The Roth IRA is one of the most popular self-directed retirement options. Roth IRAs are popular with investors because these accounts allow for tax-free investment growth and tax-free withdrawals when the account holder enters retirement.
“The Internal Revenue Service has a set of rules that individuals must meet to be qualified to invest in a Roth IRA. One set of rules pertains to income limits. If your income exceeds a certain amount you will not be allowed to contribute to a Roth IRA,” according to RothIRA.com.
Rules for Roth IRAs
There are contribution limits and tax rules associated with Roth IRAs. For example, investors that are not married and earn less than $120,000 per year, can contribute up to $5,500 per year to a Roth IRA, but that number climbs to $6,500 when the individual is over 50 years old. Roth IRA contributions are phased out for single investors earning between $120,000 and $134,999 annually and when the $135,000 annual income threshold is topped, investors can no longer get tax advantages from Roth IRAs. Married investors jointly filing taxes can contribute to Roth IRAs up to $198,999 in annual income.
When it comes to withdrawals, investors need to be over 59 1/2 years old to withdraw from Roth IRAs on a tax-free basis, as long as the account has been open for at least five years.
If you have not opened a Roth IRA, here are some of the best places to consider getting in the Roth IRA game:
Regardless of where an investor opens a Roth IRA, they should be able to access an array of investment options, including low-cost index funds and exchange-traded funds (ETFs). Vanguard has made a name for itself by offering a slew of such products, but the Pennsylvania-based fund giant also offers retirement products, including Roth IRAs.
There are performance advantages when considering Vanguard funds for a Roth IRA, including the fact that “93% of Vanguard mutual funds and ETFs … performed better than their peer-group averages over the past 10 years,” according to the company.
Additionally, Vanguard Roth IRAs do not feature loads or account service fees. While Vanguard clients can use products from rival fund issuers in their Roth IRAs, consider this: Vanguard does not charge commissions to its clients on over 200 of its index funds and ETFs.
Charles Schwab (NYSE:SCHW)
Charles Schwab is one of the largest discount brokers in the U.S. and while its trading costs are among the industry’s lowest, the company does not skimp on client service. Clients give mostly high marks to Schwab IRA products, including Roth IRAs, but a $1,000 minimum is required to open a Roth IRA with Schwab.
Like Vanguard, Schwab features a robust lineup of low-cost index funds and ETFs spanning bonds and equities. In fact, Schwab offers its clients one of the largest stables of commission-free ETFs in the brokerage industry.
“While you won’t receive immediate tax breaks, your qualified withdrawals are tax-free. Roth IRAs can be a smart solution if you expect to be taxed at a higher rate when you begin making withdrawals,” according to Schwab.
E-Trade is another brokerage giant that offers Roth IRAs and its bells and whistles are suitable for both buy-and-hold investors as well as those investors that like to be a bit more active in their retirement accounts. There is no minimum account balance on E-Trade Roth IRAs.
“Retirement investors will find a lot to love with E-Trade’s IRA offering, including a large line-up of no-trading-fee mutual funds and an extensive library of retirement advice and tools,” according to Nerd Wallet.
E-Trade’s low commissions and strong suite of analytical and research tools have made the broker a favorite among active traders, but all those perks are available to retirement investors as well. Plus, E-Trade recently boosted the number of ETFs it offers on a commission-free basis.
Investors that want to set-it-and-forget-it can consider E-Trade core portfolios, which the broker is currently offering with no advisory fee for the first year.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.