A Roth IRA is a type of tax-advantaged retirement account. It allows qualified individuals to contribute money, invest it on a tax-deferred basis, and eventually withdraw it tax-free.

How does a Roth IRA work?

Individuals contribute money to a Roth IRA, up to the annual maximum. This investment can grow and compound tax-deferred. Once the account holder turns 59 1/2, they are free to withdraw from their Roth IRA tax-free -- no matter how much their investments have grown.

What's the difference between a Roth IRA and a traditional IRA?

A traditional IRA provides an immediate tax benefit: Qualified contributions are deductible on the individual's current-year tax return. However, withdrawals from a traditional IRA will be considered taxable income. Roth IRA contributions are not tax-deductible, but qualified withdrawals will be completely tax-free.

How many Roth IRA accounts can I have?

You can have as many Roth IRA accounts as you want, but it's important to know that the annual maximum contribution is per person, not per account. In other words, if you have two Roth IRAs, your total contribution between both accounts cannot exceed $6,000 (or $7,000 if you're 50 or older) for 2021.

Is it a good idea to invest in a Roth IRA?

It depends. Roth IRAs are generally best for people who are in the lower tax brackets now or who want to avoid taxes entirely in retirement. If you're in a high tax bracket and qualify for a traditional IRA, it may be the smarter move for you. However, Roth IRAs have other key benefits, such as the absence of required minimum distributions and the flexibility to withdraw your contributions whenever you want.

How much do you need to open a Roth IRA?

Less than you might think. Many of our top brokers will allow you to open a Roth IRA with as little as one dollar. You may need more to start investing -- for example, you might need enough to purchase at least one share of whatever stock or ETF you're looking at -- but you can open an account with very little money.

How much can you withdraw from a Roth IRA account?

If you're older than 59 1/2 and your Roth IRA has been open for at least five years, you can withdraw as much as you want without any penalties or tax implications. However, it's important to note that you can withdraw your original contributions at any time and for any reason.

When can you withdraw from a Roth IRA account?

For a tax- and penalty-free withdrawal of investment gains, your Roth IRA must have been open for at least five years, and you must be at least 59 1/2 years old. But you can withdraw the contributions you've made to a Roth IRA at any time and for any reason.

How easily can I access money in my Roth IRA?

Roth IRAs are excellent for retirement savers who want flexibility. You can withdraw your Roth IRA contributions (but not investment gains) at any time, and it generally takes no longer than a day or two to do so.

Can I contribute to a Roth IRA if I already have a 401(k) or a traditional IRA?

Yes, as long as you qualify based on your income. If your other retirement account is a traditional IRA, your overall IRA contribution to both accounts cannot exceed the annual maximum. For 2021, this is $6,000, or $7,000 if you're 50 or older.

7 Best Roth IRA Accounts of October 2021

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We've looked at dozens of popular brokers to find the best Roth IRA accounts. Below, you'll find our current favorites. If you are looking for the best IRA accounts, it's important to understand what a Roth IRA is and whether it is a good option for you. We'll go over each of these points here so you can choose the best Roth IRA for you.

Key Links

What is a Roth IRA account?
How much can you contribute to a Roth IRA account?
Roth IRA vs. traditional IRA
What makes for the best Roth IRA brokerage account?
Pros and Cons of a Roth IRA account
Is a Roth IRA right for me?

The Ascent's best Roth IRA accounts

Research: TD Ameritrade
Mobile platform: E*TRADE
Customer support: Merrill Edge® Self-Directed
Index funds: Vanguard
Investors: Fidelity
Retirement investors: Charles Schwab
Low fees: Ally Invest

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TD Ameritrade

Our Rating:

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Our Rating:

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4.5 stars

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Low fees, no account minimums, and over 100 commission free ETFs make Ally an attractive place to park your IRA funds, though it doesn’t offer any no-transaction fee mutual funds.

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$0 stock and ETF trades

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$0

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Up to $3,000 bonus cash

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On Ally Invest's Secure Website.

