A whopping 92% of American working households fall short of retirement savings targets for their age and income, according to the National Institute on Retirement Security. You don’t have to be one of the majority, though. There are many ways to invest so you have enough saved for your golden years, no matter your age.
The most common savings option for retirement income is a 401(k) account, but you may find that a 401(k) doesn’t provide quite enough savings. That’s where a Roth IRA (individual retirement account) comes in.
Roth IRAs are a simple way to supplement traditional savings plans. Learn more about retirement savings plans and find the best broker so you’re sure to be on target to retire comfortably when you’re ready.
Best Roth IRA Brokers:
Roth IRA vs. 401(k)
Both a 401(k) and Roth IRA provide a means for retirement savings, but there are differences between when you can withdraw your money and when it will be taxed.
A 401(k) account is the most common retirement savings option. It’s an employer-sponsored retirement savings plan that allows you to save and invest some of your pretax salary for retirement.
You can begin investing in your 401(k) savings now and continue growth tax-free until retirement. In 2020, the 401(k) contribution limit bumped up to $19,500 annually, and the limit is $26,000 if you’re over age 50.
One of the biggest benefits of a 401(k) is your employer can contribute to your retirement savings via a company match plan. Employers often contribute a partial match up to a certain portion of your salary — around 4% is common — but this can vary widely.
You’ll pay income tax on your investments when you withdraw them upon retirement.
There are a few rules and eligibility guidelines. You must be over 21 and have worked at a company for at least a year to participate in a qualified retirement plan. If you withdraw your funds before age 59 ½, you’ll pay a penalty. You must make scheduled withdrawals starting at age 70 ½.
A Roth IRA account is a great way to supplement a 401(k) or start a retirement savings fund on your own. It’s an especially popular choice if you’re in the earlier stages of your career.
Roth IRAs are also individual retirement savings accounts. Unlike 401(k) plans, you pay taxes when making contributions — not when you withdraw. This means that your portfolio gains can be withdrawn tax-free when you retire.
Roth IRA 2020 contribution limits are the same as traditional IRAs — $6,000 per year for those under 50 and $7,000 if you’re over 50. However, Roth IRAs don’t have strict withdrawal restrictions. As long as you have owned a Roth account for more than 5 years and are 59 ½ or older at the time of withdrawal, you can start using your money tax free. You are never required to make scheduled withdrawals and can continue contributing to your Roth IRA after you retire if you wish.
Roth IRAs do have income limits based on your marital status and adjusted gross income (AGI). In 2020, you are only eligible for a Roth IRA if your individual AGI is below $124,000 annually or below $169,000 if married and filing jointly.
Best Brokers for Your Roth IRA
Check out our picks for the best investment firms to help you maximize your savings and manage your retirement funds at any stage of your career.
Widely considered a top online brokerage, TD Ameritrade is known for its 4 high-quality trading platforms and customer service. TD Ameritrade offers free research, data and portfolio guidance for its customers and has almost 300 branches dedicated to in-person customer support.
In addition to a $0 minimum investment, the company offers $0 commissions on stock, options, ETF trades and a selection of mutual funds. Though Charles Schwab acquired TD Ameritrade in November 2019, TD Ameritrade will continue accepting accounts until the acquisition is finalized. Upon finalization, all TD Ameritrade accounts will move over to Charles Schwab.
You Invest by J.P. Morgan
If you’re already a customer with Chase Bank, Chase You Invest by J.P. Morgan is a no-brainer. You can easily research, trade and manage your investments from your mobile device. You Invest provides online tools to search for investments, track companies and rollover your assets.
Only U.S. clients are able to open a You Invest account but it takes, on average, just a day to open and you’re able to apply fully online. Equipped with portfolio reports and pie charts, the mobile app is simple and user-friendly. The app is available for both iOS and Android devices.
With Chase You Invest you’ll have access to roughly 5,000 stock exchanges. There are plenty of research and educational tools provided on the app. Overall, we recommend the Chase You Invest platform for stock trading because it’s easy to open and fund an account. It’s also reliable thanks to its strong parent company, J.P. Morgan.
Fidelity claims it “takes the guesswork out of retirement savings” by offering several different options for tools, including the Planning & Guidance Center tool, which can provide you with a snapshot of your entire retirement picture.
You’ll see if you’re on the right track to the retirement amount you think you’ll need in retirement, review and evaluate different investment strategies, and receive a report with clear next steps for your portfolio.
In addition, there are tools and educational resources for you to learn about the following:
Also, whether investors/traders choose to use an Apple device or Android, Fidelity’s mobile trading is high-quality and offers a lot of different options for both types of device. The main screen for mobile offers cards for notifications, several news feeds, accounts, watch lists, an option to transact and more. It’s simple, clean and intuitive.
More Financial Advising Help
Opening savings plans is a great start, but a long-term game plan is what’s going to help you retire on target. Take a look at meeting with a financial advisor to strategize and manage your savings plans. If you’re ready to reach out but don’t know where to begin, an online resource like SmartAsset can get you started.
SmartAsset is a financial technology company that aims to help consumers make smarter personal finance decisions. The site offers free personalized tools and financial advice.
Its most popular tool is a decision engine and optimization program called Automated Financial Modeling (AFM) technology, which simulates how various decisions will affect you financially. Plug in your personal information and choices and the tool will make recommendations. It also offers additional tools to help you compare different strategies and calculate the true cost of financing alternatives.
SmartAsset can match you with a financial advisor in your area based on your priorities and preferences. Enter your information and goals, review the recommendations and book your first appointment through SmartAsset when you’re ready.
Maximize Savings Now for Peace of Mind Later
Whether you’re under 50 and beginning to look toward retirement or over 50 and ready to maximize saving, a combination of retirement plans like a 401(k) and Roth IRA can help you stay on target.
It’s also wise to meet with a financial advisor to define your retirement goals and develop a plan. An advisor can teach you to balance your retirement savings with your current expenses and help you make the most of both 401(k) and Roth IRA contributions. Set aside maximum savings now to enjoy your retirement later.