Roth IRA accounts enable you to invest for your retirement years in a tax-efficient manner and should be considered when you start retirement planning or looking to boost your retirement savings.
In this guide, I explain the fundamentals of how these retirement accounts work and which of the best Roth IRA accounts and providers are worth considering, in terms of supported assets and low account fees.
Browse the top rated Roth IRA accounts in May 2023
After researching suitable brokers for a range of metrics – such as fees, markets, minimum deposits, withdrawal terms, and more – here are some of the best Roth IRA accounts to consider in May 2023.
Interactive Brokers – Build a Highly Diversified Roth IRA Portfolio
Interactive Brokers (IBKR) is an established brokerage house that is largely popular with experienced investors. IBKR offers advanced trading tools and platforms that can be accessed via desktop software for a 360-degree view of the markets.
IBKR also supports browser-based trading in addition to its mobile app. IBKR is one of the best Roth IRA accounts for diversification. I found that the brokerage offers access to thousands of financial instruments, across 150 markets and 33 countries.
This is inclusive of US and international stocks, ETFs (exchange-traded funds), mutual funds, index funds, bonds, and more. IBKR also supports Roth IRAs that are compatible with margin trading accounts. Once again, I found that this will appeal more to those with suitable trading experience.
What I like about IBKR
I like that IBKR enables US clients to invest in domestic stocks and ETFs without paying any commission. I also like that IBKR now supports fractional investing, with US and European stocks available to purchase from just $1 upwards. This is also the case for most supported ETFs.
As a Robo advisor, Interactive Brokers can help you get the most out of your retirement strategy by answering a few short question, they can give investment options that meet your needs
Fees on mutual funds for US clients amount to the lesser of 3% or $14.95, which I consider expensive. I also like that IBKR offers interest of up to 3.83% on uninvested cash. IBKR also stands out for its market research tools.
IBKR clients can read comprehensive market insights, as well as access industry news and developments. This will help both beginners and experienced traders alike to make informed decisions when building and maintaining a Roth IRA portfolio.
- Roth IRAs support margin trading accounts
- 0% commission on US-listed stocks and ETFs
- Advanced trading platform for seasoned investors
- Some tools and features are not suitable for beginners
- Fractional ETFs not supported on all markets
- Mutual fund fees are expensive
Capital at risk.
Robinhood – 0% commission investments with a Roth IRA match of 1%
Robinhood is a popular US broker that offers 0% commission investments on all supported assets. This is inclusive of US listed stocks, ETFs, and options, as well as cryptocurrencies like Bitcoin, Ethereum, and Dogecoin.
Robinhood offers Roth IRAs with a 1% contribution bonus. Any contributions made by Robinhood will need to be kept in the Roth IRA for at least five years to remain eligible.
Nonetheless, this means that by investing the maximum allocation of $6,500 (under 50) or $7,500 (over 50), this represents an additional $65 and $75 annually, respectively. Robinhood also enables you to roll over external retirement accounts into its Roth IRA.
What I like about Robinhood
Robinhood does not have a minimum deposit requirement in place, which will appeal to those on a budget. Deposits are processed by either ACH or wire transfer. However, standard accounts come with an instant deposit threshold of just $1,000, with the balance taking up to five business days.
The only way around this is to sign up for the Robinhood gold account at $5 per month, which permits much larger instant withdrawals. Robinhood requires a minimum trade size of just $1 on all supported assets, so creating a diversified portfolio is a seamless task.
Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which means that your Roth IRA account will be protected by up to $500k in the event of a brokerage collapse. Finally, Robinhood investments can be made online or via the mobile app for iOS and Android.
- Open a Roth IRA and get 1% match on deposits
- 0% commission on all supported assets
- Access thousands of US-listed stocks and ETFs
- Limited access to non-US markets
- Analysis tools may be too basic for advanced traders
- Free accounts limited to instant deposits of just $1,000
TradeStation – Self-directed Roth IRA accounts with support for crypto
I found that TradeStation offers one of the best Roth IRA accounts for investors that seek access to higher-risk assets. Not only does TradeStation permit Roth IRA investments in stock options, but cryptocurrencies too.
