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Best Roth IRA Accounts for March 2024

Review Updated
Matt Frankel, CFP®
Steven Porrello
By: Matt Frankel, CFP® and Steven Porrello

Our Brokerages Experts

Nathan Alderman
Check IconFact Checked Nathan Alderman
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Roth IRAs are retirement accounts that can help you grow money tax-free. But just because every Roth IRA follows the same tax rules and structure doesn't mean every IRA provider will offer you the same value.

We've broken down our best Roth IRA accounts into two categories: Best Roth IRAs for Self-Directed Investing and Best Roth IRAs for Hands-Off Investing. Self-directed IRAs will be controlled by you -- you will buy and sell your own investments on your own timeline.

Our hands-off Roth IRA accounts are robo-advisors. These are platforms will help you assess your risk tolerance and determine your investment time horizon, and then it manages your portfolio over time to maximize return potential. Depending on your investment goals and individual preferences, either could be a great choice.

There are a lot of options to compare, even on this page. It can be overwhelming! If you're looking for a place to start, here are some Roth IRA accounts our experts recommend and why they like them:

Our 11 Best Roth IRA Accounts

Broker/Advisor Best For Commissions Next Steps
Award Icon 2024 Award Winner
Best For:

Mobile platform

Commission:

$0 for stocks, ETFs, and options

Best For:

Beginner and advanced investors

Commission:

No account fees to open a Fidelity retail IRA

Award Icon 2024 Award Winner
Best For:

Mutual fund investing

Commission:

$0 per trade

Best For:

Mobile platform

Commission:

Commission-free; other fees apply

Award Icon 2024 Award Winner
Best For:

Low fees

Commission:

$0 for stocks, $0 for options contracts

Best For:

Customer support

Commission:

$0 for online stock and ETF trades

Award Icon 2024 Award Winner
Best For:

Low fees

Commission:

$0 stock and ETF trades

Award Icon 2024 Award Winner
Best For:

Index funds

Commission:

$0 online; $25 broker-assisted fee for some phone trades of stocks and ETFs from other companies (Less than $1 million)

Award Icon 2024 Award Winner
Best For:

Retirement investors

Commission:

$0 stock, ETF, and Schwab Mutual Fund OneSource® trades

Award Icon 2024 Award Winner
Best For:

Hands-off investors

Commission:

$0 per trade, management fee 0.25%

Award Icon 2024 Award Winner
Best For:

Low-cost passive investing

Commission:

$0 per trade, management fee of $4 per month or 0.25% per year

How to choose the best Roth IRA brokerage account for you

Most major brokerage firms offer Roth IRAs, but that doesn't mean every broker's Roth IRA will offer the same features. With that in mind, here are four factors to compare as you're shopping for the best Roth IRA broker:

Robinhood
Open Account for Robinhood

On Robinhood's Secure Website.

Ratings Methodology
Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
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Bottom Line

With no commission fees, access to trade fractional shares, and many investment types, Robinhood's high-quality app trading platform is best suited for beginner investors wanting a solid place to invest on the go.

Fees:

$0 for stocks, ETFs, and options

Account Minimum:

$0

Open Account for Robinhood

On Robinhood's Secure Website.

Our Rating:

Rating image, 5.0 out of 5 stars.
5.0/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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Bottom Line

We rate Fidelity as one of the best Roth IRA accounts with pretty much every feature you’d need: an intuitive platform and tools, a strong selection of funds and ETFs, excellent customer service, and no account fees or account minimums.

Fees:

No account fees to open a Fidelity retail IRA

Account Minimum:

$0

Open Account for Fidelity

On Fidelity's Secure Website.

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.0 out of 5 stars.
4.0/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
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Bottom Line

With no minimum deposit requirements to open an account, and no mutual fund commissions whatsoever, J.P. Morgan Self-Directed could be a great home for your Roth IRA, especially if mutual funds are a big part of your strategy.

Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Earn a bonus up to $700 when you open and fund a J.P. Morgan Self-Directed Investing account (retirement or general) with qualifying new money by 04/12/2024.

Open Account for J.P. Morgan Self-Directed Investing

On J.P. Morgan Self-Directed Investing's Secure Website.

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
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Bottom Line

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 Roth IRA accounts.

Fees:

Commission-free; other fees apply

Account Minimum:

$0

Open Account for E*TRADE

On E*TRADE's Secure Website.

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
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Bottom Line

SoFi stands out with a simple IRA setup process and low fees, in addition to a wealth of other products at your fingertips.

Fees:

$0 for stocks, $0 for options contracts

Account Minimum:

$0

Special Offer Circle with letter I in it. For new accounts: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%.

