Do you know what your income tax rate will be in the future?
The answer to that question will determine whether an investment in a traditional or Roth IRA is best. If you think your tax rate will be lower in the future then it makes sense to avoid paying tax now through a tax-deferred investment vehicle like a Traditional IRA.
You enjoy a tax deduction today, boosting your monthly cash flow, helping your money grow more efficiently over time.
The downside to a Traditional IRA, though, is that when you withdraw the money you will pay taxes on it as though it is regular income.
Plus, when you reach a certain age, you will be required to take minimum distributions.
Depending on your situation, you withdrawals from a Traditional IRA could cause greater financial difficulties than you thought — and Uncle Sam might get a bigger cut than you thought
Where to Open a Roth IRA: Best Roth IRA Companies
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One of the great things about a Roth IRA is the fact that you can open one with virtually any reputable broker. You also have a great deal of flexibility in terms of the assets you can hold in a Roth IRA. While there are some who hold precious metals, real estate, and even certain businesses in their Roth accounts, most consumers are better off using an approach that focuses on stock and bond index funds or ETFs. These assets are low-cost, easy to understand, and don’t come with a bunch of red tape.
Most online brokers will help you open a Roth IRA, and many of them offer low-cost fund choices. Additionally, many of them waive transaction fees when you sign up for an automatic investing plan and make monthly contributions, learn more about Roth IRA rules and contribution limits here!
Just getting started investing? Check out our Best Online Brokers for Beginners. Wanting to invest small? Here are some ideas on the best way to invest 1000 dollars.
There is no shortage of discount brokerage firms that will let you open a Roth IRA with them. For most investors the number of mutual funds or crazy ETFs you have access to really doesn’t matter. A basic, properly diversified portfolio can be constructed with any of the discount brokerage firms. This makes the main point of emphasis fees and transaction costs.
Scottrade – Top All Around Roth IRA
Scottrade is an online and brick-and-mortar discount brokerage firm, which is one of the reasons why I like it so much.
Not only do you get inexpensive trading costs, but if you ever want to sit down with a live human being you can at one of Scottrade’s 500+ branches around the country.
The firm has kept their trade costs steady at $7 per stock and ETF trade for years. Mutual fund trades vary based on the type of fund with a maximum trade commission of $17. If you construct a Roth IRA based on ETFs, you can get the lowest possible transaction fee.
I like Scottrade so much I even created an account there. You can watch a video that takes you step-by-step through the account opening process with Scottrade: Opening a No Fee Roth IRA with Scottrade.
While you can learn more in detail by reading our Scottrade Review, here are a few key points to know:
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Account minimum: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $7 per stock or ETF trade, maximum of $17 per mutual fund trade
A regular trading account with Scottrade comes with an account minimum of $2,500. However, for a Roth IRA, you aren’t required to maintain a minimum.
Open an Account with Scottrade and enjoy low trading costs on stocks, ETFs, and mutual funds.
Betterment – Best Roth IRA for Hands Off Investing
In recent years, Betterment has made a splash in the world of investing. If you are a hands-off investor who wants to grow retirement wealth over time, Betterment might be the right choice for you. You can learn more about Betterment by reading this Betterment Investment Review.
Betterment charges a percentage based fee on the total amount you have invested with the firm. Instead of charging $20 for every mutual fund transaction, or charging you a separate rate to administer your Roth IRA plus the expense ratio on the index fund or ETF, Betterment charges between 0.15% to 0.35% of the money you have invested on an annual basis. The higher your account balance, the lower your fee. It’s a different kind of brokerage firm aimed at those who don’t want to have to make decisions on specific mutual funds or ETFs.
Betterment creates a portfolio for you based on your risk profile, using only stock and bond ETFs. You answer questions about your risk profile, and Betterment does the rest. You do need to sign up for automatic investing, and commit to $100 per month in order to use Betterment.
One of the features offered by the Betterment Roth IRA is the ability to automatically contribute the maximum each year. Betterment will figure out how much you need to contribute each month to hit the maximum, and if the IRS raises the contribution limit, Betterment will automatically adjust your monthly contribution to match. This isn’t required, though, so if you can only start with $100 a month, that’s your choice.
