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Reviewed
The Roth IRA is a unique and powerful tool for retirement savings. That’s because this type of individual retirement account comes with tax-free withdrawals, a huge advantage that gives you more options for managing taxes in your retirement strategy.
To help you choose the best Roth IRA account, Forbes Advisor has researched the best account providers for both self-directed investors who want to manage their own portfolios and hands-off investors who’d prefer to let the experts handle the heavy lifting.
| Company | Forbes Advisor Rating | Account minimum | View More | ||||
|---|---|---|---|---|---|---|---|
| Fidelity Investments |  |
4.4 |  |
$0 | View More | ||
| Charles Schwab |  |
4.3 | |
$0 | View More | ||
| TD Ameritrade |  |
4.3 | |
$0 | Learn More | Read Our Full Review | |
| Betterment |  |
4.8 | |
$0 minimum ($10 to start investing) | View More | ||
| Vanguard Digital Advisor |  |
4.8 | |
$3,000 | Learn More | On Vanguard's Website Paid non-client promotion. Ratings as of 5/01/23 for services offered in 2023*. |
|
| SoFi Automated Investing |  |
4.7 | |
$1 | Learn More | On Sofi's Secure Website |
Forbes Advisor evaluated the top brokerages and top robo-advisors to determine the best Roth IRA accounts. To choose the best Roth IRAs for hands-on investors, we undertook extensive evaluations of 21 different online brokerage platforms, looking at over 100 features and variables across the categories of fees, technology, product offerings, research and education, account security and customer service.
To uncover the best Roth IRAs for hands-off investors, we partnered with Backend Benchmarking, a leading evaluator of robo-advisors. Backend Benchmarking evaluated nearly 100 data points across nine categories including costs, customer experience, portfolio performance, account minimums, availability of human advisors, financial planning features, size and tenure and transparency about potential conflicts of interest.
A Roth IRA is a type of individual retirement account you open and manage on your own, completely separate from your employer. IRAs are either traditional or Roth.
With a traditional IRA you get the benefit of a tax deduction now if you’re under a certain income limit. With a Roth IRA you don’t get a tax benefit now, but you’ll never have to pay taxes on earnings in the account or withdrawals in retirement.
Contributions to a Roth IRA can be withdrawn at any time, penalty free. When invested thoughtfully and started early, a Roth IRA can be a powerful account with a relatively small initial investment.
If you invest $40,000 in your Roth IRA by the time you’re 30 in our pick for best total stock market index fund — the Fidelity Total Market Index Fund (FSKAX) — and it continues to have the 11.71% average annual return it’s had for the past 10 years, you’ll have $2,408,410.22 in tax-free money at age 65 without ever contributing another cent.
A Roth IRA grows through the power of time and compound interest, as long as it’s invested. Any growth in a Roth IRA account is tax-free and any qualified withdrawals are tax-free, making this one of the most valuable accounts you can own.
A Roth IRA is an account you open on your own with the brokerage of your choice. You determine how much you want to contribute initially and how much you want to continue to contribute, up to the annual contribution limit of $7,000 in 2024.
Money that is contributed to a Roth IRA is initially held in a non-invested money market account or similar. Just contributing is not enough, you have to invest the money you have in your Roth IRA. Picking investments can be daunting with so many choices available. Use our best of lists to help narrow down your choices.
Once the money in your Roth IRA is invested, it will grow tax free, meaning you do not owe any taxes on money you take out of the account after age 59½. Money in a Roth IRA can still be accessed before age 59½ but there can be penalties involved depending on the reason for the withdrawal.
The biggest benefits of a Roth IRA are how substantially they grow over time and their tax-free nature. Roth IRA accounts have no RMDs, so there’s no requirement to take money out of the account at a certain age. You control when and how much you take out of this account.
Roth IRA money also goes tax-free to your heirs, which makes it an additional form of life insurance. Contributions made to a Roth IRA account can be withdrawn at any time without penalties. So, a Roth IRA is a powerful tool to create a wealthy retirement if you leave it untouched, or a substantial emergency fund if you fall on hard times.
