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The 7 Best Robo-advisors of 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

If you’re new to the world of investing in stocks and bonds, knowing where to begin can be an intimidating prospect. Robo-advisors could be the best choice to start your investing journey. They make putting money in the market simple and intuitive utilizing smartphone apps and sophisticated computer algorithms.

Robo-advisors invest your money in diversified portfolios of stocks and bonds that are customized to your needs. Since computers do the work, they are able to charge much lower fees than traditional wealth advisors.

They begin the process with a questionnaire to assess your financial goals and your risk tolerance. Based on your answers, robo-advisors purchase low-cost exchange-traded funds (ETFs) for you and adjust the portfolio — or rebalance, as they say on Wall Street — on a regular basis, with no further intervention required from you.

To match your risk tolerance, robo-advisors offer more aggressive portfolios containing a greater percentage of stock ETFs, or more conservative ones containing a greater percentage of bond ETFs. The robo-advisor will also consider your age in developing your portfolio.

financial advisor

How we chose the best robo-advisors

We regularly review the latest robo-advisor offerings — we’ve evaluated 19 different ones in this round — and have selected our top choices. All of the robo-advisors on this list may well be worth considering, with those at the top scoring the best in our methodology.

To determine our list of the best robo-advisors, we focused on management fees and account minimums, and also considered ease of use and customer support.

The top 7 robo-advisors of 2020

Robo-advisorAnnual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Wealthfront0.25%0.09%$500
Charles Schwab Intelligent Portfolios0.00%0.14%$5,000
Betterment0.25% (up to $100,000), 0.40% (over $100,000)0.11%$0
SoFi Automated Investing0.00%0.08%$1
SigFig0.00% (up to $10,000), 0.25% (over $10,000)0.15%$2,000
WiseBanyan0.00%0.12%$1
Acorns$12/yr0.03%-0.15%$5

 

Management Fees

0%

Account Minimum

$100 one-time deposit or $20 monthly deposit

Promotion
N/A
Management Fees

0.25%

Account Minimum

$0

Promotion

Three months free for new customers who are referred by an existing Betterment account holder

Management Fees

0.30%

Account Minimum

$100

Promotion

N/A

Wealthfront — Low fees, high APR for cash account

Wealthfront — Low fees high cash management APR
Wealthfront’s stand-out features are its low annual cost and free financial planning tools. The 0.25% management fee and 0.09% average ETF expense ratio adds up to one of the lowest annual costs on this list. In addition, Wealthfront includes a cash management account with an attractive 0.35% APY.

Wealthfront continues to steal share in wealth management as customers fed up with high fees leave traditional brokerages and wealth advisors. Human interaction is intentionally minimal at Wealthfront: This could be a benefit to those who want to be left alone, or a drawback for those who would prefer personal attention or who have complicated tax situations.

Wealthfront’s key attributes:

  • Fees: Management fee of 0.25%, plus 0.09% avg ETF expense ratio
  • Minimum starting deposit: $500
  • Investing strategy: Wealthfront invests your money in one of 20 different automated portfolios. Each portfolio is a different mix of 11 low-cost ETFs, which are rated with risk scores from 0.5 (least risk) to 10.0 (most risk).
  • Average annual return over the past five years: 5.40% per year, based on Wealthfront’s mid-level 5.0 risk score.
  • Other notable features: Tax-loss harvesting (see below for a full explanation of tax-loss harvesting) comes standard, also includes an FDIC-insured cash management account yielding 0.35% APY.

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Charles Schwab Intelligent Portfolios — Brand-name brokerage

Charles Schwab Intelligent Portfolios — Brand-name brokerage
Intelligent Portfolios can be a smart choice, but do not be misled by the 0% management fees — investing with this robo-advisor still comes at a cost. Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in cash at a 0.70% APY, which will eat into overall returns in years where the market returns above 0.7%. This is on top of an average 0.14% expense ratio for a moderate portfolio. The $5,000 minimum deposit to open an account may also be too high a bar for investors just starting out.