Right now, you can join and get up to six months free to try it out.
Trade King – Least Expensive Trades
TradeKing has absolutely one of lowest stock trade commissions around at just $4.95 per stock trade or ETF trade. If you are looking to trade a lot within your Roth IRA, look no further. Mutual fund commissions are extremely low as well at just $9.95 per no load mutual fund trade. Additionally, TradeKing has a collection of no-fee funds that you can choose from, although you still need to pay the expense ratio.
TradeKing recently merged with Zecco, another low cost online discount brokerage firm. The combined power of the two smaller firms helps it compete with some of the bigger firms listed here, and their pricing is extremely attractive.
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: $50 for accounts with no activity within 12 months that also have a balance of less than $2,500, otherwise $0
- Minimum Deposit to Open Account: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $4.95 per stock or ETF trade, maximum of $9.95 per mutual fund trade
Learn even more by checking out our TradeKing Review we have posted for your reference!
Open an account with TradeKing and enjoy rock bottom trade costs plus up to $150 reimbursed for transfer fees from your old broker.
Lending Club – Best Non-Stock Investments
Lending Club is the top peer to peer lender in the United States. Unlike the other brokerages on this post Lending Club allows you to invest in loans that are made to other people. So basically, instead of investing through the bank you get to be the bank. The company has been around for more than 8 years and has funded over $16 billion in loans. I am personally getting just under 9% return on my investments in Lending Club and have been VERY happy with the results. You can learn all the details of the platform in my full review of Lending Club
- Account Set Up Fees for Roth IRA: $100 if you start with an amount less than $5,000
- Account Maintenance Fees for Roth IRA: $100 if you have less than $10,000
- Minimum Deposit to Open Account: $0
You may be wondering, “Why the fees?” The way Lending Club does a Roth is to partner with another company that sets up a self directed Roth IRA. This allows you to direct your investments and not be limited to just stocks. These accounts require a little maintenance and that is a pretty standard annual fee if you only have a small balance in the account.
Open an account with Lending Club to get started investing in private loans instead of stocks, bonds, and mutual funds.
TD Ameritrade
Another brokerage firm that mixes online discount trades with brick-and-mortar locations, is TD Ameritrade. This brokerage has more than 125 locations around the country that you can walk into whenever you have a question you want answered in person. However, the online trading platform is easy to use, and you are likely to accomplish just about anything you want without needing to go into a location.
Trade costs are competitive on the stock and ETF side, with a cost of $9.99. It’s also worth noting that TD Ameritrade has a collection of commission-free ETFs. If you are trying to build a long-term retirement portfolio, using these ETFs can lower your costs, even though you will still have to pay the expense ratios.
You do need to watch out for the mutual fund charge of $49.99 per trade. (I love everything else about TD Ameritrade except the $49.99 no-load mutual fund commission. That is simply too high.) That can be a real problem and erode the effectiveness of your portfolio.
If you are going to build an ETF portfolio I can still recommend the company as a solid option thanks to the competitive commissions on ETF and stock trades as well as the option for in-person help.
Here a few key points to know when considering TD Ameritrade (though learn more by reading our TD Ameritrade Review):
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Minimum Deposit to Open Account: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $9.99 per stock or ETF trade, maximum of $49.99 per mutual fund trade
Open an account with TD Ameritrade and trade free for 60 days, plus get up to $600 in bonuses for opening an account.
OptionsHouse
OptionsHouse is another great broker in the Roth IRA space. Don’t let the name deceive you: OptionsHouse does give you the ability to trade options, but it isn’t an options-only broker.
They have incredibly inexpensive trades at $4.95 per stock or ETF trade. Mutual funds aren’t as inexpensive, costing around $20.00 per trade.