Get up to $1,000 in stock when you fund a new Active Invest account.

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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Bottom Line

Merrill Edge® Self-Directed offers seamless integration and added perks, making it one of the best Roth IRA platforms. Merrill also scores points for no account minimums and a wealth of no-transaction fee mutual funds.

Fees:

$0 for online stock and ETF trades

Account Minimum:

$0

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
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Bottom Line

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.

Fees:

$0 stock and ETF trades

Account Minimum:

$0

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
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Bottom Line

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.

Fees:

$0 online; $25 broker-assisted fee for some phone trades of stocks and ETFs from other companies (Less than $1 million)

Account Minimum:

$0

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Bottom Line

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. Its lineup of retirement accounts expands beyond just online access to robust account management capabilities via its mobile app.

Fees:

$0 stock, ETF, and Schwab Mutual Fund OneSource® trades

Account Minimum:

$0

Editor's Note: TD Ameritrade is transitioning to Charles Schwab

TD Ameritrade has been acquired by Charles Schwab, and the company expects all accounts to be transitioned by the end of 2024. We've removed TD Ameritrade from our best-of lists to align with this development. Here at The Ascent, you can trust that we're constantly evaluating our top broker picks to bring you current recommendations.

Ratings Methodology
Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Bottom Line

Wealthfront is a robo-advisor that offers great value with a robust mix of account types, low fees, and a low account minimum.

Fees:

$0 per trade, management fee 0.25%

Account Minimum:

$500

Award Icon 2024 Award Winner

Our Rating:

Rating image, 4.5 out of 5 stars.
4.5/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Bottom Line

Betterment is a robo-advisor with a great mix of features: low fees, no account minimum, fractional shares, and socially responsible investment options.

Fees:

$0 per trade, management fee of $4 per month or 0.25% per year

Account Minimum:

$0

What is a Roth IRA account?

A Roth IRA is an individual retirement account (IRA) that lets you contribute after-tax dollars and enjoy the power of compound interest tax-free. That means you don't have to pay taxes on earnings in a Roth IRA, so long as you take distributions after you hit 59 1/2 years old.

Roth IRA accounts have annual contribution limits set by the IRS, which are usually lower than 401(k)s. You can invest in a number of securities within a Roth IRA, such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs).

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 pay for college expenses. And with Roth IRA accounts, you can withdraw your original contributions (but not your investment profits) at any time and for any reason.

Learn more: Roth IRA benefits

How does a Roth IRA account work?

A Roth IRA works like this: You contribute post-tax dollars (money you've already paid taxes on), then invest that money in whatever securities fit your investing strategy, like stocks or mutual funds. At any time, you can sell those securities for a profit and you don't have to pay capital gains taxes, so long as it's held within your Roth IRA. Better yet, when you turn 59 1/2, you can withdraw your earnings tax-free, since you already paid taxes on your contributions.

Roth IRAs let you withdraw your contributions freely without penalty, but your earnings might be subject to taxes or penalties if you withdraw before you pass the 59 1/2 mark or before the account has been open at least five years. Unlike traditional IRAs and 401(k)s, you don't have to take minimum required distributions, meaning there's no age after which you have to start withdrawing from your Roth IRA.

How does a Roth IRA grow over time?

Contributing up to the annual limit will certainly give your Roth IRA a good foot forward, but your selection of investments is the real engine driving your account's long-term growth. Since your account isn't bogged down by capital gains taxes, you can take full advantage of growing your money by compound interest using a combination of stocks, ETFs, mutual funds, bonds, and other securities.

For instance, let's say you contribute $6,000 annually into your Roth IRA for 25 years and choose to invest in an S&P 500 index fund. If we assume a modest 7% annualized rate of return for this fund, your account would grow to $438,623 at the end of 25 years, with $150,000 in contributions and $282,623 from interest you've earned.

Roth IRA contribution limits

For tax year 2023, contributions to your IRA accounts cannot exceed:

  • $6,500 if you're under 50 years of age
  • $7,500 if you're age 50 or older (known as a "catch-up contribution")

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.

Roth IRA eligibility: Who can contribute?

Whether you're eligible to contribute to a Roth IRA brokerage account depends on your modified adjusted gross income (known as modified AGI or MAGI). This is your adjusted gross income (read: what the IRS uses to calculate your tax bill), plus deductions and exemptions added back in. For 2023, the MAGI income limits are the following:

Tax Filing Status Modified AGI Modified AGI Modified AGI
Single or Head of Household Less than $138,000 (full contribution allowed) $138,000-$153,000 (reduced contribution allowed) $153,000 or more (not eligible)
Married Filing Jointly Less than $218,000 (full contribution allowed) $218,000-$228,000 (reduced contribution allowed) $228,000 or more (not eligible)
Married Filing Separately Less than $10,000 (reduced contribution allowed) $10,000 or more (not eligible) --
Data source: IRS.