Supported cryptocurrencies at TradeStation are inclusive of Bitcoin, Ethereum, Litecoin, Chainlink, Shiba Inu, and others. TradeStation also supports thousands of stocks and ETFs from the US markets, in addition to bonds, mutual funds, and futures.
I also like TradeStation for its advanced trading tools, which can be of great assistance when it comes to selecting investments for your Roth IRA. This includes a fully-fledged demo account facility that enables simulated trading in a risk-free environment.
What I like about TradeStation
Seasoned traders will also appreciate RadarScreen®, which supports over 1,000 stock symbols in real-time based on 180+ technical and economic indicators, not to mention fundamental data.
Like most Roth IRA accounts in the US, TradeStation offers 0% commission trading on domestic stocks and ETFs. Cryptocurrency trading fees are competitive too, starting from 0.6% per slide plus $2. Lower fees are available when trading larger amounts of cryptocurrency.
One of the main drawbacks of this provider is that TradeStation does not support fractional stocks. Not only will this be a disadvantage for investors on a budget, but diversification is somewhat challenging without a larger amount of capital.
Another drawback with TradeStation is that an annual administration fee of $35 is charged on Roth IRAs. Cryptocurrency investments held at TradeStation will attract an annual fee of $100.
- One of the best accounts for cryptocurrency investments
- No commission fees on domestic stocks and ETFs
- Plenty of advanced analysis tools and fundamental data
- Does not support fractional stocks
- Annual administration fee of $35
- Limited access to the international markets
Fidelity Investments – Two Roth IRAs to choose from including managed portfolios
Fidelity Investments offers access to every asset class imaginable – whether that’s stocks, futures, mutual funds, or bonds. I like that Fidelity offers two Roth IRA accounts to choose from, both of which come without any minimum deposit requirements.
The first option is the Fidelity Roth IRA, which is a self-directed account. This operates much the same as any other Roth IRA accounts in the US market. The Fidelity Go® Roth IRA, however, is a managed service that enables you to invest passively.
Fidelity will determine which assets to buy and sell based on your stated goals and tolerance for risk. This will particularly appeal to investors that have limited knowledge of selecting suitable investments.
This account comes with no advisor fees for balances of under $25,000. Anything above this figure will be charged 0.35% annually.
What I like about Fidelity
I found that Fidelity is a market leader when it comes to its proprietary mutual funds. More than 10,000 mutual funds are supported by this brokerage, and Fidelity makes the research process easier through investing ideas and market insights.
I also like that Fidelity has tailor-made funds available for sustainable investors, with a specific focus on ESG companies. Those opting for the standard account at Fidelity will not pay any trading commissions when investing in US stocks, ETFs, or options.
Other asset classes and markets will attract a commission and this will vary depending on the investment. I also like that Fidelity supports fractional shares through its Stocks by the Slice feature, with the minimum trade requirement just $1.
- Managed Roth IRAs support passive investing
- No management fees for balances of under $25,000
- Self-directed Roth IRAs support 0% commission stock and ETF trading
- Non-Fidelity mutual funds are somewhat expensive
- Account onboarding can be slow
- Cryptocurrency trading is only available for Bitcoin and Ethereum
SoFi – Automated Roth IRAs based on risk tolerance
Another option that I like when it comes to passive Roth IRA accounts is SoFi. This user-friendly broker offers automated Roth IRAs that are tailored to your financial goals and appetite for risk. Each portfolio will be custom-built with a suitable combination of stocks and bonds for any level of retirement savers.
Moreover, SoFi wil rebalance and reweight the portfolio on your behalf, so there is no requirement to watch over the markets. The minimum deposit when investing in an automated account is just $1.
Those who prefer making investment decisions on a DIY basis are also catered for at SoFi. The online broker supports US-listed stocks and ETFs on a commission-free basis, alongside fractional investing of just $5.