While you can learn more in detail by reading our OptionsHouse Review, here are some key points to know:
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Minimum Deposit to Open Account: $1,000
- Commissions on Stocks, ETFs, and Mutual Funds: $4.95 per stock or ETF trade, $20.00 per mutual fund trade
Open an account with OptionsHouse and enjoy rock bottom trade costs plus up to $125 reimbursed for transfer fees from your old broker.
Motif Investing
Motif Investing offers another unique way to invest your money and instantly diversify your portfolio without spending hours researching companies. Instead of having to buy stock in several different companies, with Motif Investing you can buy one “Motif” which has 30 different stocks in it. All of the stocks inside of the motif revolve around the same industry.
The best part about Motif Investing is the ability to buy a motif portfolio that has 30 stocks or ETFs with one simple trade for $9.95. You won’t be able to beat those trading fees anywhere. Check out our Motif Investing review for full details, but the basic info you need about Motif is:
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Account minimum: $0, but you need at least $300 to start.
- Commissions on Stocks, ETFs, and Mutual Funds: $4.95 per individual stock or ETF trade, maximum of $17 per mutual fund trade
Firstrade
The benefits of Firstrade are obvious, low fees. But that is the only thing that the discount brokerage offers to investors. If you’re looking for a brokerage that gives you flat fees of less than $7 and also gives you plenty of tools, Firstrade is the place to go. Additionally, they have some of the lowest fees for mutual funds.
Thanks to Morningstar, Firstrade gives you plenty of information and researcher about stocks, EFTs, and mutual funds. On top of the research and low fees, Our review of Firstrade shows that it is one of the easiest websites to use. They have a well-designed site that is simple to navigate, even for someone that has never invested online.
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Account minimum: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $6.95 per individual stock or ETF trade, maximum of $9.95 per mutual fund trade
USAA – Best Roth IRA for Military and their Families
USAA provides a variety of services and accounts for military personnel and their families. If you or one of your family members has ever been a part of any military service, you should be able to open an account with USAA.
USAA has several advantages while their trading fees might be a little higher than other options as an account holder you could have all of your accounts and policies with on company. They offer just about any insurance or financial product you will need. If you have the premium account, you will have a lot of fees waived, and your trading fees will be even lower.
As an investor or account holder, you should have no worries about the financial stability of the company. They have been in business for 1922, making then an excellent resource for any active military, retired military, or family members.
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Account Minimum: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $8.95 per a stock trade depending on your membership level, only $5.95 for account holders that trade more frequently. $45 commission on bonds. Foreign Stock Trade Service is $70 per trade.
E*TRADE
E*TRADE is one of the bellwethers of the online discount brokerage industry.
The company has been around since 1992 and has constantly been pushing the industry to better technologies and other trading innovations for customers. When you think of online trading, this is the company that probably comes to mind first.
Technically E*TRADE does have brick-and-mortar locations for you to go to, but there are only 30 in the entire country. E*TRADE is primarily an online discount brokerage firm, and they are one of the leaders in the industry. Their trade fees are just slightly higher than Scottrade, and there is no minimum deposit required to get started.
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Minimum Deposit to Open Account: $0
- Commissions on Stocks, ETFs, and Mutual Funds: $9.99 per stock or ETF trade, maximum of $19.99 per mutual fund trade
It is worth noting that there more than 1,000 mutual funds available through E*TRADE that come with no load, and no transaction fee. You can add these to your Roth IRA, and avoid the transaction fee — although you will still be responsible for the expense ratio charged on the fund.
Open an account with E*TRADE and trade free for 60 days, plus get up to $600 in bonuses for opening an account.
Charles Schwab
Charles Schwab is an interesting company that is really a full-service brokerage that is trying to play in the discount brokerage space. For stock and ETF trades, it does this well with an $8.95 commission on those trades.
But if you though TD Ameritrade’s $49.99 mutual fund commission was high… Schwab charges $76. That is unbelievable. Only open a Roth IRA with Schwab if you plan to build a portfolio of ETFs, not mutual funds.
