Best robo-advisors for IRAs

Managing investments for your retirement account can be difficult and daunting. An IRA is great in theory, but without a lot of knowledge about what to invest in, you can be left floating on your own. And that’s where robo-advisors come in – helping you invest your retirement funds smartly.

Here are the best robo-advisors for IRAs and why you might want one.

Opening an IRA at a robo-advisor

Opening an IRA at a robo-advisor can be a smart decision. An IRA provides some serious tax advantages when you’re saving for retirement, allowing you to compound your money faster. It comes in two major types:

• With a traditional IRA, you contribute pre-tax income to your account, meaning any contributions can be tax-deductible. Those contributions can grow tax-deferred until withdrawn during retirement, at which point they become taxable income.
• With a Roth IRA, you contribute after-tax income to your account and those contributions can grow tax-free inside the account. The big bonus: It will remain tax-free when withdrawn at retirement – part of why it’s the experts’ favorite IRA.

Then using a robo-advisor, you can set up the account to invest your money when you make your annual contribution to the account. And the great thing about a robo-advisor is that once you set up the account, you deposit money and the robo-advisor does the rest automatically.

Robo-advisors have become quite popular over the last decade, because they do what a traditional human advisor does but can often do it better and cheaper. A robo-advisor simply automates the same processes that a human advisor uses to build and manage a portfolio. In fact, the best robo-advisors have some features (such as automatic tax-loss harvesting) that it’s difficult and time-consuming for a human advisor to replicate effectively. (That said, tax-loss harvesting does not function in a retirement account, though it’s great for taxable accounts.)

When you set up your IRA with a robo-advisor, the robo-advisor asks questions to gauge your risk tolerance and when you need the money. Then it crafts your portfolio from a selection of exchange-traded funds (ETFs), weighting the investment funds to a target allocation.

Every time you add money to the account, the robo-advisor then adds it to those investment funds, keeping the portfolio aligned with the target allocation over time.

The costs? Most robo-advisors charge a management fee and the individual funds charge a fee. Otherwise, all day-to-day expenses are typically covered by those fees.

Some robo-advisors such as Wealthfront and Betterment are independent, meaning that their sole business is running the robo-advisor. In contrast, robo-advisors such as Merrill Guided Investing and Fidelity Go are part of larger financial institutions, so they may be better fits for those already working with their parent companies, Bank of America and Fidelity, respectively.

Top robo-advisors for retirement accounts

Here are some of the robo-advisors to use when you’re setting up your IRA.

Betterment

Betterment is an independent robo-advisor that brings a high level of service to customers, earning Bankrate’s best robo-advisor award for 2023. Here you can get a highly customized portfolio, with standard funds and socially responsible funds, as well as a fully featured cash management account with competitive interest rates while your money is waiting to go into your IRA. Go with the intro plan at a cost of 0.25 percent annually, or $25 for every $10,000 invested, or a higher-tier plan and have unlimited access to human advisors. However, accounts with less than $20,000 pay a fee of $4 per month, a bit pricier for those just getting started.

Highlights: Portfolio management, low fees, competitive cash management account, daily tax-loss harvesting, access to human advisors at a higher tier

Marcus Invest

Marcus Invest is a newer entrant into the robo-advisor world, and it offers core portfolio management at a competitive price, 0.25 percent annually, or $25 on every $10,000 invested. Clients have a strong choice among standard funds, socially responsible funds and what’s known as smart beta funds that shoot for better risk-adjusted returns. The funds are reasonably priced, and those with a Marcus account already may find the robo especially interesting.

Highlights: Low fees, uncommon fund options, easy-to-navigate layout

M1 Finance

If you’re looking for a bit more of a do-it-yourself account, then M1 Finance might be for you. You’ll be able to select your own investments and then automate the investment process. You won’t pay any management fee, but you’ll need to design your investment portfolio yourself, though you can use preselected portfolios to get going quickly. Go with M1 Plus for $95 a year and you’ll add on a high-yielding cash management account and some other useful features.

Highlights: No-cost account, attractive upgraded cash management account, can choose any combination of stocks and funds

Schwab Intelligent Portfolios

Schwab Intelligent Portfolios is the robo-advisor for well-regarded financial powerhouse Charles Schwab, and it offers portfolio management for literally no management fee, though you’ll need at least $5,000 to get started. You can add on unlimited sessions with a certified financial planner for $30 a month if you’re able to bring more than $25,000 to the account. Schwab also offers more than 50 ETFs, most of them low-cost, as part of its program. Less relevant for IRAs, Schwab offers tax-loss harvesting, though you’ll need $50,000 in the account to take advantage.

Highlights: No-cost account, upgradable to a human advisor, strong customer service

SoFi Automated Investing

SoFi Automated Investing is the robo-advisor for the financial supercenter that is SoFi, and it gets you in the game with portfolio management with no management fee. And the ETFs on offer here are some of the cheapest around, too. You can get started with just $1, and access certified financial planners who don’t work on commission, though SoFi doesn’t offer the bonus of tax-loss harvesting. This robo would be a good fit for those who already have SoFi accounts.

Highlights: No-cost account, access to human advisors, low-cost ETFs

Wealthfront

Wealthfront is an independent robo-advisor that brings the heat, with low costs, a ridiculously wide choice of investments and premium features such as tax-loss harvesting. You can get a portfolio made completely for you, add a few specialized funds (out of the hundreds on offer here) you like and even put in some stocks, too. The cash management account offers a ton of features, including a competitive interest rate, and you can even borrow money quickly via a portfolio line of credit. It all comes at the competitive price of 0.25 percent annually.

Highlights: Low fees, tremendously wide fund selection, sophisticated portfolio management, robust cash management account, daily tax-loss harvesting

Vanguard Digital Advisor

Vanguard has long been known for treating investors right, and it’s bringing that same ethos to its robo-advisor, Vanguard Digital Advisor. It charges one flat price for both management and funds, just 0.20 percent annually, or $20 for every $10,000 invested – potentially half of what other services are charging, once you factor in all the fees. The service uses just four funds – two stock funds and two bond funds – to construct portfolios, noticeably fewer options than other robos, and customers will need $3,000 to get started. While this robo-advisor doesn’t offer all the features of rivals, those who appreciate Vanguard’s customer-first likely won’t mind.

Highlights: Low all-in fee, no additional fees for ETFs, access to Vanguard’s planning tools