What I like about SoFi
I also like that SoFi offers access to new US stock IPOs (initial public offerings) with no minimum requirement in place.
More than 26 cryptocurrencies are supported too and the minimum trade size amounts to $10. Do note, however, that cryptocurrency trading at SoFi attracts a 1.25% spread on both buy and sell positions.
Another benefit of choosing SoFi is that it offers a mobile app for iOS and Android that is tailored to beginners. Searching for assets on the SoFi app is seamless, as is the case when checking the real-time value of your Roth IRA portfolio.
In addition to investment products and Roth IRAs, SoFi also offers traditional financial services, such as loans, mortgages, and insurance.
- User-friendly investment app for beginners
- Choose from a self-directed or automated Roth IRA
- Open a Roth IRA with just $1
- The simplicity of SoFi will not appeal to seasoned investors
- High cryptocurrency markups
- Does not support international equities
Where should I invest my Roth IRA?
Roth IRAs offer superb benefits in the long run, considering that withdrawals at the age of retirement will not attract income taxes.
With that said, I found that there are dozens of online brokers that support Roth IRA accounts, so knowing which provider to sign up with can be a challenging task.
In this section, I discuss some of the key factors to consider when searching for a suitable Roth IRA account.
The first metric to explore when selecting a Roth IRA broker is the type of assets available. This should mirror your long-term financial goals and tolerance for risk.
If you seek access to international equities from international exchanges, make sure that the respective broker supports this.
In addition to stocks and ETFs, many Roth IRAs offer access to mutual funds. This option is suitable for those that prefer a more passive approach to investing. This is also the case with bonds.
Some online brokers now support cryptocurrency investments in a Roth IRA, but do tread with caution in this regard – considering how speculative this industry is.
Self-directed or managed Roth IRAs
You should also assess whether you wish to choose your own investments via a self-directed Roth IRA account, or if you prefer having your funds managed on your behalf.
By opting for a self-directed account, you will have full control over your investment decisions. Not only in terms of the chosen assets but when to buy or sell.
Some online brokers, such as Fidelity and SoFi, also offer the option of managed Roth IRAs. You will initially be required to state your investing goals and risk appetite, and the chosen broker will build your Roth IRA portfolio automatically.
The portfolio will be rebalanced and maintained regularly, which offers a completely passive experience.
Another important aspect to consider when browsing the best Roth IRA accounts is what fees you will be expected to pay.
I found that the main fee types to consider are as follows:
Most online brokers enable you to deposit funds into the Roth IRA account on a fee-free basis. However, this isn’t always the case – especially when opting for a wire transfer.
The vast majority of brokers now support 0% commission trading on US-listed stocks and ETFs.
However, trading commissions might be charged on certain assets, such as bonds and mutual funds. Make sure that the fees are competitive on your preferred assets and markets before proceeding.
Annual Roth IRA fees
I also found that some of the best Roth IRA accounts attract an annual fee, which is oftentimes not clearly displayed by the broker.
For example, TradeStation charges $35 per year on Roth IRAs. While this might be insignificant on larger balances, causal investors might find this makes the process unviable.
By investing in mutual funds, ETFs, or index funds – additional fees may apply. You might be required to pay a one off charge for each purchase made and/or an annual expense ratio.
These fees will need to be factored into your long-term portfolio goals, especially if you are investing small amounts.
It is important to only select a Roth IRA account that comes with SIPC coverage.
This means that in the unlikely event of a brokerage collapse, the account is protected by up to $500k. This is inclusive of US dollar cash balances of up to $250k.
Causal investors will also need to consider the minimum account balance when selecting a Roth IRA.
Many of the brokers I came across do not have a minimum deposit in place, so you can usually get started with any amount of your choosing.
Some Roth IRAs are more suitable for seasoned traders, while others are tailored to the absolute beginner.
IBKR is perhaps more suitable for seasoned investors that seek high-level trading features and analysis tools. IBKR also supports margin trading via its Roth IRAs.
