Our picks for
For people who want to pick their own investments, opening a Roth IRA at an online broker makes a lot of sense. At the best brokers, you’ll find a large list of low-cost investments to choose from, including index mutual funds and exchange-traded funds. Here are the favorites from this year's analysis:
Our picks for
For people who want to invest for retirement but don’t want to worry about managing their portfolio over time, a robo-advisor is an easy choice. Generally, robo-advisors hire investment pros to develop a handful of portfolios aimed at different types of investors. Here are our top picks for investors who prefer help with management:
Summary of Best Roth IRA Accounts of February 2020
|Broker||Commissions||Promotion||Account Minimum||Learn More|
Merrill Edge IRA
Up to $600
cash credit with qualifying deposit
TD Ameritrade IRA
$100 to $600
in cash bonus with a qualifying deposit
$100 to $2,500
cash credit with a qualifying deposit or transfer
Up to $200
in Transfer Fee Rebates
Ally Invest IRA
Up to $3,500
in cash bonus with a qualifying deposit
Charles Schwab IRA
No promotion at this time
free trades with a qualifying deposit
Up to 1 year
of free management with a qualifying deposit
Ally Invest Managed Portfolios
with Cash-Enhanced Managed Portfolio; 0.3% otherwise
Up to $750
cash bonus with qualifying deposit
SoFi Automated Investing
career counseling plus loan discounts with qualifying deposit
No promotion available at this time
Schwab Intelligent Portfolios®
no promotion currently offered
Schwab Intelligent Portfolios Premium™
no promotion available at this time
Last updated on February 13, 2020
To recap our selections...
NerdWallet's Best Roth IRA Accounts of February 2020
- Merrill Edge IRA: Best for Hands-On Investors
- TD Ameritrade IRA: Best for Hands-On Investors
- E*TRADE IRA: Best for Hands-On Investors
- Firstrade: Best for Hands-On Investors
- Ally Invest IRA: Best for Hands-On Investors
- Charles Schwab IRA: Best for Hands-On Investors
- Fidelity IRA: Best for Hands-On Investors
- Betterment IRA: Best for Hands-Off Investors
- Ally Invest Managed Portfolios: Best for Hands-Off Investors
- Ellevest: Best for Hands-Off Investors
- SoFi Automated Investing: Best for Hands-Off Investors
- Fidelity Go: Best for Hands-Off Investors
- Schwab Intelligent Portfolios®: Best for Hands-Off Investors
- Schwab Intelligent Portfolios Premium™: Best for Hands-Off Investors
Frequently asked questions
As you can see, our roundup of the best Roth IRAs focuses on accounts offered by brokers and robo-advisors — not banks. Generally, a broker or robo-advisor is a better option than a bank for a Roth IRA account. That’s because, for a long-term goal like retirement, you want to harness the power of the stock market to help your account get bigger.
Bank Roth IRAs generally offer access to savings products, such as certificates of deposit. CDs are savings vehicles that guarantee a rate of return as long as you leave your money in for a specific period of time. Historically, stock market returns average about 10% a year. CDs are currently offering about 3%.
Of course, those higher stock market returns come with the risk that, in any given year, your account may lose value. But investors who leave their money in the market, even through those down days, enjoy hefty average gains over time.
If, despite the much lower rate of return, you decide to go with a bank for your Roth IRA account, be sure to pick among the accounts with the best IRA CD rates so you know you’re getting the best possible rate of return for that type of account.
The short answer? Yes, it’s almost always a good idea to invest in a Roth IRA account.
Roth IRAs offer a sweet tax benefit for retirement savers. Plus, you can withdraw your contributions at any time, without penalty, which means a Roth can act as a backup emergency fund.
Keep in mind that Roth IRAs don’t offer an immediate tax break. Your investment earnings grow tax-free in the Roth IRA account, and you never pay taxes on those earnings, assuming you follow the withdrawal rules.
Now, if your tax rate is the same when you contribute to the account as it is later, when you withdraw the money, then a Roth IRA and a traditional IRA offer essentially the same benefit. The only difference is the timing of your tax bill — with a traditional IRA you pay your tax bill later and with a Roth you pay your tax bill upfront.
But many people find that their tax rate changes over time. If your tax rate is likely to be higher in the future — that’s often the case for young adults who are just starting out in their careers — then a Roth makes sense, because you pay the income tax on your contributions now, when your tax rate is lower.
Of course, it can be really hard to know what your future tax rate will be, especially if retirement is decades away, so it can make sense to contribute both to a 401(k) or traditional IRA, and to a Roth IRA, if you qualify.
No matter what, if you have a 401(k) or other workplace retirement plan, contribute enough to get the match — that’s free money you don’t want to pass up.
How much you earn in a Roth IRA account will vary, depending on what you’re investing in. The average annual stock market return historically has been about 10%.
Of course, you want to invest in a diversified portfolio of both stocks and bonds, so that your account has a buffer from the stock market’s inevitable ups and downs. Generally, creating a diversified investment portfolio means investing in a handful of mutual funds or exchange-traded funds, which, in turn, invest in a broad swath of stocks and bonds.
A diversified investment portfolio will inevitably earn less than the stock market’s return, because bond yields tend to be in the single digits. Still, a diversified portfolio of stocks and bonds generally earns more than any bank savings product, such as a savings account or CD.
The Roth IRA has income rules for contributions. For 2020, the amount you can contribute begins to phase down when your annual income hits $124,000 for single filers and $196,000 for those married filing jointly. (For 2019, that income limit is $122,000 for single filers and $193,000 for married-filing-jointly filers. For 2018, the phase downs begin at $120,000 and $189,000, respectively.) The contribution limit is slowly reduced until your ability to contribute is eliminated completely. If your income is above these amounts, our Roth IRA calculator will tell you how much you can contribute.
With a traditional IRA and a Roth IRA, the contribution limit is a shared limit — you can contribute a total of up to $6,000 per year ($7,000 if age 50 or older), and it’s up to you to decide how you want to divvy that up between the two.
With a Roth IRA, you can pull your contributions out at any time — remember, you’ve already paid taxes on that money.
However, if you withdraw your investment earnings, you may owe income tax and/or a 10% penalty, depending on how old you are and how long you’ve owned the account. But there are quite a few situations where an early withdrawal of investment earnings is exempt from penalties and income tax. We detail those exceptions here.
Yes. You can have both a Roth IRA and a 401(k) and contribute the maximum you’re allowed to each.
Traditional IRAs don’t have income limits, but if you’re also covered by a workplace retirement plan like a 401(k), the amount of your contribution that you can deduct may be phased down or eliminated.
That means you can still make the maximum annual contribution, but a portion or all of it will be considered a nondeductible contribution. There’s no immediate tax benefit on nondeductible contributions, but you're still able to defer taxes on investment income until retirement. Read more about the traditional IRA deduction limits.
The process is easy as can be: You can open a Roth IRA at any online broker or robo-advisor, typically online in about 15 minutes. You’ll need to provide some personal information like your name, address, birthday, Social Security number and means of funding the account, so have that handy. Here’s our step-by-step guide to opening a Roth IRA, including details about how to fund and invest the account.
Unlike savings accounts, Roth IRAs don’t pay a set interest rate or return. Once you’ve put money into the account, you need to select investments; otherwise, your money will sit in cash, which isn’t ideal for a long-term goal like retirement. Most Roth IRA providers offer a wide range of investment options, including individual stocks, bonds and mutual funds.
If that sounds out of your league, you can open your Roth IRA at a robo-advisor — like the providers mentioned above in the Hands-Off Investors category — which will manage your investments for you for a small fee.