If your income is too high, you might be able to contribute through 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.

How to open a Roth IRA account

Opening a Roth IRA can be boiled down to a few simple steps. If you've compared the best Roth IRA accounts and you're ready to open an account of your own, here's everything you need to get your Roth IRA up and running:

  1. Decide if you're eligible. Take a look at the income limits above to see if you qualify.
  2. Pick a Roth IRA provider. Compare different providers, then decide which one is right for you.
  3. Open an account. You'll need identification (like a driver's license), your Social Security number, and bank account information. In addition, you'll create login credentials for your account and indicate how you want to fund it.

Most Roth IRA providers can approve you instantly (or at least within a few business days), so long as they can verify your identity. Once your account has been approved, you can transfer money into your Roth IRA, pick your investments, and continue contributing until you hit the annual limit.

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 2023 contributions could be made any time from Jan. 1, 2023, through April 15, 2024. 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.

RELATED: Many people have their contributions automatically deducted from their bank. See The Ascent's roundup of the best checking accounts.

What is the biggest advantage to using a Roth IRA?

The biggest advantage of Roth IRA accounts is that typically, younger workers have lower tax rates at the early stage of their careers. As such, they prepay taxes at a lower rate (compared with tax rates at later stages of their careers -- even if no tax rule changes), and any capital gains accumulated in the account are tax free upon withdrawal. Younger workers also have a longer investment horizon, so starting investing early really helps.

Joyce Beebe, Ph.D. Fellow in Public Finance at Rice University's Baker Institute for Public Policy

Roth IRA vs. traditional IRA

A traditional IRA is funded with pre-tax dollars -- money you haven't paid taxes on. This money is deducted from your gross income and can potentially lower your tax bill for the year you made the contribution. When it comes time to withdraw money from a traditional IRA, you'll pay taxes at whatever tax bracket you fall into.

Don't miss that: With a traditional IRA, you receive your tax benefit now in the form of reduced taxable income. In exchange for that reduction, you pay taxes on traditional IRA distributions in retirement. A Roth IRA, however, is funded with after-tax dollars and doesn't reduce your taxable income. However, with a Roth IRA, you receive your tax benefit later in the form of tax-free distributions.

To decide which IRA is right for you, you have to figure out which will save you the most on your lifetime taxes.

Typically, traditional IRAs are ideal for high-income earners who anticipate having a lower tax rate in retirement. You can reduce your taxable income today (potentially saving on this year's taxes) and withdraw at a time when you're not earning as much income and can fall into a lower tax bracket. For example, if your tax rate is 39% today but you expect a 22% rate in retirement, then it would be wise to defer paying taxes until you fall into that lower tax bracket.

Conversely, Roth IRAs usually make sense for those who are in lower tax brackets today, but anticipate being in a higher tax bracket in retirement. If your tax rate is lower today then you'll save more by paying taxes at your current rate rather than waiting until retirement. For instance, if your tax rate is 12% today, but you anticipate a rate of at least 22% in retirement, it would be wise to pay taxes today and withdraw tax-free later.

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.

Is it better to invest in a Roth IRA or 401(k)?

A 401(k) is great for retirement savers because it has a higher annual contribution limit than Roth IRAs. Much like traditional IRAs, 401(k)s also give you a tax benefit now, as your contributions are pre-tax, meaning they're deducted from your gross income and could help you save money on taxes. In exchange for that tax deferral, you'll pay taxes on 401(k) distributions at whatever your tax bracket is at that time.

Roth IRAs, however, have some muscle of their own. Your annual contribution limits may be smaller, but you don't have to worry about pesky required minimum distributions (RMDs), which require 401(k) holders to start withdrawing at age 72. And while Roth IRAs can't reduce your taxable income, you also don't have to pay taxes on distributions in retirement.

But 401(k)s have the ultimate trump card in one regard: employer matches. That's right, if your employer will match your 401(k) contribution, don't hesitate to take the match (that's free money!).

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 Cons
Investments in a Roth IRA grow tax-free. You can reduce your taxable income.
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. No employer matching contributions
You can contribute to a Roth IRA for as long as you have earned income, regardless of your age. More flexibility might tempt you to withdraw for reasons other than retirement
In a Roth IRA, you can invest your money in virtually any stocks, bonds, mutual funds, or ETFs you want. The five year rule might make these accounts less ideal for those nearing a retirement age.