What is a good portfolio for a Roth IRA?
One of the trickiest elements to consider when you open a Roth IRA for your retirement years is the process of building a suitable portfolio.
There is no right or wrong strategy in this regard, as it all depends on your financial goals, tolerance for risk, and in many ways – your age.
Stock index funds
Many industry commentators will argue that the average investor saving for their retirement via a Roth IRA should focus on conventional stock index funds.
- The most common index fund in this regard is the S&P 500.
- This index fund tracks 500 large-cap stocks from the US markets.
- The index fund is rebalanced every three months to ensure that it remains aligned with the broader US stock market.
- Crucially, the S&P 500 has generated average annualized gains of approximately 10% since its inception.
- This historical return is based on a reinvestment of dividends, with most S&P 500 index funds making a distribution every three months.
Ultimately, the S&P 500 enables you to invest in the wider US economy in a passive manner.
Other popular funds that are compatible with Roth IRAs include the Dow Jones and the Total Stock Market Index.
All Roth IRAs should represent a diversified portfolio to ensure that you are not over-exposed to a small number of markets.
Dividend funds are another option here, especially for those that seek predictable income. There are a range of funds that specifically focus on dividend aristocrats. These are companies that have increased the size of their dividend for at least 25 consecutive years.
Some dividend funds make a distribution every month, which is ideal for compounding the value of your Roth IRA portfolio.
If you have some prior experience in the equities market, Roth IRAs also enable you to invest in individual stocks. This option comes with both pros and cons.
On the one hand, individual stocks do offer a higher upside when compared to index funds – especially those in high-growth industries.
However, this strategy also comes with additional risk, especially if you do not have the required skill set to make informed investment decisions.
Moreover, you will need to be a lot more active when buying and selling individual stocks for your Roth IRA, as you will need to dedicate sufficient time to research the market.
Although returns in recent years have been phenomenal, cryptocurrencies are a speculative and high-risk asset class. As such, allocating funds from your Roth IRA in cryptocurrencies like Bitcoin and Ethereum is certainly not the most risk-averse move.
For this reason, only a select number of online brokers enable you to add cryptocurrencies to a Roth IRA.
Nonetheless, if this is something that does interest you, it may be best to keep your stakes to an absolute minimum. In most cases, industry commentators suggest capping high-risk investments to no more than 5% of the overall portfolio.
In addition to the above, I also found that mutual funds are popular with some investors when building a Roth IRA portfolio.
Although there will be additional fees, mutual funds will take care of the end-to-end investment process. This means that you won’t need to select individual assets for your Roth IRA or attempt to time the market in any way.
Other asset classes that may be considered for your Roth IRA include fixed-rate bonds, IPOs, commodities, and ETFs that offer access to the international markets.
Balancing risk based on age
Some investors will take a risk-based approach when building a Roth IRA that is dependent on their age.
For instance, the general rule is that the closer you are to the age of retirement, the less risk you should take when selecting investments.
This means that investors over the age of 50 will likely have a much larger percentage of their portfolio in high-grade bonds. At the other end of the scale, investors in their 20s may consider growth stocks in addition to emerging market ETFs.
With that said, there is no one-size-fits-all rule when it comes to risk. You will need to assess how much risk you personally feel comfortable taking and ultimately, build a Roth IRA portfolio around this.
Is a Roth IRA a good idea right now?
Roth IRAs should be viewed as a long-term investment that will enable you to retire with a sufficient amount of capital.
As such, the sooner you get started with a Roth IRA account, the longer you will have to make contributions and thus – the more chance you have of retiring with a suitable nest egg.
However, Roth IRAs are not the only option when it comes to making tax-efficient investments for your retirement pot.
In addition to a Traditional IRA, you might also have access to a 401(k) plan with your employer.
Roth IRA vs Traditional IRA
Both Roth and Traditional IRAs are offered by many online brokers in the US. The option you select will ultimately depend on your current age and whether or not you expect your income to increase in the coming years and/or decades.
