How a Roth IRA works

A Roth IRA requires you to contribute after-tax savings to the account, rather than pre-tax savings, as with a traditional IRA. Then it allows you to withdraw qualified earnings tax-free at retirement. So you pay taxes today in exchange for keeping your savings and earnings tax-free in the future. That’s one of many ways that a Roth IRA beats a traditional IRA.

It’s best to think of a Roth IRA as a “wrapper” that can go around many types of accounts to protect them from the taxman. Many companies offer a Roth IRA, including banks, brokerages and robo-advisors, and each allows you to make various types of investments.

What you can earn in a Roth IRA all depends on what you’re invested in. At a bank you can invest in CDs, which are safe and insured by the FDIC so that you won’t lose principal (up to $250,000 per depositor, per bank).

At brokerages and robo-advisors, you can invest in assets such as stocks and bonds that can earn much more over time, but aren’t protected and can lose money. While a CD specifies what you’ll earn each year, these other investments can fluctuate, sometimes drastically.

Pros Explained

  • Fidelity offers commission-free online trading for stocks, penny stocks, ETFs, and options (a $0.65/contract fee applies). The company has also eliminated most of the account fees that brokers traditionally charge, including transfer and account closure fees, domestic wire fees, and check fees.
  • Fidelity has fine-tuned its trade execution algorithms to emphasize price improvement. Once an order is accepted and routed to a market center, Fidelity captures the National Best Bid and Offer (NBBO) quote. The company routes orders to up to 50 market centers—including exchanges, market makers, and automated trading systems—that compete for customer order flow by improving the price.
  • Fidelity provides a suite of robust research tools and asset screeners to help you find your next trade. Several pre-built and customizable screeners are available for stocks, ETFs, options, and fixed income. The stock screener has more than 140 criteria and about 20 themes such as artificial intelligence, drones, and cloud computing. The ETF-focused research is extensive and includes analyst ratings, themes, and the option to search funds by a specific stock.
  • A rich assortment of educational offerings helps Fidelity consistently rank high in our Best for Beginners category. The learning center offers educational content in various formats, including articles, videos, webinars, infographics, and recorded webinars. There are also live, interactive sessions with the “Trading Strategy Desk”, where you can ask professional coaches your trading-related questions.

Video

Education

The Fidelity Learning Center offers educational content in various formats, including articles, videos, webinars, infographics, and recorded webinars. There's a mix of Fidelity and third-party content, including courses intended to guide learners forward. An easy way to find topics is to enter a few keywords in the "What can we help you find today?" box.

Fidelity also hosts coaching sessions with the “Trading Strategy Desk”, where you can discuss questions with a professional trading coach. The sessions are interactive and usually have fewer than 100 participants. Sessions are broken down into six topics: daily market briefings, options trading, trading tools, trading basics, technical analysis, and live webinar follow-up.

The “Life Events” page (under the “Planning and Advice” menu) is intended to guide you through major life changes, including marriage and partnering, getting divorced, navigating the college journey, losing a loved one, buying a home, and so on.

The mobile apps feature "Learning Programs" to help beginners better understand market and investing concepts.  In July 2020, Fidelity launched a separate mobile app called Fidelity Spire, designed to help you "plan, save, and invest smarter." You can set and prioritize goals, and the app's decision tool will help you figure out where to invest, so you get the most bang for your buck. Spire also serves up helpful articles related to your goals.

Rounding out Fidelity's educational offerings are an investing glossary, a comprehensive FAQ section, and guest access for non-customers to use its research and education.

How to Invest in a Roth IRA with Fidelity

I’ll walk you step-by-step through how to invest your first dollar into an index fund that tracks the S&P 500, which simply measures the stock performance of the United States’ 500 largest companies.

This is a smart and simple way to start investing. Picking stocks that beat the market consistently is tough. With the S&P 500, if one stock fails, you have the other 499 stocks to keep you afloat. This index fund has averaged a 7% rate of return in its lifetime.

Step 1: Open a Fidelity Account (Roth IRA)

First, we want to register an account with Fidelity (you’ll need your name, SSN, DoB, etc).