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 place to open a Roth IRA with ease.

Ask the experts

Joyce Beebe, Ph.D.

Joyce Beebe, Ph.D.

Fellow in Public Finance at Rice University's Baker Institute for Public Policy

What misconceptions might millennials or Gen Z have about Roth IRAs and planning for retirement?

Many millennials or Gen Z think they cannot contribute to Roth IRA (or IRA) until they start a formal job -- for instance, after graduating from college or graduate school. This is not the case; as long as an individual has earned income, he/she can contribute to an IRA up to the $6,500 annual contribution limit (for 2023) or 100% of his/her earned income, whichever is less.

Roth IRA has income limits. For single taxpayers, if his/her income exceeds $138,000, the contribution starts to phase out. When his/her income reaches $153,000, the taxpayer is not allowed to make any Roth contributions. As younger workers advance their careers, they are likely to be capped out. They are also more likely to be subject to the income limit if they live in high cost of living cities. In addition, as younger workers get married, their Roth contribution is subject to the "marriage penalty" -- the income limit for married filing jointly is $218,000 (fully phased out at $228,000), which are not doubles of the single amounts ($138,000 and $153,000).

Another misconception is that self-employed (SE) workers cannot contribute to Roth, but your website has another article that covered this recently. As such, I did not talk about the income from SE workers. A point to note is IRS's definition about "self-employed" is a lot wider than many in younger generations realize. In many cases, their side business income can qualify as SE income, hence is allowed for Roth IRA contributions.

How can I determine if a Roth IRA makes sense for me?

Assuming investors have enough funds to save for retirement, they should consider all options available to them -- most likely Roth IRA and employer plans such as 401(k) accounts. However, be mindful that from a tax perspective, they are different. They are also very different from account administration and plan design perspectives. For tax, Roth IRAs are "after tax" in that taxpayers do not receive deductions for the contributions made. 401(k) contributions are "pre-tax" in that the contributions are tax-deductible. In addition, many employer plans provide matching for 401(k) contributions, and a recent Congressional proposal, if it passes, will allow employer plans to match participants' student loan payments, similar to those of retirement plans.

Many researchers think that, given the current level of the U.S. deficit, it is highly likely that future tax rates will increase to finance government expenditures and debt payments. If one believes this to be the case, prepaying taxes under Roth IRA will be an attractive option.

One more note is that although many have touted that there are no penalties or taxes to withdraw one's Roth contributions as a benefit, there may be tax consequences for withdrawing the earnings/capital gains before the retirement age. The IRS provides several exceptions; however, it is still not ideal to view Roth IRA as an emergency savings account.

What is the biggest advantage to using a Roth IRA?

The biggest advantage of Roth IRAs is that typically, younger workers have lower tax rates at the early stage of their careers. As such, they prepay taxes at a lower rate (compared with tax rates at later stages of their careers -- even if no tax rule changes), and any capital gains accumulated in the account are tax free upon withdrawal. Younger workers also have a longer investment horizon, so starting investing early really helps.

Not everyone’s Roth can be subject to astonishing returns like Peter Thiel's, and Congress is considering adding restrictions to the Roth IRA. However, these cases should not prevent younger workers from starting contributions to a Roth IRA early on.

John Banko

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

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 $6,500 or $7,500 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.

FAQs

  • 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 $6,500 (or $7,500 if you're 50 or older) for 2023.

  • Roth IRA accounts 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 $1. 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 2023, this is $6,500, or $7,500 if you're 50 or older.

Our Brokerages Experts

Brokerages we evaluated for consideration on this page: Acorns, Ally Invest, Axos Self-Directed Trading, Betterment, Cash App Investing, Charles Schwab, Delphia, Domain Money, Ellevest, Empower, eToro Brokerage, E*TRADE Core Portfolios, E*TRADE, Fidelity, Fidelity Cash Management, Fidelity Go®, Firstrade, FOREX.com, Interactive Brokers, J.P. Morgan Self-Directed Investing, M1 Finance, Magnifi, Marcus Invest, Merrill Edge® Self-Directed, moomoo, NinjaTrader, Personal Capital, Plynk, Prosperi Academy, Public, Robinhood, Rocket Dollar, Schwab Intelligent Portfolios, SoFi Active Investing, SoFi Automated Investing, Stash, Stockpile, Tastytrade, Titan, Tornado App, TradeStation, Tradier, Vanguard, Vanguard Digital Advisor®, Wealthfront, Webull, Zacks Trade.