A Roth IRA is a true gift for retirement savers: While there’s no immediate tax benefit, distributions in retirement are completely tax-free. But there are some rules for Roth IRAs, including income limits.
Roth IRA income limits for 2018
| Filing status | 2018 modified AGI | Maximum contribution |
|---|---|---|
| Married filing jointly or qualifying widow(er) | Less than $189,000 | $5,500 ($6,500 if 50 or older) |
| $189,000 to $198,999 | Contribution is reduced | |
| $199,000 or more | Not eligible | |
| Single, head of household or married filling separately (if you did not live with spouse during year) | Less than $120,000 | $5,500 ($6,500 if 50 or older) |
| $120,000 to $134,999 | Contribution is reduced | |
| $135,000 or more | Not eligible | |
| Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
| $10,000 or more | Not eligible |
Roth IRA income limits for 2019
| Filing status | 2019 modified AGI | Maximum contribution |
|---|---|---|
| Married filing jointly or qualifying widow(er) | Less than $193,000 | $6,000 ($7,000 if 50 or older) |
| $193,000 to $202,999 | Contribution is reduced | |
| $203,000 or more | Not eligible | |
| Single, head of household or married filling separately (if you did not live with spouse during year) | Less than $122,000 | $6,000 ($7,000 if 50 or older) |
| $122,000 to $136,999 | Contribution is reduced | |
| $137,000 or more | Not eligible | |
| Married filing separately (if you lived with spouse at any time during year) | Less than $10,000 | Contribution is reduced |
| $10,000 or more | Not eligible |
There are three fundamental steps to starting a Roth IRA:
- Determine what type of investor you are: hands-on or hands-off.
- Choose a provider: Your choice should align with your investor type above.
- Pick your investments: If you go with a broker, look for low-cost mutual funds and ETFs. If you choose a robo-advisor, they’ll pick these for you.
Read on for more details on each of these steps.
» Not sure how a Roth IRA works? Read our complete guide to Roth IRAs
1. Determine what type of investor you are
- If you’re a “do-it-yourself” investor, choose a brokerage. You can open a Roth IRA at an online broker and then choose your own investments. This may be simpler than you think — you can build a diversified portfolio with just three or four mutual funds. With the providers detailed below, you generally won’t pay an account fee (though that may require your agreeing to electronic document delivery or maintaining a minimum account balance), so the primary costs you need to watch for are trading commissions and investment fees (which are also called expense ratios).
- If you’re a “manage it for me” investor, choose a robo-advisor. If you’d rather have someone pick an investment portfolio for you, you can open your Roth IRA at a robo-advisor. Robo-advisors are online investment services that build and maintain a diversified portfolio for you. You pay a small fee for the service, but their fees generally are substantially lower than a human financial advisor — typically 0.25% to 0.50% of the assets under management annually. These services are growing rapidly today: Our top two robo-advisor picks, Wealthfront and Betterment, each have more than $11 billion in assets under management.
2. Choose a provider and open your Roth IRA
Best Roth IRA brokers for “do-it-yourself” investors
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. The top brokers also offer extensive retirement planning tools, robust customer service and reasonable account minimums and fees. And you maintain complete control over how your retirement funds are invested. Here are two of the favorites from our 2018 analysis:
Fees
$6.95
per trade
Account minimum
$0
Promotion
$100-$600
in cash bonus with a qualifying deposit
The bottom line
Merrill Edge offers high-quality customer service, robust research, low commissions and fees -- all with no account minimum for IRA investors. Customers of parent company Bank of America will love the seamless, thoughtful integration, with a single login to access both accounts.
Show pros & cons
Pros
No account minimum to access first-rate customer service.
Robust third-party research.
Ongoing promotions for opening and funding a qualified IRA account.
Cons
No commission-free ETFs for IRA investors.
Minimum balance requirement for day trading platform.
Fees
$6.95
per trade
Account minimum
$0
Promotion
Up to $600
in cash bonus with a qualifying deposit
The bottom line
Retirement investors will find a lot to love with E-Trade’s IRA offering, including a large line-up of no-trading-fee mutual funds and an extensive library of retirement advice and tools. Plus, there’s no minimum account balance.