Opening a Roth IRA is simple, but before you get started you’ll want to make sure you’ve decided what kind of Roth IRA account you want. Are you ready to dig into market research and manage your account by yourself? Or would you prefer to leave all the buying and selling to the experts?
If you lean toward the former, you’ll want to open a Roth IRA account at an online brokerage, which gives you the tools you need to manage your retirement investments. If you identify more with the latter, you should probably open a Roth IRA at a robo-advisor, which manages your money for you.
You’ve got other options when it comes to choosing the right Roth IRA account. You could combine features of both types of Roth IRA providers above by purchasing a target-date fund in a brokerage individual retirement account. You could hire a financial advisor to manage a Roth IRA for you, although this will likely be the most expensive route.
You could also open a Roth IRA at a bank, although you’ll be limited to holding certificates of deposit (CDs), which do not offer the sorts of returns required to build your retirement nest egg over the long term.
You can have as many Roth IRAs as you want. As long as you have earned income and meet the income limits, you could open up one Roth IRA and contribute the contribution limit of $6,500 this year, or you could open up 6,500 Roth IRAs and contribute $1 each. Managing 6,500 Roth IRA accounts doesn’t sound like fun though.
If you find yourself holding several Roth IRA accounts and would like to simplify your financial life, you may want to consider doing a Roth IRA rollover and consolidating some of your accounts.
Roth IRAs have a superpower that’s unique among tax-advantaged retirement accounts: Contributions to a Roth IRA are made using money that’s already been taxed, and as a result, all withdrawals in retirement are totally free of income taxes. That’s right, you won’t pay a dime of taxes on qualified withdrawals from a Roth IRA.
That’s not the only benefit of a Roth IRA. Tax-advantaged retirement accounts lock down your money before you reach age 59 ½. Withdraw money earlier, and in all but a few special circumstances you’ll owe the IRS a 10% penalty, plus income taxes. But with a Roth IRA, you can withdraw contributions, but not any earnings, tax and penalty free at any time.
Similar to other tax-advantaged retirement accounts, a Roth IRA shelters your retirement investments from capital gains taxes. Compare that to a taxable brokerage account, where you pay taxes on any profits you realize when you sell investments or earn dividends.
Individual retirement accounts come in two flavors: traditional and Roth. The difference between a Roth IRA vs traditional IRA comes down to taxes and contributions.
| Roth IRA | Traditional IRA | |
|---|---|---|
|
2024 Contribution limits
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$7,000
|
$7,000
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2024 Income limits
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MAGI under $161,000 if single, under $240,000 if married filing jointly
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No income limit, but tax deduction eligibility is based on income limits and employer retirement plan eligibility
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|
Tax Treatment
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After-tax money is contributed, withdrawals aren’t taxed
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Pre-tax money is contributed, withdrawals are taxed
|
|
Required Minimum Distributions
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None
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RMDs required in your seventies depending on your birth year
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Other considerations
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Contributions can be withdrawn without penalty.
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none
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Traditional IRAs allow for tax-deferred growth, with no capital gains taxes, just like a Roth IRA. And depending on your annual income and filing status, you might also be eligible for a tax deduction for your traditional IRA contributions. Withdrawals in retirement are taxed as regular income.
As noted above, money you contribute to a Roth IRA has already been taxed. In exchange, there are zero taxes on withdrawals made once you’re at least 59 ½ and first funded a Roth account at least five years before.
As an additional benefit, you can take out contributions (but not earnings) at any time. This feature makes the Roth IRA a good choice for anyone who’d like to build up an emergency fund while also saving for retirement.
The final major difference between a traditional IRA and a Roth IRA comes down to eligibility. Anyone who earns income may open and fund a traditional IRA, but there are annual income limits restricting who can directly contribute to a Roth IRA. High earners can use a backdoor Roth IRA conversion to get their money into a Roth IRA, though you may owe some taxes when you convert.
There are a variety of special IRA accounts designed to address the needs of different investors, such as entrepreneurs, non-working spouses and those who prefer alternative asset classes, like gold or crypto.
Contributions to a Roth IRA can be withdrawn at any time. Rollover contributions to a Roth IRA can be withdrawn after a period of five years. Earnings in your Roth IRA, which will eventually make up the majority of your account balance, can generally only be withdrawn without penalty after age 59 ½. The IRS has several exceptions to this rule, which allow you to withdraw earnings from your Roth IRA early and without penalty.