- Account Set Up Fees for Roth IRA: None
- Account Maintenance Fees for Roth IRA: None
- Minimum Deposit to Open Account: $1,000
Commissions on Stocks, ETFs, and Mutual Funds: $8.95 per stock or ETF trade, maximum of $76 per mutual fund trade
| Company | Stock/ETF Transaction Cost for Average Investor (Online) | Mutual Fund Transaction Cost (Online) | Minimum to Open |
|---|---|---|---|
| Scottrade | $7.00 | $17.00 | $500.00 |
| E*TRADE | $9.99 | $19.99 | $0.00 |
| TradeKing | $4.95 | $9.95 | $0.00 |
| TD Ameritrade | $9.95 | $49.99 | $0.00 |
| OptionsHouse | $3.95 | $9.95 | $1,000 |
| Capital One Investing | $4 (automatic investment) or $9.95 per trade | $4 (automatic investment) or $19.95 per trade | $0.00 |
| Schwab | $8.95 | $76.00 | $1,000 |
The discount brokerage industry is highly competitive. This leads to lower transaction costs, competitive account fees, and account bonuses for signing up with a certain brokers. Here are some of the best perks you can get right now:
- E*Trade: Trade free for 60 days plus get up to $500
- TD Ameritrade: Trade free for 60 days plus get up to $600
- ShareBuilder: Get a $100 bonus when you open an account with an initial deposit of more than $5,000
- Check out our full list of best online stock broker signup bonuses
However, for most consumers, Betterment is likely to offer you the easiest method of getting started. You don’t have to worry about transaction fees or any other fees, just a flat rate. As your account grows, you might want to move your money, but for the beginner, Betterment is an amazing choice.
Who Qualifies for a Roth IRA?
It’s important to establish that you qualify for a Roth IRA. The basic eligibility requirements for a Roth IRA include:
- You need to have earned income. If you are a stay-at-home partner, your spouse can make contributions to your Roth IRA. It’s also possible for minors to contribute to custodial Roth IRAs if they earn money from a job.
- You need to meet income requirements, based on your tax filing status. The IRS evaluates these requirements each year, and can make changes based on inflation. Check with the current-year requirements or with a financial professional to see if you qualify.
As of 2016, you can contribute up to $5,500 to your Roth IRA each year. If you are age 50 or older, you can make an additional “catch up” contribution of $1,000 per year. The contribution limit changes, though, so it might rise in future years.
It’s also possible to convert a Traditional IRA to a Roth account, or to rollover a 401(k) into a Roth IRA. However, there are tax consequences associated with this decision. You will have to pay taxes on the amount you convert or rollover today, and that can mean a hefty tax bill. Consult with a financial professional before you make this type of conversion.
Building the Roth IRA Habit:
Having trouble getting into the habit of sending money in to your Roth IRA? You’re not alone. All of the above companies provide some sort of automatic investment option. You simply tell the firm how much you want to invest, on what schedule, and in what investment, and the rest happens automatically.
Automatic investing is one of the best ways to build your Roth IRA without having to think about building your Roth IRA.
Invest your Roth IRA directly with a top mutual fund company
Discount brokers and full-service brokers charge fees on every trade into a stock, ETF, bond, or mutual fund. These brokers will tout no-fee mutual funds (also called no-transaction fee mutual funds) to show that they aren’t out to make a buck on every transaction you have for retirement.
But the number of no-fee funds offered is drastically different than the advertised number of mutual funds that attracted you to the broker in the first place. (Also, don’t get confused between no-transaction fee and no-load mutual funds. No-load funds mean there is no sales load cost as a percentage of assets on your investment; no transaction-fee means there is no fee to trade in and out of the mutual fund. No-load funds can have transaction fees, and vice versa.)
The easiest way to avoid unnecessary fees on your mutual funds is to simply cut out the middleman. You don’t need 10,000 different mutual funds, nor do you need to pay for every transaction you have to buy or sell into those funds. A well constructed portfolio of low cost index funds can offer you the best returns at the lowest cost.