Select Open an Account.

Choose Open Now under Roth IRA.

Choose Open Now under Roth IRA.

You’re probably not a customer yet if you&rs

You’re probably not a customer yet if you’re reading this article 🙂

Enter your personal information here.

Enter your personal information here.

Employment Status. You may be asked about your Emp

Employment Status. You may be asked about your Employment Status. This can be modified at any time, so don’t worry too much about the specifics.

Core Position. You may also need to select your Core Position. This is where your money resides when it’s not being invested. For the most part, it doesn’t matter which one you select. Your money should pretty much always be invested. All that being said, choose SPAXX.

Congratulations! You’ve successfully registered an account with Fidelity. Verify that you received a confirmation email upon registration.

You should see a Dashboard when you log in. The Positions tab will tell you where your money is invested in all your investment accounts. Currently, you should have no investments.

Step 2: Transfer Money Into Your Roth IRA

Step 2: Transfer Money Into Your Roth IRA

Next, we need to transfer money into the Roth IRA. Money transferred will go into the Core Position, meaning it’ll just sit in your account as if it’s sitting in your checking account. It’s not invested, yet, but you still need to take this step.

Select the Transfer tab.

In the From section, select Link a bank to a Fidel

In the From section, select Link a bank to a Fidelity account and follow the instructions to add your bank account.

Then, you’ll want to set From to be your ban

Then, you’ll want to set From to be your bank account and To to be your Roth IRA.

You may have the option to select your contribution year as well. You can contribute to the previous year until April of the current year. It’s always best to max out the previous year before getting started on this year so that you have more money to contribute in the future.

Select Continue.

Select Continue.

Once you have confirmed the transfer, it will take approximately one business day until the transfer is complete. So, now you can take a break.

Step 3: Invest in Stocks Inside Your Roth IRA

Once you have the money transferred into your Roth IRA, the Core Position row should show the amount of money transferred.

This money is not invested, yet.

I repeat.

It is not invested.

In this example, we will use the money transferred into our Roth IRA to buy FXAIX, the Fidelity S&P 500 index fund.

First, select the Accounts & Trade tab, then select Trade.

Choose your Roth IRA as the account.

Choose your Roth IRA as the account.

Choose Mutual Funds as the Transaction Type. Searc

Choose Mutual Funds as the Transaction Type. Search FXAIX as the Symbol.

It should also say how much money you have available to buy these funds next to Cash Available to Trade.

Select Buy as the Action and input the amount of money you want to use to buy this index fund.

Select Preview Order and confirm the order.

Select Preview Order and confirm the order.

Great! You’ve invested your first dollar.

Step 4: Set up Automatic Monthly Investments

Now that you’ve invested some of your money, it would be a great idea to make this a recurring payment. To max out your Roth IRA in 2022, you would ideally be investing $6,000 / 12 = $500 per month in your Roth IRA.

That is a lot of money for many people, so let’s make that our goal. Maybe you’ll want to start with $50 per month and then slowly work your way up there.

In this example, we’ll start automatic monthly investments into FXAIX (S&P 500) every 3rd of the month.

First, we’ll go to Accounts & Trade and select Transfers.

Select Manage automatic investments.

Select Manage automatic investments.

Select Schedule a new transfer.

Select Schedule a new transfer.

Select Set up an automatic investment.

Select Set up an automatic investment.

We want to transfer funds from an external bank ac

We want to transfer funds from an external bank account into our Roth IRA.

Within Transfer To, select Mutual funds you own.

Within Transfer To, select Mutual funds you own.

If FIDELITY 500 INDEX FUND shows up, choose that option and enter the monthly amount to the right. If it doesn’t show up, wait until the next business day for your previous trade in Step 3 to complete. You can modify all of this at any time.

Finally, we’ve set up our automatic monthly

Finally, we’ve set up our automatic monthly investments in our Fidelity Roth IRA!

Get started

When saving for something really big, like retirement, it’s important to get invested as soon as possible. That’s because time is one of your biggest assets when investing for the long term.

Here are 3 ways to help get started when investing in an IRA.