It is important that you make the right decision, so here are the key points to factor in when choosing between a Roth and Traditional IRA.
Roth IRA – Key points
The main premise of a Roth IRA is that your money will grow tax-free. This means that when you make withdrawals at the age of retirement, no tax will be applicable.
This is because you will have already had to pay taxes on the original investment, for instance, through your monthly salary. Tax deduction is therefore done at source rather than when you want to withdraw your retirement savings.
A Roth IRA is therefore, generally more suitable for those of you that have time on your side.
This is because, in theory, the value of your capital gains will likely surpass the original investment.
Traditional IRA – Key points
A Traditional IRA will enable you to invest without initially paying any tax on the contribution.
This is because you will have the ability to make tax-dedicated claims on Traditional IRA investments in the respective year that the contributions were made.
You will, however, be taxed on any Traditional IRA withdrawals that are made when you eventually retire.
Traditional IRAs may be more suitable if you believe that you will be on a much lower income tax rate at the age of retirement. In most cases, if you are under the age of 50, a Roth IRA will likely be the best way to go.
What to consider before opening a Roth IRA
Although there are certain exceptions, any money that you invest in a Roth IRA will not be accessible until you reach the age of 59½.
Therefore, in this section, I cover some of the most important considerations to make before opening a Roth IRA account.
How much should you put in a Roth IRA to start?
The first consideration to make is the amount of money that you will need to get started with a Roth IRA.
This will be determined by the broker that you open the Roth IRA account with. I found that most online brokers in the US enable you to get started without needing to meet a minimum deposit. In other cases, such as SoFi, the account minimum is just $1.
As such, a Roth IRA is suitable for all investment budgets.
With that being said, a Roth IRA is viable for long-term investment goals, so you should probably spend some time assessing how much you can invest each month.
The earlier that you begin making contributions, the more time your money has to grow. For example, consider that for every $100 invested – based on an average annualized interest rate of 10%, the capital would be worth over $1,700 in 30 years.
Now consider that if you continued to add $100 to the Roth IRA each and every month at the same assumed growth rate, in 30 years time this would be worth nearly $200k.
Of course, there are no guarantees in the investment world, so these figures should be taken with a grain of salt.
What is a good rate for a Roth IRA?
A Roth IRA is not an investment product, rather, they are simply tax efficient accounts offered by online brokers. As such, there is no target rate when considering a Roth IRA.
Instead, the rate of return that you are able to make will ultimately depend on your chosen investments.
The value of your Roth IRA investments can both rise and fall, which is why diversification is so important.
Nonetheless, as I noted earlier, the S&P 500 has averaged 10% per year on an annualized basis since its inception nearly 100 years ago.
Is a Roth IRA good for beginners?
A Roth IRA is suitable for both beginners and experienced investors. The account merely gives you access to the financial markets in a tax-efficient way, through an online broker.
With that said, beginners will likely feel more comfortable choosing the best Roth IRA account that comes with a user-friendly interface and small minimum balance requirements.
I found that brokers like Robinhood are popular with beginners, as there is no minimum deposit requirement and fractional assets of $1 or more are supported.
Is a Roth IRA a taxable investment account
A Roth IRA is a type of individual retirement account (IRA) that is not taxed on the money you withdraw during retirement, as long as certain requirements are met. A taxable investment account is any account that rises in value where that increase is classed as taxable income.
Roth IRA Contributions are made with after tax dollars, meaning that the money you put into the account has already been taxed, so the tax deduction was on your earnings and not on the money you withdraw from your retirement accounts. However, the money in the account grows tax free, and qualified withdrawals (which include contributions, but not earnings) are also tax free.
This is different from a traditional IRA, where contributions may be tax deductible and withdrawals are classed as taxable income.
What is the safest investment for a Roth IRA?
All investments carry an inherent level of risk. Some assets, however, come with higher risk levels than others.
This is why seasoned investors will often build a Roth IRA portfolio that covers many different asset classes and markets.