Cutting out the brokerage middleman means going directly to the source: the mutual fund companies themselves. Not every mutual fund company will let you open a Roth IRA with them, but some of the largest will. Vanguard, T. Rowe Price, and Fidelity let individuals open Roth IRAs and deal directly with the companies to build their nest eggs.
Vanguard
Vanguard has long been an industry leader in low cost investments and the online account access is easy to navigate. The expense ratios on some of their index mutual funds are absolutely unbeatable.
Fees are clear to understand with Vanguard; we had to use the search function on the T Rowe Price website to discover the fee structure. Vanguard has an easily found link under the IRA portion of the website. Plus, we like Vanguard because the company is a non-profit dedicated to low investment fees.
- Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20)
- Minimum Required Investment: $1,000 for “starter” mutual funds, most other funds $3,000
- Minimum Subsequent Investment: Varies, usually between $100 and $1,000 (electronic transactions only have a $1 minimum)
- Commissions: If you invest in Vanguard mutual funds only, $0. Commissions vary for mutual funds outside of Vanguard or for ETFs.
T. Rowe Price
T. Rowe Price is another industry leader that offers mutual funds directly or through a broker. Expense ratios for index funds with T. Rowe Price are very competitive with the industry meaning you will get the maximum growth out of your invested dollars.
The company has a great Roth IRA page that explains everything you need to know about your eligibility to invest in a Roth IRA. The fee structure is mostly clear, although to find the full fee prospectus I had to do a search on their website.
- Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20 if your balance is less than $10,000)
- Minimum Required Investment: $1,000
- Minimum Subsequent Investment: $100
- Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of T. Rowe Price or for ETFs.
Fidelity
Fidelity is another massive mutual fund company that offers its funds directly to investors and through brokerage firms. Of the three mutual fund companies, Fidelity has the highest minimum required investment for you to get started at $2,500. On the flip side, there is no minimum additional contributions after that.
Fidelity has been battling with Vanguard and T. Rowe Price on expense ratio costs meaning you will be getting very competitive expense ratios.
- Fees for Roth IRA: $0 for IRAs
- Minimum Required Investment: $0 (although most Fidelity mutual funds have a $2,500 investment minimum)
- Minimum Subsequent Investment: $0 for Fidelity mutual funds
- Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of Fidelity or for ETFs.
How to Manage Multiple Investment Accounts
Of course you may have investment accounts, Roth IRAs, and Traditional IRAs across several different companies. You have multiple logins to remember to check up on your investments, and having some understanding of your asset allocation is not easy.
Enter Personal Capital. The company aims to solve the problems of managing multiple accounts, tracking your asset allocation, watching the performance of your investments, and in general helping you keep all of your financial tasks in order. With a slick web interface and mobile apps that work on iOS and Android you can see everything together in one well-designed space. On top of that, Personal Capital offers a fee analysis to help you reduce what you pay.
The best part about Personal Capital? The software is 100% free
Will tax rates really be lower later on?
With a mounting national debt, many people believe personal income tax rates will eventually be forced to increase. So, even if you think that you will have a lower income during retirement, you might still be in a higher tax bracket or have other tax considerations impacting your finances.
Even if the national debt issue is somehow solved, the government doesn’t tend to lower a tax once it is set.
If you think that tax rates are going to go up by the time you retire, the best retirement account for you to open if you qualify for it is the Roth IRA.
With a Roth IRA, you make your contributions with after-tax dollars. This means you pay your taxes on the money now. While it might mean a little less today, it can make a big difference in the future. This is because your money grows tax-free. When you withdraw from your account, it doesn’t register as income, so it doesn’t change your tax bracket or tax liability.
A Roth IRA can be especially beneficial to you if you are just starting your first job. Chances are that you won’t make very much. Your tax liability might be fairly low anyway, so paying taxes on your low income isn’t likely to be a huge burden to you today. Plus, you have even more time on your side to let compound interest work its magic on your behalf.
Other Articles That May Interest You
- Best Online Stock Brokers for Beginners to Experienced Investors
- Best Life Insurance Companies in the United States
- Best Short Term Investments for Your Money
- Best Rewards Credit Cards
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