What is a Roth IRA account?

A Roth IRA is one of the two major types of individual retirement accounts (also known as IRAs). Investments held in a Roth IRA are allowed to grow and compound on a tax-deferred basis. However, to enjoy the full tax benefits of a Roth IRA, you have to keep your money in the account until you reach "retirement age." The IRS defines this as 59 1/2 years old.

These accounts allow everyday Americans to save for retirement on a tax-advantaged basis.

Money contributed to a Roth IRA brokerage account can be invested in nearly any stocks, bonds, mutual funds, or exchange-traded funds (ETFs). If investments held in the account pay dividends or interest, no tax will be due on this income at the end of the year. And if you sell a profitable investment within a Roth IRA brokerage account, you won't pay a dime in capital gains taxes.

You can save for retirement in a standard (taxable) brokerage account, but these tax benefits make Roth IRA accounts a more preferable choice for those who qualify.

There are some exceptions to the withdrawal restrictions. For example, you can withdraw as much as $10,000 from your IRA to use toward a first-time home purchase. You can take out any amount to use to pay for college expenses. And with a Roth IRA, you can withdraw your original contributions (but not your investment profits) at any time and for any reason.

How does a Roth IRA account work?

A Roth IRA is an after-tax retirement account. You contribute money that you've already paid taxes on, and withdrawals are tax-free (provided they meet certain requirements). A Roth IRA is designed to provide the owner with tax-free retirement income. This makes the most sense for people who are in a relatively low tax bracket now and want to lock in their current tax rate.

It's important to understand how a Roth IRA works before you start investing. Note that you can't take a tax deduction for contributions you make to a Roth IRA. In contrast, you can take a deduction for money you contribute to traditional IRAs and most other retirement accounts.

The best Roth IRA accounts have a couple of unique features that many people find appealing:

You can withdraw your Roth IRA contributions (but not any investment profits) at any time and for any reason. You've already paid tax on this part of your Roth IRA. In the eyes of the IRS, the money is yours to do with as you please. This feature makes Roth IRAs more appealing to investors who don't want to tie their money up until they're almost 60.
Roth IRAs don't have required minimum distributions, or RMDs. In contrast, traditional IRAs and other types of tax-deferred retirement accounts require you to start taking money out after you turn 72.

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How much can you contribute to a Roth IRA account?

For 2021, participants can contribute $6,000 in their IRA accounts. Account owners who are 50 or older can contribute an additional $1,000 as a "catch-up contribution," for a total annual limit of $7,000. This limit is per person, not per account. If you have two IRA accounts -- say, a traditional IRA and Roth IRA -- your total contributions cannot exceed the annual limit.

Are you eligible to contribute to a Roth IRA account?

Whether or not you're eligible to contribute to a Roth IRA brokerage account depends on how much money you make in a year. The IRS has income limitations for contributions to Roth IRA accounts. The table below shows the IRS income limits for 2021:

Tax Filing Status	Modified AGI	Modified AGI	Modified AGI
Single or Head of Household	Less than $125,000 (full contribution allowed)	$125,000-$140,000 (reduced contribution allowed)	$140,000 or more (not eligible)
Married Filing Jointly	Less than $198,000 (full contribution allowed)	$198,000-$206,000 (reduced contribution allowed)	$208,000 or more (not eligible)
Married Filing Separately	Less than $10,000 (reduced contribution allowed)	$10,000 or more (not eligible)	--

These income limits are in place because Roth IRA accounts were created to help everyday Americans save for retirement -- not the wealthy.

For reference, the full contribution limit is the maximum amount of adjusted gross income (AGI) you can have and make a full Roth IRA contribution. The phase-out limit is the AGI threshold above which you can't make any Roth IRA brokerage contributions at all. If your AGI falls in between the two limits, you can make a partial Roth IRA contribution. In other words: You can still contribute, but you'll be limited to somewhat less than the $6,000 (or $7,000) annual limit.