That said, Intelligent Portfolios has an exceptionally detailed description of their ETF selection methodology, and a major brokerage like Schwab can be a good launchpad for folks who anticipate getting deeper into investing. Intelligent Portfolios users get access to Charles Schwab’s 300 U.S. branch locations where you can talk to advisors and handle administrative tasks in person.

Key attributes of Intelligent Portfolios:

  • Fees: Zero management fee, but customers must hold 6% to 30% of their portfolio in cash at 0.7% APR, plus 0.14% avg ETF expense ratio.
  • Minimum starting deposit: $5,000
  • Investing strategy: Schwab invests your money in a custom portfolio with two main components: ETFs representing up to 20 different asset classes, including stocks and bonds; and cash, in the form of a FDIC-insured cash sweep program earning 0.7% APY. Cash must be between 6% and 30% of the portfolio.
  • Average annual return from 3/31/2015 to 12/31/2018: 3.1% per year for medium-risk portfolio
  • Other notable features: Tax loss harvesting available for accounts over $50K, includes access to in-person assistance at over 300 U.S. branch locations.

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Betterment — Low fees for balances under $100K

Betterment — Low fees for smaller balances under $100K
Betterment offers a full suite of robo-advisor features at low cost with no minimum deposit. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40%. One advantage Betterment gives to accounts above the $100,000 threshold is that they can actively manage some assets. If active management is your goal, though, you can avoid Betterment’s 0.40% fee by opening a free brokerage account — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment’s key attributes:

  • Fees: If total balance is less than $100,000, the annual management fee is 0.25% of assets; for balances over $100,000, management fee rises to 0.40% of assets. The average ETF expense ratio is 0.11% (for a 70% stock and 30% bond portfolio).
  • Minimum starting deposit: $0
  • Investing strategy: Betterment invests your money in an automated portfolio comprised of stock and bond ETFs in 12 different asset classes.
  • Average annual return over five years: 6.2% per year on a 50% equity portfolio (July 2013 to July 2018).
  • Other notable features: Tax-loss harvesting comes standard; active management features for clients with $100,000+ balance; several premium portfolios available.

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SoFi Automated Investing — Low costs, great perks

SoFi Automated Investing — Low costs, great perks
SoFi Automated Investing’s 0.00% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Valuable perks come with opening a SoFi account, including free access to SoFi financial advisors, free career counseling and discounts on loans.

Automated Investing’s main downside is that their portfolios are less customizable than its peers’, with only five different risk levels to choose from, as opposed to at least 10 available from others. SoFi does not offer tax loss harvesting yet, though this may change in the near future.

SoFi Automated Investing’s key attributes:

  • Fees: Zero management fee, plus 0.08% avg expense ratio.
  • Minimum starting deposit: $1
  • Investing strategy: All SoFi Automated Investing portfolios are actively managed. This means that real humans at SoFi decide the makeup of the five model portfolios, which they believe will add value beyond what passive investing offers. SoFi invests your money in one of five portfolios of low-cost ETFs, covering 16 different asset classes. Each of the five portfolios has two versions: one is for taxable accounts and the other for tax-deferred or tax-free accounts, like IRAs and Roth IRAs. SoFi only rebalances portfolios monthly, versus some peers which check for this opportunity daily.
  • Average annual return over five years: 6.78% per year on the moderate risk portfolio (60% stocks / 40% bonds).
  • Other notable features: Commission-free stock trades in separate Active Investing accounts. SoFi’s combined checking/savings product, SoFi Money, offers 0.25% APY on deposits. Customers must open this account separately.

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SigFig — Free access to advisors

SigFig — Free access to advisors
Free access to financial advisors by phone and 0.00% management fees on the first $10,000 deposited are SigFig’s biggest strong points. On deposits over $10,000, management fees rise to 0.25%. Expense ratios are on the high side compared to the competition, at an average of 0.15%.

