A Roth IRA just might be the only true “free lunch” available for investors.
The Roth IRA is an individual retirement account that allows you to deposit after-tax money, invest it and then withdraw the funds during retirement. As the money grows and compounds within the account, you don’t pay any additional taxes on the dividends or capital gains.
Roth IRA owners can choose their own investments, from typical stocks, bonds and funds to alternative assets such as real estate, gold and even Bitcoin. Most financial institutions offer Roth IRAs with a variety of investments.
There are IRS limitations to contribution amounts and withdrawals, but if eligible, there’s every reason to select and open one of the best Roth IRAs.
Investors can choose the right Roth IRA for their needs from among the typical financial firms — such as Schwab, Fidelity or Vanguard — or select a robo advisor, like Betterment or Wealthfront. Those who prefer access to nontraditional assets might also opt for a self-directed Roth IRA LLC with “checkbook control.”
Here are five of the best Roth IRAs for your investments:
— TD Ameritrade
— M1 Finance
A Vanguard Roth IRA is offered from the firm best known for initiating the index fund and offering low-fee investments. Dejan Ilijevski, president of Sabela Capital Markets, suggests the Vanguard Roth IRA for do-it-yourself investors who are comfortable with managing their own portfolios. He cautions that this self-directed account requires investors to choose their own assets and have the discipline to rebalance when necessary. “Minimizing costs should be among your first priorities,” Ilijevski says.
Because Vanguard’s mutual fund and exchange-traded fund costs are rock-bottom, more of your money goes directly into the investment markets. Vanguard charges a $20 annual management fee for the Roth IRA, but there are many ways to waive that charge. Sign up for e-delivery of documents or hold more than $50,000 in Vanguard assets, and the fee is eliminated.
[Read: Best Vanguard Bond Funds to Buy.]
Another major financial investment firm, TD Ameritrade has many awards — including No. 1 overall broker in the StockBrokers.com 2020 Online Broker Review. The firm recently merged with Charles Schwab, but any changes to TD Ameritrade accounts due to the merger shouldn’t occur for several years.
Craig Kirsner, president at Stuart Estate Planning Wealth Advisors, recommends TD Ameritrade for its award-winning customer service, research tools, investment research and options trading platform. Self-directed investors have access to all the services they might need to manage their Roth IRA.
Another bonus for the TD Ameritrade Roth IRA is that there are no account management fees. Also, like most online financial firms, there are no commissions or other fees for online trading.
This premier robo advisor offers Roth IRAs for its customers. The benefits of using a digital investment advisor for a Roth IRA is that investors have access to top-notch portfolio management with fees substantially lower than those of traditional financial advisors. The Betterment Digital platform charges 0.25% of assets under management and includes investment portfolios in line with your goals and risk tolerance.
Users also have access to a la carte financial advice packages for specific issues, such as retirement planning or a simple financial checkup. All investors have texting access to financial planners.
This firm is unique as it enables investors to use their Roth IRAs to invest in alternative assets such as cryptocurrency, private real estate, startups, venture funds and more, says Tara Fung, AltoIRA’s chief revenue officer. Alternative assets can also soften the blow of market volatility and provide a hedge against declining asset prices due to a weakening economy, Fung adds.
AltoIRA’s goal is to provide access to assets that are typically out of reach for average investors. The firm wants to give investors the same opportunities as institutional, high-net-worth and venture capital investors.
The AltoIRA fee schedule is transparent. Accounts worth up to $10,000 pay just $5 per month. The monthly fee increases to a maximum of $30 for accounts worth more than $100,000. Transaction fees are pricey — given that clients are investing in less liquid assets — and range from free for trades up to $5,000 to $150 for transactions more than $50,000.
M1 Finance is a newer breed of online financial firms. The company began as an online investment manager offering the ability to pick and choose investments or select from pre-made investment portfolios. One draw of this firm is that your investments are rebalanced automatically back to your preferred asset allocation.
The M1 Finance Roth IRA is free, with zero management fees or trading commissions.
You can choose from approximately 6,000 stocks or funds to craft your own investment portfolio. The smart transfer feature allows you to invest, spend or save for distinct goals as well as keep the Roth IRA fully funded, says Brian Barnes, CEO of M1 Finance. This automation helps ensure that your retirement investing is taken care of. For sophisticated investors, a downside might be that the platform lacks access to individual bonds, closed-end funds, preferred stocks and other niche assets.
Takeaway: The Best Roth IRAs
There are many IRA providers from which to choose. Before opening an account, consider the features of the provider, its fees and access. Some investors prefer to keep all their investments with the same firm. All the firms discussed, except AltoIRA, offer access to high-yield cash accounts or money market funds as well. Regardless of which financial firm you select, opening a Roth IRA is a smart financial move for retirement saving.
Disclosure: The author holds accounts at Vanguard, TD Ameritrade and M1 Finance.