A Roth IRA is an individual retirement account that you use to make the most out of your lifetime earnings. The key difference between a Roth IRA and a traditional IRA is the taxes. With a Roth IRA, you are not liable to pay taxes when you withdraw funds, as long as the money deposited into the account is after-tax income.
An interesting point worth mentioning here is that interest on earnings within Roth IRA also grows tax free! The tax-free nature of a Roth IRA is why it is considered to be one of the best. This guide will help you understand the best of Roth IRA for beginners.
What are the Rules and Limitations for Roth IRAs?
In order to successfully operate a Roth IRA, you need to follow the following rules:
- You can only contribute to the account with earned income such as salary, profits from a small business, or hourly wages.
- There is a limit to how much you can contribute to the Roth IRA. No matter what your income, individuals cannot contribute more than $5,500 per year. However, there is one exception to this rule: Individuals above the age of 50 can contribute $6,500 per year.
- You can make a contribution to the IRA as long as you are eligible to Rule 1 above.
- A non-working spouse may open a Roth IRA account based on their working spouse’s income with the couple’s tax filing status.
- You can make your annual contribution (up to the limit) even if you transfer money from your tax-deductible, traditional IRA account to a Roth IRA account in the same year.
What are the Types of Investments you can Make in a Roth IRA?
No matter how experienced an investor you are, Roth IRA’s are a different ball game altogether. In order to achieve generous profits with your Roth IRA, you need to consider your financial goals, personal situation, and retirement needs before choosing an investment vehicle. To help you out with this, here is a list of the best investments for Roth IRA:
- Securities such as stocks: The most traditional route taken for investing in Roth IRA. This investment is the riskiest because it directly involves on the market. When investing in stocks for Roth IRA, you get the same benefits as you would with a normal investment, with the advantage of not having to pay capital gains tax on the dividends.
- Mutual funds: Investing in mutual funds is less risky than stocks because they are operated by professional money managers. Though they are less profitable, they are still a safer approach to investing in Roth IRAs.
- Certificates of deposit: Least returns, maximum security is how I would briefly define certificates of deposit for Roth IRA. You have the most control with this form of investment and the rate of return is steady but low.
What are Important Characteristics to Look for in Roth IRA Companies?
When you are looking for the best Roth IRA companies in town, you can easily get confused by the fee structures and investment options they have on offer for your earnings. You need to be careful with your decision because your lifetime earnings are at the stake here. To help you out with this, here is a list of the most important aspects that you need to look at for choosing the best company for Roth IRA:
- Fees: When looking to open your own Roth IRA, you should look for a provider that charges a minimal fee for account creation and service. However, at the same time, you need to consider that fact that expert advice is key for success in IRA. Thus, if a provider offers excellent customer service, it will be worth the higher service fee.
- Trading costs: This depends on your investment preference. If you are going to be making lots of trades through your Roth IRA account, a provider that has lower trading costs will be suitable. If you are looking to invest in stocks, mutual funds, or exchange-traded funds (ETFs), the Roth IRA company will be charging commission on the trade returns. To generate maximum profits, you should be looking for the best Roth IRA investment companies that have the least commission.
- Requirements: Minimum account balance, account inactivity period, and transaction costs are all important things that you need to look at before selecting a Roth IRA company. Some companies may even charge a fee if your account is inactive for a long period! Therefore, it is advised that you thoroughly study the requirements of a Roth IRA company before applying.
What are Some Examples of the Best Companies for a Roth IRA?
To give you a fair idea of what a good Roth IRA company has to offer, we have compiled a list of some of the top Roth IRA providers:
- Scottrade: An online, brick-and-mortar discount brokerage firm that offers tools for achieving your long-term financial goals. No account setup fee, no account maintenance fee, with an account minimum of $0 are what makes Scottrade one of the best Roth IRA investment companies. The trading costs are $7 per stocks and ETFs trade and $17 for mutual fund trade.
- TradeKing: Well known for having the lowest trading costs, TradeKing is another online discount brokerage firm that no account setup fee or minimum balance. However, it does charge a maintenance fee of $50 on accounts that are inactive for 12 months or more. TradeKing charges only $4.95 per ETFs and stocks trade and a maximum of $9.95 per mutual fund trade. These are the lowest trading costs offered by a Roth IRA company.
Everyone is responsible for saving and investing for their own retirement funds. Roth IRA is a retirement plan that generates prolific returns on your earnings, depending on how wisely you invest it. You can invest in stocks and take away all the profits at your own risk, or you can simply invest in certificates of deposit to produce a steady income for your retirement days. However, what matters that most is the Roth IRA company that you choose to work with.
The most important characteristics of the best providers include the fees they charge, their trading costs, and requirements for account holders. For best returns, you need invest in a company that offers expert advice with a nominal fee and minimal requirements. TradeKing and Scottrade are examples of companies you can look into for developing a better understanding of how the best Roth IRA providers operate. Remember, only you can fulfil your retirement dreams by establishing a stable Roth IRA, so choose and invest wisely!
Here is a short video guide by Ramit Sethi on how you can choose a Roth IRA company:
If you decide to roll over some of your Roth IRA investments to gold and other precious metals, as these remain stable through shift and movements and volatility in the global market. We recommend setting up your gold IRA account with Regal Assets, as this company is reputable and is known for excellent customer service. You'll surely be in good hands here.