One of SigFig’s peculiarities is that they do not hold your assets. If you open a new account, SigFig will open an account at TD Ameritrade for you and then manage it. Current TD Ameritrade, Fidelity and Charles Schwab customers can also use SigFig’s robo-advisor services.

The $2,000 minimum deposit may put SigFig out of reach for some, but SigFig is worth a look for investors looking to keep robo-advisor costs low.

SigFig’s key attributes:

  • Fees: Zero annual management fee for the first $10,000; management fee rises to 0.25% of assets on balances over $10,000. Average ETF expense ratio of 0.15%, depending on allocation.
  • Minimum starting deposit: $2,000
  • Investing strategy: SigFig invests your money in an automated portfolio based on how you indicate you want to invest. Each portfolio is made of ETFs from Vanguard, iShares and Schwab, comprising stocks and bonds in nine different asset classes. The specific ETFs SigFig invests in will vary based on whether your account is held at TD Ameritrade, Fidelity, or Schwab.
  • Average annual return over five years: 5.45% per year for moderate portfolio (as of 4/24/2019)
    Other notable features: SigFig has a free portfolio tracker that allows investors to track their entire portfolio’s performance across multiple brokers.

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WiseBanyan — No-frills choice for beginners

WiseBanyan — No-frills choice for beginners
A 0.00% management fee for core robo-advisor functionality makes WiseBanyan a good choice for beginning investors who can get by with a no-frills offering. Make sure to notice that they still charge a 0.12% average ETF expense ratio, so it is not completely free.

WiseBanyan charges premiums for features that come standard with other robo-advisors, including tax loss harvesting (0.24% of assets up to $20/month max), expanded investment options ($3/month) and auto-deposit ($2/month). If you care about these other features, do the math based on your own portfolio size to compare WiseBanyan to its peers.

WiseBanyan’s key attributes:

  • Fees: Zero management fee, plus average ETF expense ratio of 0.12%. Premium features carry additional fees and higher expense ratios.
  • Minimum starting deposit: $1
  • How WiseBanyan invests your money: For basic Core Portfolio users, portfolios comprise ETFs across nine asset classes, with an average expense ratio of 0.03% to 0.69%. If you upgrade to the Portfolio Plus Package, you gain access to 31 total asset classes with exposure to ETFs tracking oil and gas, precious metals and other industries, with an average expense ratio of 0.03% to 0.75%.
  • Average annual return over five years: Not provided
  • Other notable features: Premium offerings, including tax loss harvesting (0.24% /month up to $20/month max), Fast Money auto-deposit ($2/month) and Portfolio Plus ($3/month).

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Acorns — Unique savings functionality

Acorns — Unique savings functionality
By rounding up the spare change from your transactions and placing it into an investment account, Acorns provides a clever way to get started with investing. The main drawback is that, until you have more than $4,800 deposited in an Acorns Core account, the $1/month fee will actually be proportionally higher than the 0.25% management fees that most competitors charge.

Acorns does not offer tax loss harvesting, joint accounts, or access to financial advisors currently. Still, if you’re looking for an easy way to start investing, give Acorns a shot.

Key attributes of Acorns:

  • Fees: $1/month for Acorns Core, plus ETF expense ratios ranging from 0.03% to 0.15%
  • Minimum starting deposit: $5
  • How Acorns invests your money: Acorns invests your money in one of five automated portfolios— notably, this is a more limited number of portfolios than some other competitors. Each portfolio comprises ETFs across seven asset classes.
  • Average annual return over past five years: Not provided
  • Other notable features: Offers two add-on accounts for expanded functionality with Acorns Later retirement product ($2/month) and Acorns Spend checking account ($3/month).

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What is a robo-advisor?