Yes, if you’re eligible to contribute to a Roth IRA, it’s a powerful financial tool. You’re unlikely to find yourself in retirement wishing you had less money that was growing tax free that you could withdraw without owing Uncle Sam. Even if you need to touch your Roth IRA before traditional retirement age, you can take out your contributions. This makes a Roth IRA a powerful emergency fund that will work hard for you if you’re able to avoid tapping it.
Your Roth IRA can be just as safe as a bank account. The stability of your Roth IRA depends on how you’re investing it. Roth IRAs are an investment with a long time horizon, so investing in something with good long term returns like an S&P 500 index fund will have ups and downs but is likely to give you a wealthy retirement with relatively small contributions.
Investing in something like a bond fund is less likely to experience volatility, which will make your investment feel safer, but your money is never going to work for you and you’ll be missing out on the tax free growth that is one of the biggest benefits of a Roth IRA. Leaving money just sitting in your Roth IRA without investing it may feel like the safest thing to do, but you’ll be actively losing against inflation.
In 2024 you can contribute up to $7,000 a year to your Roth IRA. If you’re single, you’ll need to have earned income over $7,000 and a modified adjusted gross income under $161,000 to contribute up to the limit. If you’re married filing jointly, you’ll need to have combined earned income between you and your spouse greater than both of your Roth IRA contributions and a modified adjusted gross income under $240,000 to contribute up to the limit.
According to the IRS, you can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income is within certain limitations. To contribute the 2024 maximum Roth IRA contribution amount of $7,000 as a single person you would need to have earned income over $7,000 and a modified adjusted gross income under $138,000.
If you are part of a married couple filing jointly and would like to each contribute $7,000 in 2024 you would need to have a household earned income greater than $14,000 and a modified adjusted gross income under $240,000.
Individuals who are over the income limits for contributing to a Roth IRA can still take advantage of a backdoor Roth IRA. This loophole involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. This is not to be confused with a mega-backdoor Roth IRA, which requires certain conditions within a workplace 401(k) plan.
Contributions to a Roth IRA can be withdrawn at any time without penalties. Growth on your contributions, which will make up the majority of your Roth IRA balance over time, can be withdrawn without penalty after age 59½. The IRS does allow you to withdraw gains before 59½ under special circumstances including paying for college, buying a first home, and for any reason after experiencing a permanent disability.
Anyone — including minor children can qualify for a Roth IRA with earned income equal to or greater than their contribution. Spousal IRAs are available for non-working spouses who have a partner with earned income greater than their Roth IRA contributions. Income limits to contribute to a Roth IRA in 2024 are $161,000 for single filers and $240,000 for people who are married filing joint returns. Income phase outs reduce contribution limits below these incomes.
How much your Roth IRA earns depends on what you’ve invested it in. If you never invest your Roth IRA, it will earn very little. Most of the same investments you can make in a non-retirement account are still available in a Roth IRA. Your investments could quadruple every day, or you could lose it all if you invested in Enron or invested with someone like Bernie Madoff or Charles Ponzi.
Diversifying your investments into something like a S&P 500 index fund allows you to own a portion of the best performing companies without putting all your eggs in one basket that can easily fail. If you invest in any of our top picks for an S&P 500 index fund, and past returns continue, your Roth IRA will earn just over 11% on an average annual basis.
A rollover IRA is a term that can refer to rolling over your 401(k) to an IRA or rolling one IRA into another. In either case you’re taking money from one brokerage account to another. The most common reason to rollover an account is to get access to lower fees, better fund options, or to consolidate your financial life.
When completing a rollover, you must do so within certain time limits or the IRS will send you a large bill. Make sure that you’ve determined where you want your money to go before you initiate the process and fully understand all the tax consequences. Rolling over funds from a 401(k) to a traditional IRA or from a traditional IRA to another traditional IRA typically doesn’t incur taxes, but rolling over from a pre-tax account like a 401(k) or a traditional IRA to a Roth IRA will. Know what you’re doing and consider consulting with a financial advisor to see which option is best for you.