  1. Use our tools. Get an analysis of your current portfolio, assess your financial situation, and find ideas to help you create an appropriate investment strategy in our Planning & Guidance Center.
  2. Choose investments. For those who want to invest in mutual funds or ETFs, there are a number of ways to choose. – Search and compare funds with Mutual Funds Research. – Get ideas with Fund Picks from Fidelity®. – Search and compare ETFs.
  3. Let someone else do the work. For those who prefer to have an investment professional manage an IRA, learn about Fidelity managed accounts.

Ready to Get Started?

Let us help you down the path to successful retirement. We offer two convenient ways to get started – visit your local branch or contact your banker! Our associates are here to help.

If you’re still not sure what account would meet your needs, view all of our savings account options to help you decide. Find the savings account and features that work best for you.

Key takeaways

  • When choosing investments, think about how comfortable you are with risk.
  • Make sure that the amount of any stocks, bonds, and short-term securities in your asset mix reflects your time frame for investing and the associated need for growth.

You’ve contributed to an IRA—congratulations. The next step is to invest that money—and give it the potential to grow. Fidelity believes one of the best ways to do that over the long term is by considering an appropriate amount to invest in a diversified portfolio of stock mutual funds, exchange-traded funds (ETFs), or individual stocks as you plan and implement an investment strategy that fits your time horizon, risk preferences, and financial circumstances.

As a general rule, the more time you have to save, the greater the percentage of your money you can consider allocating to stocks. For those closer to retirement, a healthy allocation to stocks may still be appropriate. These days retirement may last for decades, so the money will likely still need to grow for many years even after you retire.

It’s important that the stock exposure you select matches your comfort with risk, your investment timeframe, and your financial situation.

Roth IRA

Build a nest egg with an investment option that offers security and flexibility. A Roth IRA is an ideal choice if you’d like to save for retirement with your after-tax income. Earnings and contributions grow tax free, and when you’ll retire, you may enjoy tax-free withdrawals.1

Roth IRA FAQs

Step 2:

Fund your account

Once you’ve opened your account, there are several ways to fund it.

  • Consider maximizing your contributions each year, up to $6,000 for 2021. And if you’re age 50 or older you can save up to $7,000 for 2021. As long as you are still working, there is no age limit to be able to contribute to a Traditional IRA. The Secure Act, signed into law on December 20, 2019, removed the age limit in which an individual can contribute to an IRA.
  • Transfer other IRA assets We’ll guide you through the process of moving your outside IRA assets to a Fidelity IRA.
  • Roll over old 401(k)s We have an easy to follow rollover process, with access to a rollover specialist along the way.

Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.

Our methodology

To determine which Roth IRAs are the best for investors, Select analyzed and compared Roth IRAs offered by national banks, investment firms, online brokers and robo-advisors. We narrowed down our ranking by only considering those that offer commission-free trading of stocks and ETFs, as well as a variety of investment options so you can best maximize your retirement savings.

We also compared each Roth IRA on the following features:

  • $0 minimum deposit: Most of the Roth IRAs on our ranking don't have minimum deposit requirements.
  • Low fees: We considered each Roth IRA's fees, commission trading fees and transaction fees.
  • Bonus offered: Some Roth IRAs offer promotions for new account users.
  • Variety of investment options: The more diversified your portfolio, the better. We made sure our top picks offer investments in stocks, bonds, mutual finds, CDs and ETFs. Most also offer options trading.
  • A hub of educational resources: We opted for Roth IRAs with an online resource hub or advice center to help you educate yourself about retirement accounts and investing.
  • Ease-of-use: Whether accessing your Roth IRA via your laptop at home or on your smartphone while on the go, it's important to have an easy user experience. We noted when an investment platform excelled in usability.
  • Customer support: Every Roth IRA on our list provides customer service available via telephone, email or secure online messaging.

After reviewing the above features, we sorted our recommendations by their appeal to beginner investors who are likely just starting out in their careers since Roth IRAs are the most effective retirement savings vehicles if you're in a lower tax bracket.

Your earnings on contributions to a Roth IRA depend on any associated fees, the contributions you make to your account and the fluctuations of the market.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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