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Vanguard Roth IRA: Is It the Best Roth for You?

With a Vanguard Roth IRA you’ll find some of the lowest-cost mutual funds around. But Vanguard’s other costs and mutual-fund minimums are a disadvantage.
Sept. 18, 2019
Investing, Roth IRA
Vanguard Roth IRA: Is It the Best Roth for You?
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Roth IRAs are a popular retirement savings account, and Vanguard is big with retirement savers thanks to its low costs and wide selection of funds. Does that mean you should open a Roth IRA at Vanguard?

Maybe. There’s a lot to love about a Vanguard Roth IRA, but it won’t necessarily fit everyone’s situation. Here’s what you ought to know before you decide.

1. Is a Roth IRA right for you?

A Roth IRA offers many advantages. While you don’t get an immediate tax break, all your money, including investment earnings, comes out tax-free in retirement.

That’s a sweet deal. But if you would rather not wait for your tax break, you could save for retirement in a traditional IRA, which could mean a tax break every year you contribute. Here’s more on how to choose between a Roth IRA vs. a traditional IRA.

2. Is a Vanguard Roth IRA right for you?

So, you’ve decided the Roth is for you. The next question is: Is Vanguard the best provider for you?

What’s good about a Vanguard Roth IRA?

Low costs

Vanguard offers very inexpensive mutual funds, which makes it a popular option for many retirement savers:

Mutual fund fees (average expense ratios)*
* Includes actively managed and index mutual funds and exchange-traded funds. Sources: Vanguard Group, Morningstar Inc.
Vanguard mutual funds0.10%
All mutual funds1.05%

Expenses can make or break your long-term savings. If you invested $100,000 and made a 4% annual return, you would have $30,000 more after 20 years if you paid a 0.25% expense ratio than if you paid 1%.

Wide selection of funds

You can build a successful investment portfolio from a handful of mutual funds or ETFs (for ideas, check out these simple portfolio strategies), but Vanguard makes it easy to find just the right combination of funds.

The company offers more than 3,100 no-transaction-fee mutual funds and over 1,800 commission-free exchange-traded funds. Still, while the number of Vanguard’s commission-free ETFs is hard to beat, other brokers have an even higher number of no-transaction-fee mutual funds, so it might make sense to shop around.

For example, E-Trade boasts over 4,400 no-transaction-fee mutual funds (and over 250 commission-free ETFs), while TD Ameritrade offers more than 4,000 no-transaction-fee mutual funds (and over 300 commission-free ETFs).

What’s not as good about a Vanguard Roth IRA

Trading costs

If you’re likely to trade in and out of investments a lot in your Roth IRA — which, by the way, we don’t recommend with retirement savings — you’ll want a broker with low trading commissions.

While Vanguard offers a large number of no-transaction-fee mutual funds, Vanguard’s trading fee for mutual funds outside of that group is a relatively steep $20. To trade individual stocks, you’ll face a fee of $7. (Both of these fees drop for account balances of $500,000 and above).

If you want to trade more actively, you might be better off doing so with a lower-cost broker. Check out our top picks for the best brokers for stock trading.

fund minimums

A barrier to entry for some would-be retirement savers is having enough saved up to open an account: Many brokers don’t impose account minimums but mutual funds sometimes have their own investment minimums.

Most Vanguard mutual funds have a minimum investment requirement of $3,000. But Vanguard’s target retirement funds — a diversified retirement portfolio in one mutual fund — require $1,000 to open. (Exchange-traded funds from Vanguard or other providers generally don’t have investment minimums.)

Meanwhile, for most non-Vanguard mutual funds purchased in a Vanguard account, there’s a $3,000 minimum if you want to avoid a transaction fee — though that minimum drops to $1,000 for IRAs. (For non-Vanguard mutual funds in non-IRA accounts, if you’re willing to pay the $20 transaction fee, then the minimum is $1,000.)

There are many mutual funds available at other brokers that charge no minimums or lower minimums.

3. What are your other options?

In addition to Vanguard, you can open a Roth IRA with another online broker, a robo-advisor or a bank.

Brokers

An online broker lets you choose your own investments. This tends to be one of the lowest-cost options:

  • There’s no management fee like you’ll pay with a robo-advisor.
  • You’ll pay an expense ratio for any mutual funds you buy — but you’ll also have to pay those with a robo-advisor.
  • Unlike a robo-advisor, you’ll generally pay trading commissions when you buy or sell investments, though a lot of brokers offer commission-free trades on some investments.

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

$100-$600

$100-$600

in cash bonus with a qualifying deposit

Trade Fee

$0.00

$0.00

Account Minimum

$0

$0

Promotion

Up to $600

Up to $600

in cash bonus with a qualifying deposit

Trade Fee

$2.95

$2.95

Account Minimum

$0

$0

Promotion

Up to $600

Up to $600

in cash bonus with a qualifying deposit to a new Merrill Edge Self-Directed account

» Check out our top picks for the best Roth IRA accounts

Robo-advisors

Like a broker, a robo-advisor (also called a digital advisor) will give you access to stock and bond investments. With a robo-advisor, you pay a fee so that the advisor picks and manages investments on your behalf. If you like the idea of letting someone else manage your retirement savings, a robo-advisor may make sense. Here are our picks of the best robo-advisors.

Banks

Generally, an online broker or robo-advisor is going to be a better choice than a bank for your retirement savings. With a broker or robo-advisor, you’ll have access to a diversified line-up of stock and bond investments, which have more opportunity for growth than banks’ typical offering of a certificate of deposit.

For a long-term goal like retirement, it makes sense to accept some stock-market volatility in exchange for higher average growth rates.

That said, if retirement is just five or so years away — that is, you don’t have time to ride out market volatility — then the relative safety of a bank IRA might make sense. Here are our top picks for high interest rate bank IRAs.

Frequently asked questions about Roth IRAs

How do I open a Roth IRA?

Opening a Roth IRA is simple: You’ll be asked to provide some personal details, including contact information and your Social Security number. For more, check out how to open a Roth IRA.

How much do I need to open a Vanguard Roth IRA?

The Vanguard Roth IRA itself doesn’t have a minimum investment requirement. But the mutual funds you might want to invest in through that Roth do have minimum investments. They run from $1,000 on up at Vanguard.

Can I open a Roth IRA with Vanguard?

There are few restrictions on who can open a Vanguard account. But to open a Roth and contribute to it, you need to be below the Roth IRA income limits.

Who has the best IRA?

The best account for you will depend on your situation. Check out our top picks for the best IRA accounts to find the right provider for your situation.

Is a Vanguard Roth IRA free?

Not entirely. As with any broker, generally you’ll pay for the investments in your account (either stock trading fees or mutual fund and ETF expense ratios). Also, at Vanguard if you don’t sign up for e-mailed statements, you may get hit with a $20 annual account maintenance fee.

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