“I'm 18 years old and want to open a Roth IRA, what platform would you suggest I use?” Roth IRA's a great way to capture profits without paying taxes on the gains. Because you pay taxes on the money you invest now, you keep the profits at 59 1/2.
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Plus, you're able to take out the amount that you put in at anytime and leave the gains without paying short or long term capital gains. You're also able to get loans against your Roth IRA.
There are three paths to take with the Roth IRA:
- Financial Advisor
- Robo-Investor
- Self Directed
You can have someone manage your account AKA financial advisor. You can let a robot invest in ETF's and trade according to set rules, or you can pick your own stocks and sell/buy/sell at anytime.
If you're a manage it for me, set it and forget it investor, then choose a robo-advisor. If you're a “do it yourself” get in on the Wall Street Bets, Tiktok recommendations, then choose a self-directed. If you need to speak with someone every so often and follow their advice, then choose a financial advisor.
Let's go through the top Roth IRA platforms for each. We're not financial advisors. We want to make sure you have the education so you can come armed with the knowledge to make an educated decision. Let's get into it.
Self-Directed Roth IRA
eTrade
You are eligible for a Traditional IRA if you're over 18, live in the USA, have earned income and prefer to deduct taxes on your contributions now, which makes you eligible to contribute to a Traditional IRA.
Note: This contribution amount applies to all of your IRA accounts combined. Your maximum contribution for 2020: $6,000 (all tax deductible)
Why is a Traditional IRA an option?
- Your contribution tax deductibility is determined based on your earned income, your tax filing status, and, if applicable, on your and your spouse’s participation in an employer-sponsored retirement plan.
- You want to pay taxes on the contributions now and enjoy the growth without paying taxes on the gains.
We've been using eTrade for a decade and are very happy with their platform. Plus, they didn't halt any trading activity during Robinhood's Gamestock market manipulation.
Roth IRA with Financial Advisor
You can work with a dedicated advisor who can help you build a flexible plan that's designed to adapt to your changing needs plus help grow and protect your wealth over time.
For these, you want to look up your local area and choose based on reviews.
- Schwab Advisors
- Fidelity Advisors
You search your city + Schwab Advisors or your city + Fidelity Advisors to see the best ones in your area. You'll be able to see the good and bad reviews and then, set an appt to see if you connect with that advisor.
Robo-Investing Your Roth IRA
Acorns
You can open up an IRA with Acorns with just $5. Acorns is a robo-advisor that allows you to also open up a Roth IRA, a Traditional IRA or a SEP IRA depending on your financial goals.
Acorns is an interesting way to start your Roth IRA because it allows you to build your $6000 contributions by automatically investing spare change throughout the week. Plus, you earn cash back at over 500 retailers.
Acorns charges a flat fee of $5 per month, which allows you to add family members and open investment accounts for kids. This would be best if you want a hands-off approach to investing and custodial accounts for kids.
Betterment
Betterment is a full robo-advisor that handles all the trades and investments for you. Betterment will create your portfolio by allocating it between a dozen different ETF's. Then, they rebalance and reinvest the dividends.
There is no required minimum initial investment, and TikTok users who have used Betterment show a positive experience and more important, positive returns.
M1 Finance
M1 Finance is a plug and play robo advisor that lets you copy expert portfolios and they automate the rest. M1 Finance boasts no commission and no management fees. They allow you to setup recurring drafts to automate your investing.
M1 Finance also allows for self-managing if you still want the ability to pick a handful of individual stocks. We do recommend it for starting out because they allow the beginner investor to get started for free and invest in larger company through fractional shares.
Stash
Very similar to Acorns, Stash asks you to respond to a few questions to develop a risk profile that ranges from conservative and aggressive. Stash then invests the savings in a range of portfolios that reflect your beliefs, goals, and interests. You have the option to choose from over 150 stocks and ETFs.
You can open a Stash in four easy steps. You'll pick your retirement account, Roth or Traditional IRA. Then, setup auto-investing to help you stay on track.
The Roth IRA
With a Stash Retire Roth IRA, you are contributing post-tax money. This means you’ve already paid taxes on the money you’re contributing.
The benefit here is that Roth IRAs grow tax-free and you won’t pay taxes on your money when you take it out at retirement.
The Traditional IRA
With a Stash Retire Traditional IRA, you are contributing pre-tax dollars. This means you have not yet paid taxes on the money you’re contributing.
This can make you eligible for tax deductions now, however, you will be taxed on the money when you take it out of your account during retirement.
Sofi
Sofi allows you to choose between automated or active investing. You can choose “automated” IRA and Sofi will build you a custom portfolio based on your financial goals. You can choose “active” IRA and get access to trade stocks within your IRA. When you signup, all you do is pick a style of investing between moderate, growth or conservative.
- No annual management fee.
- $1 to start.
- Free access to financial advisors.
One benefit that Sofi just added is free estate planning. They partnered with Ladder and will draft your wills for free and keep them up to date when you need to make any changes.
Plus, they have credentialed advisors where you can get free advice. Plus, they have a fun vibe and are always thinking about customer experiences for free.