A robo-advisor is a service that uses computer algorithms to invest customers’ money in portfolios customized to their needs. Since robo-advisors create these portfolios using automated algorithms, they can charge a fraction of what human advisors do and still offer advanced benefits like auto-rebalancing and tax-loss harvesting to boost overall returns. Most robo-advisors start with a questionnaire to assess your financial goals, risk tolerance and assets. Based on the answers, the robo-advisor allocates your investments accordingly.

How do I choose the right robo-advisor?

When considering which robo-advisor to choose, you should focus on management fees, minimum balances, ease of use and customer support. The lower the fees, the more money stays in your account. The top robo-advisors typically charge a flat management fee of 0.00% to 0.50% of your deposited balance. In addition, you pay an expense ratio to cover the fees charged by the companies offering the ETFs that comprise your investment portfolio. Note that some robo-advisors claim to offer zero management fees, but still charge an expense ratio.

Make sure you are comfortable leaving your deposits with a robo-advisor for the medium to long term — think five to eight years. There are a number of robo-advisors with $0 account minimums and most are under $5,000 today.

How do I open a robo-advisor account?

Most robo-advisors can have you up and running with an account in a few minutes. Typically you create a username, fill out a questionnaire to assess your financial goals and risk tolerance and connect your profile to a bank account. There may be some additional steps required for verification depending on the robo-advisor.

What other features should I consider?

Robo-advisors offer a host of additional features, including tax loss harvesting, cash management options, checking accounts and rewards programs. Cash management can provide a meaningful compliment for users who keep some of their portfolio in cash. Some robo-advisors offer an APY of more than 2.00% on cash management accounts. Tax loss harvesting can make a difference for users looking to lower tax exposure.

What is tax loss harvesting?

Tax loss harvesting is a tax strategy that some robo-advisors offer to help clients reduce their tax bill. Generally, this involves selling an asset that has lost value for a loss, using that loss to offset capital gains taxes or income taxes, then purchasing a similar but not “substantially identical” asset to maintain exposure to the asset class. The details behind each robo-advisor’s strategy can get complicated and should be looked at in detail to make sure you understand what you are getting into.

Capital losses from tax loss harvesting can be used to offset capital gains and can potentially offset up to $3,000 (or $1,500 if married and filing separately) of ordinary income.

What if my robo-advisor goes out of business?

While not a pleasant thought, it is possible that a robo-advisor could go out of business. Most robo-advisors insure clients’ assets through the Securities Investor Protection Corporation (SIPC). This is different from the bank account coverage provided by the FDIC; generally, SIPC coverage includes up to $500,000 in protection per separate account type, with up to $250,000 of cash assets protected.

Keep in mind that the SIPC will take necessary steps to return securities and account holdings to impacted clients, but will not protect against any rise or fall in value of those holdings. This means that if you make a bad investment in a stock, the SIPC ensures you still own that bad stock, but do not replace losses from a poor investment. Some brokers also insure assets beyond the $500,000 in SIPC coverage through “excess of SIPC” insurance.

See the full list of SIPC members at their site, along with a detailed explanation of how SIPC coverage works.

The bottom line

Robo-advisors can be an excellent option for users who are starting their investing journeys, rolling over a 401(k) or who want to minimize the time needed to manage their investments. By creating a customized portfolio based on your financial goals and automatically rebalancing your account, a robo-advisor can help to maximize your return while taking on the right amount of risk.

Because robo-advisors run off of automated algorithms, you should be comfortable with little or no human touch for your investments. The upshot to low human interaction is that fees are generally much lower than with a registered investment advisor, which may be worth the tradeoff as part of an overall financial plan.

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Vanguard Personal Advisor Services Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

Vanguard Personal Advisor Services is a hybrid investment option that incorporates both human and robo-advisory services into one convenient package. Investors get the benefits of professional expertise and automated investing for a low relatively annual fee. However, there is a $50,000 minimum required to open an account, which may put it out of reach for some.

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The bottom line: Vanguard Personal Advisor Services offers professional investment advice at an affordable price for those who can meet the $50,000 minimum.

