Betterment Roth IRA

Is Betterment a good way to invest for retirement? What about the fees and withdrawals? Read on to learn how Betterment's Roth IRA account works.

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Betterment Roth IRA Fees

Betterment charges an annual advisory fee for their digital portfolio management service. Your fee is based on your account balance.

There are two service tiers:

1. Digital Plan: $4/month (Less than $20,000); or 0.25% annual fee ($20,000 or more), or if you set up a recurring monthly deposit of $250 or more.
   This basic service tier has no minimum balance requirement. This service includes:
   • Automated portfolio management
     
   • Automatic rebalance
     
   • Tax loss harvesting
     
   • Tax Coordination
     
   • Fractional shares investing
     
   • Access to Customer Support Team
     
   • Personalized retirement plan
     
   • Advice on investments outside of Betterment

2. Premium Plan (minimum $100,000): 0.65% annual fee
   The premium plan is optional for those with at least $100,000. You get all the benefits of the Digital plan plus:
   • Proactive account management
     
   • Unlimited access to financial experts for guidance on life events such as retirement, saving for college, etc.
   Betterment's low ROTH IRA fee is on par with other robo-advisors. However, note that as your retirement funds grow, the annual fee will become quite high.

   At the 0.25% Digital service tier, your fee will be $2,500 per year if you have $1,000,000 in your Roth IRA. If you opt for Premium service, that's $4,000 per year.
   

Betterment Roth IRA Account Features

Betterment's Roth IRA account has these special features. They're all handled automatically so you don't have to worry about managing your account.

Automatic Rebalancing
When your stocks and bonds ratio drifts from the suggested allocation, Betterment will automatically rebalance your portfolio to maintain the optimal allocation.

Automatic Allocation Adjustment
As you get closer to retirement age, you want lower risk. Betterment will automatically adjust your portfolio's allocation throughout the lifetime of your retirement goal.

For example, it recommends that investors in their 20s and 30s start with a 90%/10% stocks vs bonds allocation. This will gradually shift to 56%/44% stocks vs bonds at retirement age.

Below is an example of Betterment's suggested allocation for retirement goals:

Tax Coordination
This is available to those who have a taxable account and IRA account with Betterment. Betterment will put your most highly-taxed assets into your Roth IRA (since Roth IRAs are not taxed upon withdrawal). Assets with lower taxes will be put into the standard taxable account.

This way, your overall allocation stays the same, but it increases your after-tax returns. Betterment's research shows that this strategy can increase your after-tax returns by an extra 15% over 30 years.

How a Roth IRA Works

A Roth IRA is an Individual Retirement Account. Investment earnings can only be withdrawn after you've reached a certain age.

With a Roth IRA, you are contributing money that has already been taxed in your paycheck. So you will not be taxed again when you take the funds out. All investment gains are tax-free too.

Here are some rules and facts about Roth IRAs:

• Contributions are made with after-tax income.

• Your withdrawals are tax-free after age 59½.

• The maximum contribution per year is $6,500 ($7,500 if you're 50 or over).

• You can't contribute if you earn over certain income limits (more below).

• You can withdraw contributions anytime with no penalty.

• As long as you're earning income, you can contribute no matter your age.

How to Open a Betterment Roth IRA

Signing up for a Betterment Roth IRA account takes just minutes.

The good thing about Betterment is that you can preview your portfolio before actually signing up. Here's how to start started:

1. Basic Info
   Provide your age and annual pre-tax income.

2. Select Account
   Choose Roth IRA.

3. View Recommendation
   Betterment will automatically recommend a portfolio allocation based on your age. The stock-heavy portfolios will be recommended for younger investors.

   You can even view the detailed holdings:

4. Register
   If things look good, go ahead and register. You'll need to provide your name, date of birth, email, address, etc.

5. Fund Account
   Link a bank account to transfer money. You can also open a Betterment Roth IRA with $0 and fund it later.

How to Make Contributions

IRS rules state that you can only make cash contributions to an IRA. Betterment only lets you transfer from a linked bank account.

You have two options:

1. Make manual one-time contributions up to the annual contribution limit.

2. Set up recurring deposits. Betterment will automatically pause auto-deposits once you've reached the annual contribution limit.

Betterment has a nice feature where you can see your portfolio's projected value when you enter a deposit. You can see how different deposit amounts will affect your portfolio's growth.

You can always make edits to your deposit amounts.

How to Rollover an Existing Roth IRA

If you want to transfer an existing Roth IRA from another brokerage to Betterment, you have these options:

Direct Transfer/Rollover
The fastest and easiest way is via Automated Customer Account Transfer Service (ACATS). Betterment will notify the other brokerage and get the funds transferred over.

This takes about 5–7 business days to complete. There are no tax consequences since you're simply moving funds between retirement plans.

Indirect Transfer/Rollover
This allows you to withdraw from your old Roth IRA and take personal possession of the funds. You must redeposit the funds into the new Betterment Roth IRA within 60 days. Otherwise, it'll count as an early withdrawal and be subjected to the tax penalty.

The IRS allows you to do an indirect rollover once every 365 days.

Roth IRA Contribution Limits

For 2023, here are your Roth IRA annual contribution limits:^[1]

• $6,500 for those under the age 50
  
• $7,500 for ages 50 and over

Roth IRAs have income limits.^[2] For 2023, single filers can make the full contribution if they make less than $138,000/year, and a limited contribution if they earn less than $153,000.

Joint married filers can make the full contribution if their combined income is less than $218,000/year, and a limited contribution for combined earnings less than $228,000.

Other Types of IRA Accounts

Is a Roth IRA not the right retirement account for you? Betterment also supports these other IRA accounts:

Traditional IRA
Your contributions are made with pre-tax dollars and are tax deductible. You'll have to pay regular income tax when you withdraw upon retirement.

Rollover IRA
This allows you to rollover a 401(k) from your employer. Betterment will automatically convert it to a Traditional IRA or Roth IRA, depending on what kind of 401(k) you had.

SEP IRA
This IRA account is for self-employed individuals and small business owners. Your contributions are tax deductible, but you'll be taxed at your current tax bracket when you withdraw at retirement. SEP IRAs have higher contribution limits than Traditional and Roth IRAs.

Bottom Line

Betterment's low advisory fee and $0 minimum make it one of the best robo-advisors available. Roth IRA is ideal if you want hands-off management of your retirement account.

Betterment will take care of everything for you including choosing investments, rebalancing, and tax strategies. However, as your retirement funds grow, the annual fee will become significant.

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