There's one way to contribute to a Roth IRA even if your income is too high. It's known as the backdoor Roth IRA contribution method. With this method, you contribute to a traditional IRA and immediately convert the account to a Roth. Unlike a direct Roth IRA contribution, there are no income restrictions if you do this.

When can you make a Roth IRA contribution?

You can make a Roth IRA contribution starting on the first day of the calendar year and ending on Tax Day. So 2021 contributions could be made any time from Jan. 1, 2021, through April 15, 2022. In fact, if you make a contribution between Jan. 1 and the tax deadline, your Roth IRA provider will likely ask you to choose which tax year you'd like the contribution to be counted for.

Roth IRA vs. traditional IRA

The biggest difference between Roth and traditional IRAs is the tax structure. A traditional IRA gives you your tax benefit now, while a Roth IRA gives you your tax benefit later. Roth IRAs typically make the most sense for investors in the lower tax brackets, while traditional IRAs are generally the wise choice for higher-income savers.

Roth IRA contributions are not tax deductible. Qualified withdrawals from a Roth IRA account, though, are 100% tax-free. Roth IRA accounts are good for those who believe their marginal tax rate in retirement will be significantly higher than it is now.

With a traditional IRA, contributions are made on a pre-tax basis. They're tax-deductible in the year they are made. However, the withdrawals from a traditional IRA are taxable income. Traditional IRAs are good for individuals who anticipate a relatively low tax bracket after retirement.

Aside from the tax structure, these account types have several similarities. Both have the same annual contribution limit. Investments within the accounts are tax-deferred for as long as the money stays in the account. There are some other key advantages to a Roth IRA, such as the ability to withdraw contributions at any time and the lack of RMDs. However, the main difference is the tax structure.

What makes for the best Roth IRA brokerage account?

Most major brokerage firms offer Roth IRAs, but the best brokerage for Roth IRA accounts depends on your particular investing style and goals. Here are just a few of the most important things to consider when making your decision:

Fees and commissions: Virtually all online-based brokers have done away with commissions on stock trading, but it's important to see what other fees you might run into (most brokers have a page on their website called "pricing" or "fee schedule.") For example, some brokers charge account transfer fees and these can vary considerably.
Mutual funds: If you're planning to invest in mutual funds, you want to make sure that your broker offers a wide selection of mutual funds and ideally offers thousands of mutual funds on a no-transaction-fee (NTF) basis.
Platform/app: Some brokers are known for their no-frills, easy-to-use trading platforms and apps, while others have more complex platforms. Some let you test drive their trading platforms (with play money), and it can also be a good idea to check reviews in the App Store or Google Play Store if you're planning to trade through an app.
Resources: Some of the more full-featured brokers offer features like libraries of educational resources, as well as access to third-party stock research, while some of the lower-frills brokers are designed for people who simply want to buy and sell stocks.

Pros and cons of a Roth IRA account

Here's an overview of the pros and cons of Roth IRAs when compared with other types of retirement accounts:

Pros

Investments in a Roth IRA grow tax-deferred
Qualified withdrawals are completely tax-free
You can withdraw your Roth IRA contributions at any time and for any reason, without penalty
There are no required minimum distributions (RMDs) with Roth IRAs
You can contribute to a Roth IRA for as long as you have earned income, regardless of your age.
In a Roth IRA, you can invest your money in virtually any stocks, bonds, mutual funds, or ETFs you want.

Cons

You don't get a current-year tax deduction for making Roth IRA contributions
The IRA contribution limit is relatively low when compared with 401(k)s, 403(b)s, and most other types of employer-sponsored retirement plans
Higher-income savers may not qualify to make Roth IRA contributions.

Is a Roth IRA right for me?

A Roth IRA could be right for you if:

You're not worried about saving money on your taxes now.
You would rather keep your taxable income as low as possible after you retire.
You don't qualify for a traditional IRA, but you qualify for a Roth IRA contribution.
You don't want to be forced to withdraw money from your savings after you reach a certain age.
You don't want all of your money to be tied up until you retire.