- Lower-risk assets for a Roth IRA may include US Treasury bonds and index funds that specifically target blue-chip stocks.
- Higher-risk assets will include growth stocks and cryptocurrencies.
- Index funds like the S&P 500 sit somewhere in between.
Nonetheless, index funds, ETFs, and mutual funds are often the way to go when building a risk-averse Roth IRA portfolio. The reason for this is that each investment can get you exposure to hundreds or even thousands of individual assets.
For instance, the Total Stock Market Index offers access to nearly 4,000 US-listed stocks. Similarly, the Total Bond Market Index consists of over 10,000 individual bonds.
Many Roth IRA brokers in the US enable you to invest in the aforementioned index funds from just $1, without paying any commission.
What is the 5-year rule for Roth IRA?
There are many exceptions and variations to the 5-year rule for Roth IRAs, but the key points are as follows.
First and foremost, one of the best things about Roth IRAs is that you can make penalty-free withdrawals at any given time. However, this is only applicable to the contributions you make.
- Should you wish to withdraw your earnings (capital gains), then penalties may apply.
- In the case of the 5-year rule, any earnings generated via the Roth IRA will only be penalty-free if the account has been open for at least five years.
- If not, you may be faced with a 10% penalty on the earnings withdrawn.
Even if you are over the age of 59½., the 5-year will need to be considered. That is to say, you will not pay a penalty if the Roth IRA has been active for under five years, but you will still need to pay tax on any earnings generated during this period.
What is the downside of a Roth IRA?
Roth IRAs come with many advantages, most of which are centered around the ability to make tax-free withdrawals from your investment account at the age of retirement.
However, Roth IRAs – like any investment product, also come with a number of downsides.
Low Annual Limits
When compared to a 401 (k) plan, Roth IRAs come with much lower annual limits. For instance, in the 2023 tax year, you can only invest up to $6,500 into a Roth IRA, or $7,500 if you are above the age of 50.
There are income limits as the annual limit is reduced if you are a single filer and earn more than $138,000 annually. This is based on a progressive scale that reduces the Roth IRA limit as the income threshold increases.
For example, those under the age of 50 and on a salary of over $139,500 will only be able to invest up to $5,850 into a Roth IRA for the year. If the salary surpasses $150,000, the Roth IRA limit is reduced to a mere $1,300
Penalties for Early Withdrawals
It is important to stress that Roth IRAs should only be viewed as a long-term retirement plan, meaning that early withdrawals are not advisable.
I mentioned the 5-year rule earlier, but do note that penalties are all but certain to apply for any withdrawals made before you turn 59½.
This is usually at a rate of 10%, but certain conditions may allow you to avoid the penalty altogether.
For instance, if you need the money to cover the cost of childbirth ($5,000 maximum) or to buy your first home ($10,000 maximum). Other personal situations are considered too.
In summary, IRA Roth accounts will enable you to save for your retirement years in a tax-efficient way.
As long as the Roth IRA is open for at least five years and you are not under the age of 59½ – then withdrawals can be made without having to pay taxes.
I should, however, remind you to do plenty of independent research on the pros and cons of Roth IRAs to ensure they are right for your personal circumstances and financial goals.
Roth IRA FAQs
Do I Need a Financial Advisor to Open a Roth IRA?
No, you don’t need a Financial Advisor to open a Roth IRA, you can usually apply online or open a brokerage account with an investment company such as Charles Schwab or Interactive Brokers
Is Fidelity Investments a good Roth IRA?
Yes, Fidelity Investments is popular with those that wish to invest in a Roth IRA but in a passive manner. The Fidelity Go Roth IRA will build and maintain a portfolio on your behalf, and no management fees apply for balances of under $25,000.
Does Dave Ramsey recommend Roth IRA?
Dave Ramsey typically suggests opting for a Roth 401 (k) – if this is offered by your employer. If it isn’t, or you have already hit your annual 401 (k) limit, then Ramsey suggests opting for a Roth IRA through a suitable low-cost broker.