How to Find the Best Roth IRA

Choose the best Roth IRA to fit your financial plan.

Roth IRAs allow you to save on an after-tax basis for retirement, which means that although you don’t get a tax break for contributing, your money grows without being taxed because you are contributing money you already paid taxes for. Then, when you take distributions during your retirement, all the money — including earnings — will be tax-free.

The answer to “What is a Roth IRA?” is that it’s essentially the opposite of a traditional IRA, which gives you a tax deduction when you make contributions, but taxes your distributions at retirement age. It’s crucial you do a Roth vs. traditional IRA benefits comparison before you make a decision to open a Roth IRA to decide which one is best for you.

Keep in mind that to open a Roth IRA, you must have a custodian oversee the money in the account. Read on to learn what you should look for in a Roth IRA custodian so that you can start saving for your golden years.

How to Find the Best Roth IRA Providers

First, make sure you qualify to open a Roth IRA. Roth IRA rules stipulate that your income must fall below the Roth IRA limits for your filing status. Here are the Roth IRA income limits for 2018:

  • Single: Full contribution if your income is under $120,000; reduced Roth IRA contribution limit if your income is between $120,000 and $135,000
  • Married filing jointly: Full contribution if your income is under $189,000; reduced contribution if your income is between $189,000 and $199,000
  • Married filing separately: Reduced contribution if your income is under $10,000

Also, review the Roth IRA withdrawal rules to make sure you won’t have to take the money out early and incur penalties. You can withdraw your contributions at any time without taxes or penalties, but if you take your earnings out before you’re 59.5 and the account has not been open for five years, you’ll owe income taxes and — unless an exception applies — a 10 percent early withdrawal penalty.

Understand that you must shop around to find the Roth IRA that fits your financial plan best. If you’re eligible, follow these three steps to find the best Roth IRA accounts for you.

Related: 6 Roth IRA Rules You Need to Know

1. Compare Minimums and Fees

Different IRA custodians have different requirements to open a Roth IRA, and some charge fees if you fall below those minimums. Here are some examples of different institutions’ fees and minimums:

  • Schwab: Schwab requires a $1,000 minimum to open an account but charges no annual maintenance fee.
  • Fidelity: You won’t have to worry about account opening minimums and annual maintenance fees, but a $50 closing fee applies if you close the account.
  • TD Ameritrade: You won’t have an account opening minimum or maintenance fees with a TD Ameritrade Roth IRA.
  • Vanguard: Vanguard requires a $1,000 minimum to open an account. You can avoid the $20 minimum fee by registering your accounts online and receiving electronic statements.

Regardless of where you open your account, you still have to observe the annual Roth IRA contribution limits. You can contribute a maximum of $5,500 per year as of 2018 — or $6,500 if you’re 50 or older. The contribution limits apply to your traditional IRAs and Roth IRAs collectively, so if you have both types of accounts, are under 50 and you contribute $2,500 to a traditional IRA, the most you can contribute to a Roth IRA is $3,000.

2. Compare Investment Options

Decide whether you want to have an active role in managing your Roth IRA investments or if you would prefer to use a robo-advisor. Robo-advisors use software to automate your investments according to your preferences, which typically lowers your investing costs.

If you prefer to take a more active role in managing your investments, look for a custodian that offers access to the types of stocks, bonds, ETFs and mutual funds in which you want to invest. In addition, make sure the custodian offers low enough investment minimums for the funds you like. For example, a custodian might have an opening account minimum of $1,000, but if all the funds you’re interested in have minimums of $1,500 per investment, you’ll be limited.

If you’re more concerned about protecting your principal, consider holding a portion of your Roth IRA in certificates of deposit. If you decide to do that, make sure you compare Roth IRA interest rates.

Learn About: 10 Hidden Fees to Watch Out for in Retirement

3. Check for Promotions

Financial institutions often offer promotions for opening new IRAs or rolling money from an old retirement account into a new one. Here are some examples of promotions available now:

  • TD Ameritrade offers free trades for 60 days when you deposit $3,000 or more into an IRA; deposit at least $25,000 and receive a $100 bonus and 60 days of free trades.
  • Roll $20,000 over to a Merrill Lynch IRA and earn a $100 bonus.
  • An E*Trade Roth IRA offers 500 free trades that expire in 60 days if you deposit or transfer at least $10,000; deposit at least $25,000 and get a $200 bonus plus free trades.

If you have an old Roth 401k plan or existing IRA that you’re rolling over, you could qualify for an even bigger bonus, depending on how much you can transfer. For example, at E*Trade, your bonus for opening an account goes up to $300 if you transfer $100,000 — and up to $2,500 if you transfer $1 million. Promotional offers change frequently so check with your prospective custodians before opening an account.

Roth IRAs for Different Types of Investors

Keep in mind that some specific Roth IRAs are better for different types of investors. Here are a few of the best IRAs for different types of investors:

Best Roth IRA for Newbies

If you’re a new Roth IRA investor, consider using Wealthfront. Wealthfront will create and periodically rebalance a portfolio for you, but it won’t charge an advisory fee on the first $10,000 you invest. For deposit amounts that exceed $10,000, you’ll pay a monthly advisory fee based on an annual fee rate of 0.25 percent.

The only other charge you’ll be responsible for is the low fee embedded in the cost of the ETFs you’ll own, which averages 0.08 percent. Keep in mind that Wealthfront doesn’t charge fees to open or close an account.

Related: A Beginner’s Guide to Roth IRAs

Best Roth IRA for Active Traders

Schwab offers a wide range of investment options and low fees for trades. When you open a Roth IRA at Schwab, you can trade stocks and most ETFs for just $4.95 for online trades, and you’ll pay no commission on more than 200 ETFs. You can also trade options for just $4.95 plus 60 cents per contract, and futures for just $3.50 per contract.

Best Roth IRA for Low Overall Costs

Vanguard is known for offering low overall costs on its investment products, including some of the best Roth IRA rates. The average Vanguard fund expense ratio is 81 percent less than the industry average, and Vanguard funds don’t come with sales loads, commissions, or — as long as you register to receive account statements online — account service fees. Vanguard also offers target-date retirement funds if you prefer a less active role in managing your retirement.

Up Next: Roth vs. Traditional IRA — Which Retirement Plan Is Best for Me?