  • Vanguard Personal Advisor Services is a robo-advisor that utilizes a hybrid approach, incorporating automated management with comprehensive planning services.
  • Professional investment advice is offered, though dedicated advisors are reserved for investors who meet a minimum investment threshold.
  • This platform is designed for investors who have at least $50,000 to invest, which is a higher barrier to entry compared to other online advisory services.

Best for...
  • Investors who want a human touch without steep advisory fees
  • Individuals who have at least $50,000 to invest
  • People who want to invest in low-cost index funds
  • Investors who also need help with estate and tax planning strategies
Investment minimum$50,000
Management fee0.05% to 0.30% annual fee, depending on assets under management
Accounts offeredTaxable brokerage accounts, traditional IRAs, Roth IRAs, trusts
Access to human advisorsYes
Banking servicesNo

What is Vanguard Personal Advisor Services and how does it work?

Vanguard Personal Advisor Services offers a unique take on robo-advisory investing. While your portfolio is shaped using the algorithm method favored by other robo-advisor platforms, Vanguard Personal Advisor Services first gives you the opportunity to speak with a human advisor. You tell a Vanguard advisor what your goals are and fill in the details of your financial situation, and that information is then used to craft your customized automated investment plan.

In addition to the accounts available with Vanguard Personal Advisor Services — which includes taxable brokerage accounts, traditional and Roth IRAs and trusts — you can also get guidance on 401(k) and 403(b) accounts, 529 accounts, UGMA/UTMA accounts and other investment accounts you hold outside of Vanguard.

Pros

  • Low management fee: Vanguard Personal Advisory Services has a maximum advisory fee of 0.30%, with the rate decreasing as your assets under management increase. Vanguard cites the industry average annual management fee of 1.01%, as measured by PriceMetrix, to illustrate its low-cost fee structure. (That study measures annual management fees for investors with $1 million to $1.5 million invested, which is quite a bit higher than the $50,000 minimum Vanguard requires.) The Vanguard fee of 0.30% applies to the first $5 million invested.
  • Low-cost investment options: Portfolios are built around Vanguard funds, which typically carry expense ratios well below the industry average. Vanguard Mutual funds and index funds carry a 0.10% expense ratio on average. By comparison, the average expense ratio across the entire fund industry, excluding Vanguard, was 0.57% in 2019.
  • Professional help always available: As a Vanguard Personal Advisory Services investor, you have access to Vanguard‘s professional advisors if you have questions or need help. You can reach an investment professional by Phone Monday through Friday, 8 a.m. to 8 p.m. ET. Vanguard also offers Chat assistance for general account questions.
  • Comprehensive management: In addition to assistance with your investing strategy, Vanguard Personal Advisory Services can help with areas like tax and estate planning and charitable giving, for a well-rounded financial plan.

Cons

  • High account minimum: The $50,000 account minimum may be difficult for the everyday investor to reach.
  • Tax loss harvesting is not automatic: Tax loss harvesting can help minimize taxes on capital gains. While some robo-advisors offer this service automatically, Vanguard does it at the individual client level, which may not satisfy those who want automated monitoring.
  • Plan development takes time: New investors work with an advisor to shape their financial plan and investment strategy. This step can take several weeks to finalize, so there’s a bit of lag in the beginning in comparison to other robo-advisors, where you may be able to get started right away.
  • Dedicated advisor only available to eligible investors: While all levels of investors have access to Vanguard‘s team of advisors, only those with $500,000 or more are assigned a dedicated financial advisor.

Vanguard Personal Advisor Services investment approach

Investment optionsLow-cost Vanguard ETFs and mutual funds
Tax loss harvesting (though not automatic)
Portfolio rebalancing
Smart Beta
Socially Responsible Investing
Fractional shares

Asset allocation

Vanguard Personal Advisor Services builds client portfolios using Vanguard’s selection of Mutual funds and exchange-traded funds (ETFs). These funds can include a diverse mix of assets, such as domestic and international stocks, bonds and short-term reserves.

