let it sit without a lot of manipulation.

The first avenue involves talking to a financial adviser in the traditional sense. You might visit their offices, shake their hand, and sit down to talk about your goals and your level of comfort with the markets. The adviser goes over their products with you, outlining the various fees and benefits, and you choose the one that fits your goals and financial situation best. Going forward, the adviser would manage your investments for you, choosing a portfolio for your IRA that best suits your needs.

While this traditional approach is convenient, it’s also more expensive than other paths. You would need to not only pay trading fees or other market-related fees, but you’d need to pay your adviser as well, usually a percentage of your total investments held with the adviser. Unless your investments are doing well, you might see those fees eating into your total profits, or even your initial investment. For some folks who want a human to manage their investments rather than a computer, those additional fees might be worth it. For others, there’s another option: robo-advisers.

A robo-adviser is a series of computer algorithms that automatically assess the markets and possible investment opportunities, align it with your personal goals and limitations, and offer the most optimized strategy for growing your money over time. You won’t have a specific adviser assigned to your accounts, and there’s no office to walk into, but robo-adviser sites usually offer a wealth of free research and information, and many robo firms, such as Betterment, offer stellar customer service if you have a question about your investments. Whether you’re an experienced investor or a total beginner, robo-advisers might be the best place to open a Roth IRA.

What Are the Benefits of a Roth IRA?

Before you rush out and open a Roth IRA account, you’re probably interested in why it’s a good idea. Roth IRAs, specifically, have a few perks that make them excellent choices for retirement planning. First, you can currently contribute up to $5,500 per year. That amount can add up quickly with compounded interest, and since you are contributing after-tax funds, it means a steady stream of tax-free income after retirement.

Roth IRAs also offer some flexibility; unlike other IRAs, since you’ve already paid the taxes on Roth funds, you can also withdraw your contributions if you have to, without paying a penalty. There are even situations in which you can take out the accrued interest as well, such as a first-time home purchase, college tuition, or disability.

Opening a Roth IRA is a good idea no matter your age. The benefits are many, and the options for account management are varied. Regardless of the path you take, by choosing one of the best Roth IRAs, you are putting yourself in a solid place to help you save for retirement.