So why open a Roth IRA? A Roth IRA account can be a great way to set aside money for retirement, but as we've discussed here, it isn't the only option you have. When planning for retirement, there's no such thing as a perfect retirement account for everyone. A Roth IRA is no exception. But with our guidance and a little research, you can find the best company for Roth IRA accounts with ease.

To recap, here are the best Roth IRAs

Broker/Advisor	Best For	Commissions	Next Steps
TD Ameritrade Rating image, 5.0 out of 5 stars.	Rating image, 5.0 out of 5 stars.	Best For: Research	Commission: $0 stock trades	Read Review
E*TRADE Rating image, 4.5 out of 5 stars.	Rating image, 4.5 out of 5 stars.	Best For: Mobile platform	Commission: $0 stock trades	Read Review
Merrill Edge® Self-Directed Rating image, 4.5 out of 5 stars.	Rating image, 4.5 out of 5 stars.	Best For: Customer support	Commission: $0 stock and ETF trades	Read Review
Vanguard Rating image, 4.5 out of 5 stars.	Rating image, 4.5 out of 5 stars.	Best For: Index funds	Commission: $0 stock and ETF trades	Read Review
Fidelity Rating image, 5.0 out of 5 stars.	Rating image, 5.0 out of 5 stars.	Best For: Investors	Commission: $0 stock trades	Read Review
Charles Schwab Rating image, 4.5 out of 5 stars.	Rating image, 4.5 out of 5 stars.	Best For: Retirement investors	Commission: $0 stock and ETF trades	Read Review
Ally Invest Rating image, 4.5 out of 5 stars.	Rating image, 4.5 out of 5 stars.	Best For: Low fees	Commission: $0 stock and ETF trades	Open Account

FAQs

A Roth IRA is a type of tax-advantaged retirement account. It allows qualified individuals to contribute money, invest it on a tax-deferred basis, and eventually withdraw it tax-free.
Individuals contribute money to a Roth IRA, up to the annual maximum. This investment can grow and compound tax-deferred. Once the account holder turns 59 1/2, they are free to withdraw from their Roth IRA tax-free -- no matter how much their investments have grown.
A traditional IRA provides an immediate tax benefit: Qualified contributions are deductible on the individual's current-year tax return. However, withdrawals from a traditional IRA will be considered taxable income. Roth IRA contributions are not tax-deductible, but qualified withdrawals will be completely tax-free.
You can have as many Roth IRA accounts as you want, but it's important to know that the annual maximum contribution is per person, not per account. In other words, if you have two Roth IRAs, your total contribution between both accounts cannot exceed $6,000 (or $7,000 if you're 50 or older) for 2021.
It depends. Roth IRAs are generally best for people who are in the lower tax brackets now or who want to avoid taxes entirely in retirement. If you're in a high tax bracket and qualify for a traditional IRA, it may be the smarter move for you. However, Roth IRAs have other key benefits, such as the absence of required minimum distributions and the flexibility to withdraw your contributions whenever you want.
Less than you might think. Many of our top brokers will allow you to open a Roth IRA with as little as one dollar. You may need more to start investing -- for example, you might need enough to purchase at least one share of whatever stock or ETF you're looking at -- but you can open an account with very little money.
If you're older than 59 1/2 and your Roth IRA has been open for at least five years, you can withdraw as much as you want without any penalties or tax implications. However, it's important to note that you can withdraw your original contributions at any time and for any reason.
For a tax- and penalty-free withdrawal of investment gains, your Roth IRA must have been open for at least five years, and you must be at least 59 1/2 years old. But you can withdraw the contributions you've made to a Roth IRA at any time and for any reason.
Roth IRAs are excellent for retirement savers who want flexibility. You can withdraw your Roth IRA contributions (but not investment gains) at any time, and it generally takes no longer than a day or two to do so.
Yes, as long as you qualify based on your income. If your other retirement account is a traditional IRA, your overall IRA contribution to both accounts cannot exceed the annual maximum. For 2021, this is $6,000, or $7,000 if you're 50 or older.