Clients’ assets are allocated based on the information they provide about their financial goals, time horizon for investing and risk tolerance. If you’re closer to retirement or already retired, for instance, you may be offered a portfolio composed of 60% bonds, 35% stocks and 5% short-term reserves. On the other hand, Vanguard may recommend a split that leans more on stocks if you’re at the beginning or middle of your investing journey and have more time left before retirement.

Vanguard reviews your portfolio on an ongoing basis, automatically rebalancing when needed to ensure that your investments still align with your goals and risk tolerance. Additionally, Vanguard provides some simple online tools that allow you to explore “what if” scenarios to see how making changes to your investment plan could result in different outcomes.

Tax strategy

Tax management is an important part of investing — the more you can minimize taxes, the more of your investment returns you get to keep. One way to manage taxation is tax loss harvesting, a strategy that involves selling off stocks that have declined in value to offset capital gains.

With Vanguard Personal Advisor Services, tax loss harvesting is available, though it is not automatic; instead, it is offered on a client-by-client basis. Clients can choose from one of two tax strategies: the average cost method, which divides your gains and losses equally across all shares you own, or the minimum tax (MinTax) basis method, which clients must opt into. While the MinTax method is designed to enhance tax efficiency by identifying specific securities to sell, Vanguard acknowledges that it may not do so in every case.

Additionally, Vanguard offers help with tax planning as it relates to estate planning and charitable giving if you’re interested in creating a lasting legacy of wealth to pass on. The goal with those efforts is to maximize tax savings for things like gift tax, estate tax and inheritance tax so you have more wealth to leave to your heirs or the charities of your choice.

Vanguard Personal Advisor Services fees

  • Annual management fee: 0.05% to 0.30%; advisory fee decreases as assets under management increase
  • Investment expense ratios: Average Vanguard mutual fund expense ratio is 0.10%

Vanguard Personal Advisor Services’ fees are tiered based on the amount of assets you have under management. As you can see, the cost of Vanguard Personal Advisor Services could end up being much lower if you have a higher account balance:

  • 0.30% up to $5 million in managed assets
  • 0.20% above $5 million to $10 million
  • 0.10% above $10 million to $25 million
  • 0.05% $25 million and above

There are also separate fees to consider for the products you invest in, namely Vanguard’s Mutual funds and ETFs. The average expense ratio for Vanguard Mutual funds and ETFs offered through Personal Advisor Services is 0.10%. Expense ratios represent the cost of owning a particular fund over the course of a year, so the lower the expense ratio, the more of your investment earnings you’re able to keep.

Vanguard Personal Advisor Services features and tools

Financial planning

Vanguard Personal Advisor Services takes a comprehensive approach to financial planning. Your portfolio is built around your risk tolerance and time horizon, as well as your goals. In your initial discussion with a Vanguard advisor, they will create a plan for you that outlines your specific goals (i.e. saving $2 million for retirement or stashing away $100,000 for college savings) and includes a timeline and specific numbers or milestones to aim for along the way.

Additionally, Vanguard Personal Advisor Services can offer specific assistance with tax planning, estate planning and charitable giving planning.

Investment profiles

If you have a brokerage or retirement account through Vanguard, you can review its library of investment profiles. This allows you to analyze individual stocks or explore the finer details of thousands of Mutual funds from Vanguard and other firms.

Portfolio analysis

Vanguard‘s portfolio analysis tool allows you to check your portfolio’s risk level and performance. You can see how your portfolio has done historically and how your assets are currently allocated. This can be helpful in deciding whether any adjustments to your asset allocation are necessary to stay on track.

Vanguard Personal Advisor Services user experience

Beacon is Vanguard‘s mobile app, which is available for download on Android and Apple devices. Introduced in 2020, the app is designed to serve as an upgrade of the existing Vanguard app. The updated app includes features like:

  • A biometric login that uses fingerprint ID
  • A dashboard that highlights fund performance
  • New ways to view your accounts and balances

The mobile app is fairly straightforward and streamlined. You can easily check your balance and get an overview of how your portfolio is performing. The website has more features, including a large library of educational resources.

