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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.
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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 full 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 exchange-traded funds (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 toward 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.
Learn more: Roth IRA benefits
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:
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For 2021, participants can contribute $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 2021:
|Tax Filing Status||Modified AGI||Modified AGI||Modified AGI|
|Single or Head of Household||Less than $125,000 (full contribution allowed)||$125,000-$140,000 (reduced contribution allowed)||$140,000 or more (not eligible)|
|Married Filing Jointly||Less than $198,000 (full contribution allowed)||$198,000-$206,000 (reduced contribution allowed)||$208,000 or more (not eligible)|
|Married Filing Separately||Less than $10,000 (reduced contribution allowed)||$10,000 or more (not eligible)||--|
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 2021 contributions could be made any time from Jan. 1, 2021, through April 15, 2022. 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.
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 those 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 brokerage for Roth IRA accounts 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:
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 our guidance and a little research, you can find the best company for Roth IRA accounts with ease.
|Broker/Advisor||Best For||Commissions||Next Steps|
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 $6,000 (or $7,000 if you're 50 or older) for 2021.
It depends. Roth IRAs 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 one dollar. 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 2021, this is $6,000, or $7,000 if you're 50 or older.
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 $6,000 annual contribution limit (for 2022) or 100% of his/her earned income, whichever is less.
Roth IRA has income limits. For single taxpayers, if his/her income exceeds $129,000, the contribution starts to phase out. When his/her income reaches $144,000, 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 filed jointly is $204,000 (fully phased out at $214,000), which are not doubles of the single amounts ($129,000 and $144,000).
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.
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.
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 $6,000 or $7,000 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.
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