October 22, 2017

E*TRADE Roth IRA — The Complete Review

BOTTOMLINE — E*TRADE offers competitive features and fees for Roth IRA accounts.

Our readers have requested reviews of popular Roth IRA providers. We reviewed the USAA Roth IRA. We want to look now at E*TRADE, another popular provider.

E*TRADE — like many brokerages — offers Roth IRA accounts. If you don't have a Roth IRA account, consider getting one. It is a powerful way to save for retirement. Roth IRAs allow you to sock away after-tax money in an account to grow tax-free and to be withdrawn tax-free (once you meet requirements).

Similar to our other reviews, we'll provide pros and cons of E*TRADE's account. This guide is good for anyone who is looking to open an account with E*TRADE or already has one.

The E*TRADE Roth IRA at a glance

Overview

  • Best for: No account minimum
  • Account setup fee: $0
  • Trade fee: $6.95
  • Annual fee: $0
  • Account minimum: $0
  • Minimum investment: Depends on account
  • Maximum investment: Subject to Roth IRA contribution limits of $5,500 if under 50 years old and $6,500 if 50 years or older

Contact information

E*TRADE Securities LLC
PO Box 484
Jersey City, NJ 07303 - 0484

E*TRADE Roth Account

E*TRADE is an online brokerage company. Headquartered in New York City, the company has been around since 1982 providing casual investors a means to access securities like stocks and mutual funds. E*TRADE is known for its access to large amounts of mutual funds and low account minimums. E*TRADE also has brick-and-mortar locations giving some customers the attractive option to access a physical place.

Performance

Performance of your E*TRADE Roth account depends entirely on what securities you’re invested in within your Roth Account. Think of your Roth IRA as a container of investments with special privileges from the IRS. These privileges allow a certain amount of post-tax dollars to be contributed, to grow tax-free, and to be withdrawn at any time (contributions and conversions only, gains can only be withdrawn once you meet certain requirements). The container has then many different types of investments depending on your retirement goals and appetite for risk.

For example, for a more conservative investor — or those who are nearing retirement and want lower risk — the Roth account could be heavily invested in bonds, and the return be dependent on bond performance.

You may invest your Roth contributions in an index fund. Your earned interest will be tied to the fund’s growth.

In general, you’ll contribute to your Roth account up to the yearly maximum of $5,500 (or $6,500 if you’re 50 years or older), and invest among:

  • Stocks
  • ETFs (combination of stocks and bonds)
  • Mutual funds
  • Bonds
  • Options and futures (for the more advanced investor)

How to open

As long as you have income, you are eligible to open a Roth IRA account (in fact, you can open more than one Roth IRA account). This includes E*TRADE. You’ll usually do the following:

  • Open an account with E*TRADE: You can open the account online at https://us.etrade.com/what-we-offer/our-accounts/roth-ira. Consider factors like fees, investment options, web experiences, and access to customer support when making your decision. The key is regular contribution to your account over the years (not just opening the Roth). So make sure you’re happy with your provider!
  • Fund the account: After opening the Roth IRA, E*TRADE will have you fund the account and choose a selection of investments.
  • Contribute regularly to the account: Contributing often to your Roth IRA is critical to meeting your retirement goals. You are allowed maximum yearly contributions of $5,500 if you are under 50 years old and $6,500 if you’re older

How to manage your account

E*TRADE like nearly all providers allow you to manage your account online. You can do it through their website: https://us.etrade.com/

You can change investment options, make contributions, and more through their site.

How to close your account

If you have a E*TRADE Roth account with funds, you’ll usually transfer this money to another brokerage. E*TRADE providers a distribution form to fill out. In general, these firms make opening an account much easier than closing.

Fees

Transfers

Most brokerages will charge you a fee to rollover funds away from the account. For E*TRADE, if you are transferring funds to another provider, expect to be charged a fee between $25 and $70.

Trades

E*TRADE charges for trades, and they are slightly lower than other popular providers. However, these fees can add up. If you expect to be trading financial products with your Roth regularly, make sure you are considering fees:

  • Stock fee: $6.95
  • ETF fee: $6.95
  • Mutual fund fee: Prices vary
  • Bond fee: $1.00
  • Options fee: 50 cents to 70 cents

Advisors

E*TRADE offers actively managed accounts. They require a $5,000 minimum investment and charge 0.30% annually for an advisor fee. If you have $100,000 in your account, you are paying E*TRADE $300 per year for the service. There is criticism of how much value managed portfolios bring, so if fees are a concern, it’s worth doing your homework.

How to transfer or rollover

Transferring, often called a “rollover,” is moving a Roth IRA account from one brokerage (like Vanguard) to another (like E*TRADE).

There are a handful of reasons you may do this including changing jobs, consolidating accounts into one brokerage, better access to investment options, and more.

Be aware that E*TRADE charges a transfer fee usually between $25 and $70.

If you are rolling over to E*TRADE, you can find information here including a number to call: https://us.etrade.com/what-we-offer/our-accounts/rollover-ira. Beware sales pitches about actively-managed accounts. E*TRADE calls theirs Adaptive Portfolio, charging a 0.30% annual fee. Data shows advisors very rarely beat the market. You’ll do better choosing index funds mimicking market performance.

If you are rolling over from E*TRADE to another provider, you’ll find instructions for the new brokerage usually. In the chance you are transferring to vanguard, you’ll find a set of instructions here: https://investor.vanguard.com/account-transfer/transfer-ira. Make sure you are doing a “trustee-to-trustee” transfer, as you do not want to change account types and risk tax complications.

Conversions and Backdoor Roth IRA

If you have a Traditional IRA with E*TRADE and are interested in converting it to a Roth IRA, you can do that here: https://us.etrade.com/e/t/iradist/rothiraconvselector

Be aware of taxes. As you know, Traditional IRAs are often tax-deferred. If for example, you were contributing to a Traditional IRA and you didn’t have an employee-sponsored retirement account like a 401(k), you can deduct those contributions from your income. However, Roth IRA accounts only accept after-tax dollars. If you are converting, there is a possibility you will have to pay taxes on a portion of the account. If the account is sizable, it’s worth consulting an advisor before making any changes.

A Backdoor Roth IRA allows high-income earners a way to contribute to a Roth. Current restrictions are single filers with an income of $133,000 or higher and $196,000 for joint filers cannot contribute to a Roth. However, the way around this is to make contributions to a Traditional IRA and then convert this to a new Roth account or existing Roth account. We’ve written how to do this on Fidelity, but you’ll follow similar steps with E*TRADE.

Withdrawals and Taxes

A benefit of Roth IRAs is the ability to remove contributions at any time. This is not to be confused with gains on the account, which have eligibility requirements.

E*TRADE will provide the ability to withdraw your contributions through the site. It is worth familiarizing yourself with withdrawal rules and tax implications.

Custodial account

A Roth IRA can be attractive for beneficiaries like children: unlike other retirement accounts like a 401(k), there are no required withdrawals for Roth accounts. E*TRADE makes this easier by giving you custodial accounts. These accounts are effectively the same thing as your own Roth account but associated with your child. Contributions, rules, fees, and investment options are all the same.