If you are worried about paying higher taxes after retirement, you might want to continue reading this as a Roth IRA may be perfect for you. With the increasing rate of taxes, the prospect of paying taxes in the future has become a dilemma many people fear today.
Topping the list are people who do not have an investment or savings plan for retirement. You can have a tax-free retirement by taking advantage of some of the best Roth IRA accounts.
In this article, we will answer the question “what is a Roth IRA account?”, explain why you should consider getting one, and show you the best places to open a Roth IRA.
What Is a Roth IRA Account?
This is a special retirement account that guarantees tax-free withdrawals from your account in the future. Unlike other retirement accounts where you might be required to pay taxes on the account, Roth IRA accounts offer a great way to legally get around the issue of higher taxes, especially in retirement.
The term IRA stands for Individual Retirement Account. With a Roth IRA account, you can transfer ownership to your successors tax-free.
Only those who meet certain required conditions are eligible to own a Roth IRA account.
What Makes a Good Roth IRA Account?
There are three main benefits of having a Roth IRA account over the traditional individual retirement accounts.
Tax Benefits
With a Roth IRA account, your contributions are after-tax. This means whatever growth your contributions produce will not be taxed.
Neither will any of your withdrawals be subject to tax. For the traditional IRA, the contributions can be pre-tax or after-tax, but all withdrawals and growth on the account are subject to tax.
Investment Options
A Roth IRA account offers much better investment opportunities than a traditional 401k account. This way, you can expect to see considerable growth in your account and return on investments because investment professionals manage your account.
Fee Structure
Roth IRA accounts have a different fee structure when compared to the traditional IRA accounts. For Roth IRA’s, you can make withdrawals at any time without getting penalized.
You cannot, however, make withdrawals on any interest on the account unless you are at least 59½ years old. For a traditional IRA account, you will pay a 10% penalty on all funds you take out of the account before you turn 59½.
How Does a Roth IRA Account Work?
This account functions like every regular IRA account in that they help you save and generate profits on the savings. However, the Roth IRA account, beyond allowing owners to make regular contributions, also invests these contributions to make more money.
The money contributed into the account is subject to tax, but the growth of the contributions in your account and any withdrawals are free from tax obligations. As an owner of a Roth IRA account, you can make contributions at any age as long as you have an earned income.
You can maintain the account indefinitely without any minimum required withdrawals. The Roth IRA is about delayed gratuity.
The Roth IRA is also a suitable means not only for retirement savings but also for purposes like a down payment on a house.
How a Roth IRA Account Grows
These accounts grow over time due to interest earned every year you make contributions. The interest is added to the increased balance.
This type of interest is known as compounding interest. Your account can grow in years even if you couldn’t meet up with the contributions.
In addition to retirement money and interest-bearing accounts, funds in your Roth IRA can be invested into different securities. These funds could invest in stocks, ETFs, and many other financial assets.
When the value of these assets increases, they can relatively increase the overall value of your retirement account.
5 Best Roth IRA Accounts
You can open a Roth IRA account with any institution that has IRS approval to offer an individual retirement account platform. This could be a bank, a brokerage company, a credit union, and even savings associations.
These establishmnets can offer some of the best Roth IRA investments. However, many platforms offer Roth IRA services, and the decision to choose the right one can be overwhelming.
We’ve taken the liberty of doing a bit of research for you into some of the places you can open the best Roth IRA account, that is also most suited for your needs.
Charles Schwab
Charles Schwab offers a full range of brokerage, banking, and financial advisory services as well as investment services and products. This is a good place to begin your retirement investments as they can be traded without transaction fees.
Best For:
Investors who do not want the hassles of transaction fees.
Benefits:
- Offers good instructional programs and training for new investors.
- Offers commissions on ETFs (Exchange Traded Funds) and stocks.
- Quality tools for active traders and good customer service.
- Schwab does not charge for stock and ETF trades.
Disadvantages:
Only US and Canadian markets are available.
Pricing:
It cost $0.65 per contract on options trading but no fees in opening or maintaining an account.
Fidelity Investments
Fidelity Investments offers a robust platform for brokerages, mutual funds, and also offers a $0 trading commission. It has an easy-to-use platform that can be customized to meet the needs of more experienced traders as well as beginners.
Best For:
Customers who are new to the investing game and want to speed up quickly. Best for beginners.
Benefits:
Reduced fees by brokers and great educational systems to learn the layout of the investment.
Disadvantages:
High broker fees.
Pricing:
Zero minimum balance and $0.65 on trading contracts.
TD Ameritrade
TD Ameritrade requires a $0 minimum investment and delivers standout features, including extensive — and free — research and data as well as, portfolio-building guidance. They have over 300 branches with excellent customer support and are one of the best places to open a retirement account.
Best For:
Both beginning and advanced investors.
Benefits:
Great customer care and low fees on trading.
Disadvantages:
Accounts are limited to US residents only.
Pricing:
Zero minimum balance and $0.65 on trading contracts.
SoFi
SoFi is short for “Social Finance” and the company was established in 2011 as a student loan refinancing platform. Now, SoFi also specializes in brokerages.
SoFi offers an active and automated investment platform. The active platform gives you the power to self-manage your account and trade stocks and other commodities.
Best For:
Investors who want to manage their investment portfolio on their own.
Benefits:
Great customer service and offers free stocks and ETFs. They offer the best ETFs for Roth IRA.
Disadvantages:
Only available to the US and research tools are the basis.
Pricing: Zero minimum account and fees.
Betterment
Betterment is one of the largest and oldest robo-advisors. The company offers both digital and premium services. Betterment will design your portfolio based on your time horizon, your risk tolerance, and goals, that meet your financial needs.
Best For:
Investors looking for someone else to do the management and investing for them.
Benefits:
Great portfolio options and management fees.
Disadvantages:
Poor customer care and not the most updated system when compared to other options.
Pricing:
0.25% of your investments annually.
Preparing for the Future
You can take charge of your future today by making the right decisions. Roth IRA accounts are a powerful and dynamic way to manage your finances and cut down on tax returns for that time in life where you shouldn’t be worried about taxes.
You can always consult a professional financial advisor to guide you in making these decisions and to help make the overall retirement process a little easier.