Ask the experts

John Banko

Wells Fargo Faculty Fellow, Senior Lecturer

What are some pros and cons of creating an IRA?

IRAs have one main advantage -- gains are not taxed for a long time. For me, the distinction between the Roth IRA and traditional IRA is just details and perhaps something to talk about with a tax pro. But whether you picked correctly (minimized taxes) will be answered when you retire. IRAs have one main disadvantage: the funds are somewhat locked up until you retire. If a situation arises where you need the funds before the IRS-defined age of retirement, there are penalties, extra forms, notes from your mom -- unneeded hassle to get the money. Hassle that is not the case in a non-IRA investment account.

How actively do investors need to manage their IRA in order to get the most gain?

If you start trading, even occasionally, then taxes come into play. The IRA will defer the taxes. The non-IRA account will be subject to taxes on gains if shares are sold.

Who should open an IRA?

If you believe you should save for retirement, and you want to take advantage of the U.S. system for doing that, the IRA will likely promote a long-term savings plan, offer reasonable returns given the risk, have a tax advantage, and your employer will likely help facilitate all this. But it needs to be part of a well-designed retirement plan, and is likely only one element of that plan. An IRA is no guarantee of a solid retirement, and it certainly has risks. Step one is developing a plan with concrete goals. With that, an IRA is likely in the mix.

Jason Reed

Associate Teaching Professor of Finance

What are some pros and cons of creating an IRA?

Investors looking to maximize their contributions toward retirement should really think about opening an IRA alongside any employer-sponsored retirement program. There are limited downsides and the upside of saving for retirement with an IRA can be life-changing. When making the decision to open and invest in an IRA, deciding between a traditional or Roth IRA can offer different pros and cons.

For either type of IRA, however, you will have access to traditional financial assets like stocks, bonds, ETFs, mutual funds, and money markets. Investors can choose their level of participation in growth, but for almost everyone, a consistent contribution to an ETF with broad market exposure coupled with a hands-off approach is best. Set it and forget it. That's your biggest risk-adjusted bang for your buck.

The biggest difference between a traditional and Roth IRA is how your contributions are taxed. For some, a Roth IRA's after-tax contributions are considered a benefit, especially if you expect to retire in a higher income tax bracket. You really can let your investment grow tax-free. On the other hand, since a traditional IRA offers income tax deductions, it might be just the nudge you need to begin investing in an IRA.

One potential downside to investing in a Roth IRA is that for high-income earners, you might not actually be eligible to make contributions. This would obviously limit the effectiveness of this investment vehicle. Similarly, for high-income earners, your traditional IRA contributions may not be fully tax deductible.

Additionally, both IRA options do have a contribution cap. Depending on your age, you'll be able to contribute up to either $6,000 or $7,000 per year. Moreover, traditional IRA investors are required to begin mandatory divestments starting at age 70 ½ or 72 (depending on your birthday). This isn't the case, however, with Roth IRAs. Again, you can let your investment grow well into retirement.

Another potential con to a traditional IRA is that early withdrawals are penalized 10% on top of taxes owed (some exceptions are allowed). On the other hand, since Roth IRAs are after-tax investment vehicles, you are allowed to withdraw your contributions penalty- and tax-free.

Best Roth IRA Accounts for October 2021

Key Links

The Ascent's best Roth IRA accounts

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What is a Roth IRA account?

How does a Roth IRA account work?

Buying your first stocks: Do it the smart way

How much can you contribute to a Roth IRA account?

Are you eligible to contribute to a Roth IRA account?

When can you make a Roth IRA contribution?

Roth IRA vs. traditional IRA

What makes for the best Roth IRA brokerage account?

Pros and cons of a Roth IRA account

Pros

Cons

Is a Roth IRA right for me?

To recap, here are the best Roth IRAs

FAQs

Ask the experts

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