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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.
Vanguard gets dinged slightly in our model for having high-ish account minimums for some of its services and an often-pricey fee structure for individual stocks, but it remains the gold standard for index funds and ETFs.Read Full Review
$0 per trade
TDA is one of our few 5-star all-around brokers, and it keeps that top rating for IRAs with its large amount of commission-free ETFs and mutual funds, along with strong sign-up promotions.Read Full Review
$0 per trade
Don’t wait. Open and fund an IRA today with TD Ameritrade and get up to $600. Learn more.
On TD Ameritrade's Secure Website.
Schwab sports hundreds of no-commission ETFs and the largest amount of no-transaction-fee mutual funds of any broker we evaluated, and individual stock trades are now $0. One improvement would be better sign-up promotions.Read Full Review
$0 per trade
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.Read Full Review
$0 per trade
E*TRADE is a strong option for IRAs with hundreds of commission-free ETFs and over 4,000 no-transaction-fee mutual funds. Additionally, they don’t have account minimums for IRA accounts.Read Full Review
$0 per trade
Seamless integration and added perks make Merrill Edge a top IRA option. Merrill also scores points for no account minimums and a wealth of no-transaction fee mutual funds.Read Full Review
$0 per trade
Get up to $600 when you invest in a new Merrill Edge® Self-Directed account
On Merrill Edge® Self-Directed's Secure Website.
Fidelity is a top option for IRAs with thousands of no-transaction fee mutual funds and hundreds of commission-free ETFs, along with no account fees or account minimums.Read Full Review
$0 per trade
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 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 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 towards 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.
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:
For 2020, participants can contribute as $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.
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 2020:
|Tax Filing Status||2020 Roth IRA Full Contribution Limit||2020 Roth IRA Contribution Phase-Out Limit|
|Single or Head of Household||$124,000||$139,000|
|Married Filing Jointly||$196,000||$206,000|
|Married Filing Separately||$0||$10,000|
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.
You can make a Roth IRA contribution starting on the first day of the calendar year and ending on Tax Day. So 2020 contributions could be made any time from Jan. 1, 2020 through April 15, 2021. 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 contribution limits are set according to the tax year. As mentioned, the limit for 2020 is $6,000 ($7,000 for account owners 50 or older).
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 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.
Most major brokerage firms offer Roth IRAs, but the best Roth IRA for you depends on your particular investing style and goals. Here are just a few of the most important things to consider when making your decision:
Here's an overview of the pros and cons of Roth IRAs when compared with other types of retirement accounts:
|Pros of a Roth IRA||Cons of a Roth IRA|
|Investments in a Roth IRA grow tax-deferred||You don't get a current-year tax deduction for making Roth IRA contributions|
|Qualified withdrawals are completely tax-free||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|
|You can withdraw your Roth IRA contributions at any time, and for any reason, without penalty||Higher-income savers may not qualify to make Roth IRA contributions.|
|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.|
A Roth IRA could be right for you if:
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 a little research, you can find out which IRA is right for you.
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.
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