Show pros & cons
Pros
No minimum balance for IRAs
Extensive research and tools
156 commission-free ETFs
4,400+ no-transaction-fee (NTF) mutual funds
Cons
$19.99 cost for trading non-NTF mutual funds
Higher trading fees for low-volume ETF and stock traders
Best Roth IRA robo-advisors for “manage it for me” investors
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. Some robos offer portfolios that vary based on amount of risk, with “aggressive” ones for people who want a high percentage of their portfolio in stocks and “conservative” for people who seek a less volatile investment account.
As an investor, all you have to do is open your Roth IRA, link your bank account and follow the steps the provider uses to build your portfolio. The robo-advisor then purchases the investments for you and manages the account over time. Many robos also offer services that can help maximize your savings, such as goal-setting tools to get your finances on track, and strategies to reduce your tax bill. (Robo-advisors generally are registered investment advisors, operating under a similar structure to human investment advisors.)
Fees
0.25%
management fee
Account minimum
$500
Promotion
$5,000
amount of assets managed for free
The bottom line
Wealthfront takes the hassle out of IRA investing. The robo-advisor manages accounts by constructing portfolios out of low-cost ETFs, with a flat and low-cost fee structure that appeals to to investors seeking a hands-off approach. What’s more, the company has built client trust by offering free management on the first $5,000 invested (for NerdWallet readers).
Show pros & cons
Pros
Low-cost, hassle-free approach to IRA investing.
First $5,000 managed free (for NerdWallet readers).
Automatic rebalancing.
Free automated tax-loss harvesting.
Cons
No large-balance discounts.
No access to human advisors.
Fees
0.25%
management fee
Account minimum
$0
Promotion
Up to 1 year
of free management with a qualifying deposit
The bottom line
With its low-cost ETFs, automatic rebalancing, extensive tax strategies and retirement advice, Betterment is a strong bet for retirement investors. Betterment’s planning tools include advice on “asset location” — which types of investments are best for different types of accounts — and investors can sync outside accounts, as well.
Show pros & cons
Pros
No account minimum
Extensive tax strategies
Robust goal-based tools
Free automated tax-loss harvesting
Cons
Limited investment options
3. Select your investments
A Roth IRA is an account, not an investment. Contributing is just the first step. If you want to build wealth over time, you need to invest that money.
If you’re a hands-off investor, you can choose a robo-advisor and they’ll choose a diversified investment portfolio for you.
If you’re more of the DIY type, you can get that diversification on your own for less by building a portfolio out of index funds and ETFs. To do that, you’ll want to decide how much of your money to put toward riskier investments, like stock funds, and how much you want to keep relatively safe, in bond funds and cash. This mix is called your asset allocation.
IRAs give you access to a large pool of investment options, so once you’ve decided on your allocation, you can select specific funds to meet that.
If you get stuck? Use a model: Check out the portfolios used by robo-advisors (often displayed on their websites) and target-date funds, then mimic them, being sure to rebalance as needed since they won’t be doing it for you.
And don’t worry about a minimum amount to get started. While there’s a Roth IRA maximum contribution amount, there’s no minimum. At least, that’s according to IRS rules. That said, some providers do require account minimums to get started investing, so if you’ve only got $50 or so, find a provider who doesn’t require one. Keep in mind, too, that many mutual funds have minimums of $1,000 or more, so if you’ve got less than that, you might be a bit limited in the investments you can choose. Still, there’s plenty of investments out there that have no or a low account minimum.
» Dig deeper: Check out these simple portfolios for retirement goals
Is that it?
That’s it. Except, a handful of additional considerations:
- If you have a 401(k) that offers matching dollars and you’re not contributing enough to earn them all, that’s where you should direct your retirement savings first. Read our Roth IRA vs. 401(k) article, which explains how you should prioritize the two accounts.
- A Roth IRA is the best choice for many folks, but for some a traditional IRA might be better. Check out this story to figure out which is best for you.
- Once you determine how much you can contribute, we suggest setting up automatic transfers to make sure it happens. Not only do you avoid the process of initiating the transfer each month, but you ensure you’re saving regularly. (Some brokers also waive their initial deposit requirements if you agree to smaller automatic transfers each month.)
- Be sure you don’t contribute too much. Contributing more than the limit may leave you subject to a penalty from the IRS. If your goal is to spread that $5,500 over a year, contribute $458.33 a month or $105.76 a week. If you’re 50 or older, you can contribute $541.66 a month or $125 a week. Keep in mind, too, that the contribution limit is for all your IRA accounts combined — if you have a Roth and a traditional, that limit is a total across both accounts.
