Best Roth IRA Accounts of December 2024

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7 Best Roth IRAs of 2024

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What is a Roth IRA Account and How Does it Work?

A Roth individual retirement account (IRA) is a type of investment account that helps individuals save for retirement while enjoying select tax benefits. With a Roth IRA, you make contributions to the account using after-tax dollars. This means that you pay your normal amount of income taxes on the money you choose to contribute to the Roth IRA. You won’t experience immediate tax benefits with a Roth IRA, but down the line, your earnings will all be tax-free.

On the other hand, with a traditional IRA, you don’t pay taxes on the income you contribute to the account (which saves you money in the here and now) but will need to pay income taxes on the withdrawals you make at retirement. Some people prefer to go with traditional IRAs because they expect to fall into a lower tax bracket in their retirement years and can end up paying fewer taxes.

Roth IRAs provide a lot of flexibility when it comes to investing your retirement savings and withdrawing those savings in the future. You can usually choose to invest in a handful of different assets like stocks, mutual funds and bonds.

Another benefit of a Roth IRA is you don’t have to take minimum distributions after you reach a certain age. With a traditional IRA, you have to start taking distributions at the age of 72 (as of 2023). If you choose to take distributions before the age of 59 ½, you may end up having to pay penalty fees and taxes. With a Roth, you have the option to withdraw your contributions early without running into those penalties since you already paid taxes on them but will pay a penalty tax if you withdraw earnings.

You can also choose to never withdraw your retirement savings and can leave them to a beneficiary like a spouse, child or grandchild. The good news is that your tax benefits extend to your chosen inheriters, so they won’t have to pay any income tax when they take those distributions. If building generational wealth is your goal, a Roth IRA can help you achieve that.

Roth IRA Contribution and Income Limits

As of 2024, you can only contribute $7,000 annually to a Roth IRA, but savers age 50 and older can contribute an extra $1,000 a year to their Roth IRA to help them get ready for their nearing retirement. The same $1,000 catch-up limit applies to traditional IRAs.

To qualify to contribute to a Roth IRA at all, you must make $146,000 or less if single and $161,000 or less if you are the head of your household. Married couples filing jointly have limits of $230,000 and $240,000 for heads of household. Even if you can’t contribute to your Roth IRA for certain years because your income surpasses the allowed limit, you can still continue to manage your investments and allow them to grow in the account.

Why Would You Need a Roth IRA Account?

Even if you have access to an employer-sponsored 401(k), retirement pension plan or other sort of retirement savings vessel, a Roth IRA can be a great supplement to other retirement plans. Here’s when contributing to a Roth IRA account makes the most sense.

• You plan to grow your retirement savings. Thanks to inflation, the money you set aside for retirement today won’t stretch as far once you’re ready to stop working. One way to beat inflation is to invest your money, which you can do through a Roth IRA. The hope when saving for retirement through any kind of retirement savings account that supports investment is that you will experience enough growth to surpass inflation and better support yourself during retirement.
• You don’t want to worry about taxes later in life. Because you contribute post-tax income to a Roth IRA in exchange for not having to pay taxes on earnings when you take withdrawals, you can enjoy your retirement savings without having to worry about a big tax bill during your golden years.
• You want flexibility. With a Roth IRA, you can withdraw contributions penalty-free at any time you want, thanks to the fact that you used post-tax dollars to fund the account.
• You may not need distributions right away. Unlike traditional IRAs, Roth IRAs don’t force you take make distributions at a certain age. So, if you don’t need your retirement savings, you can leave them in the Roth IRA for even longer and give your money more time to grow.

How Much Do You Need to Open a Roth IRA?

How much money you need on hand to open a Roth IRA depends entirely on the financial institution you choose to open the account with. All financial institutions have unique minimum initial deposit requirements. Some may be as little as $1 and others may expect you to commit a few thousand dollars.

You’ll want to research a handful of financial institutions to see which one’s minimum initial deposit requirements align best with your financial situation. It’s also a good idea to pay attention to the fees each option charges. If possible, it’s best to max out the IRS contribution limit for the year to help you take full advantage of potential tax savings, but you can make smaller contributions throughout the year until you reach that amount.

How to Choose the Best Roth IRA Account For You

Once you’re ready to open a Roth IRA account, these are the factors you will want to keep in mind when shopping around for the best place to open a Roth IRA.

Investment Options

Not all Roth IRAs are created equal when it comes to investment opportunities. You will want to do some digging into what your investment options are with each account you’re considering to see what your selection is regarding stocks, bonds, mutual funds and exchange-traded funds (ETFs). If diversity is your goal (which it is for most retirement savers), it will be important to access a range of investment opportunities so you can build a balanced portfolio.

Account Management

Typically, there are three main routes you can take when it comes to managing your Roth IRA investments—self-direction, custom advisor support and robo-advisor guidance. Which option you choose depends on the level of support you require and how much you want to pay. Often, self-direction is free, robo-advisors cost a minimal fee and working with an actual financial advisor costs the most money.

Fee Structure

Unfortunately, you will need to spend a bit of money to maintain your Roth IRA. When searching for the best Roth IRA, pay close attention to how much you stand to pay for account management, trading, expense ratio, transaction, inactivity and advisor fees.

Account Features and Support

You should also take note of what account features are most important to you when choosing a Roth IRA account. For example, some financial institutions provide more educational resources, investing tools or advisory services than others. You may also want to check out some customer reviews to get an idea of how strong their customer service experience is and how easy it is to use their interface.

Roth IRA Accounts vs. Traditional IRA Accounts

‘Here’s a closer look at the key differences between Roth and traditional IRAs.

Tax Considerations

When choosing between a Roth IRA and a traditional IRA, you’ll likely weigh tax considerations. Roth IRAs require you to make contributions with post-tax income, but you get off tax-free when it comes time to withdraw your earnings. Traditional IRAs flip the script by allowing you to avoid paying taxes on the income you contribute the year you earn it but then make you pay taxes on the withdrawals in retirement.

Distribution Rules

With traditional IRAs, you have to start taking annual distributions starting at the age of 73. Roth IRAs have no age requirement, but your beneficiaries must take distributions after your death.

Income Limits

Your annual income determines which type of IRA you can contribute to. As of 2024, you can only contribute to a Roth IRA if you earn less than $146,000 and $161,000 for singles and heads of household. For married couples filing jointly, that amount rises to $230,000 and $240,000. If you make more than those amounts, you can still contribute to a traditional IRA which has no income limits.