If you need help that the app isn’t able to offer, you can contact Vanguard Personal Advisor Services support. Advisors are available by Phone at 800-414-8740 from 8 a.m. to 8 p.m. ET Monday through Friday. When you call, be prepared to verify your identity with a Vanguard representative before they’re able to access your account.

If you’re just getting started with Vanguard Personal Advisor Services, you can start the account setup process online, then schedule an appointment to Chat with an advisor to discuss your financial plan.

Vanguard Personal Advisor Services safety and security

  • SIPC-insured
  • Encryption and SSL certificate
  • Optional security features

Vanguard takes a number of steps to ensure your safety and security. The brokerage is SIPC-insured, up to $500,000 and including $250,000 for claims for cash.

Vanguard uses encryption and SSL certificate security to protect your information. If you log on to your account, Vanguard will automatically log you out after a period of inactivity. You also have the opportunity to take advantage of optional security features, including:

  • Two-factor authentication
  • Account alerts
  • Voice verification when calling Vanguard

You can name a trusted contact who can access your account on your behalf if that’s ever needed. Plus, you can set a PIN or password to verify your identity when calling Vanguard yourself.

Is Vanguard Personal Advisor Services worth it?

Overall, Vanguard Personal Advisor Services could be a good fit for an investor who can meet the $50,000 minimum and is interested in low advisory fees while putting their investments on autopilot. Investors with higher net worths may appreciate the reduced advisory fee as their level of assets under management increases.

The higher minimum obviously makes Vanguard Personal Advisor Services less attractive for someone who is looking to invest on a smaller scale. If you’re a beginning investor or can’t meet the $50,000 minimum, you may want to consider another robo-advisor to help with managing your money. We cover a couple alternative options below.

Alternatives to Vanguard Personal Advisor Services

 Account minimumAnnual feeAccounts offered
Vanguard Personal Advisor Services$50,000Minimum 0.30%; fees decline as assets under management increaseIndividual taxable accounts, trusts, traditional IRAs, Roth IRAs
Betterment$0 for Digital accounts; $100,000 for Premium0.25% for Digital accounts; 0.40% for PremiumIndividual and joint taxable accounts, trusts, traditional IRAs, Roth IRAs, SEP IRAs
Schwab Intelligent Portfolios$5,000NoneIndividual and joint taxable accounts, trusts, traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, rollover IRAs, custodial accounts

Vanguard Personal Advisor Services vs. Betterment

Betterment offers personalized advice with robo-advisory services, but those come with a higher fee and a higher minimum balance requirement compared to Vanguard Personal Advisor Services. While you could open a Digital account with $0 at Betterment and pay just 0.25% each year, that only includes robo-advisor services without help from professional advisors.

On the other hand, Digital accounts at Betterment include both automatic rebalancing and tax loss harvesting, and you can invest in more than just Vanguard index funds. However, you may pay higher expense ratios with Betterment‘s fund selection compared to Vanguard‘s low-cost options — Betterment‘s average expense ratio ranges from 0.07% to 0.15%, versus Vanguard’s 0.10% average.

Vanguard Personal Advisor Services vs. Schwab Intelligent Portfolios

When comparing Schwab Intelligent Portfolios vs. Vanguard Personal Advisor Services, there are a few things that stand out. First, you can start investing in a diversified portfolio of ETFs with as little as $5,000 with Schwab, a fraction of the $50,000 you need for Vanguard. There are no advisory fees and no commissions to trade either.

Automatic rebalancing and tax loss harvesting are included, another edge of Schwab Intelligent Portfolios over Vanguard. But you don’t get one-on-one access to a financial advisor automatically: If you want that service, you’ll have to upgrade to Schwab Intelligent Portfolios Premium, which requires a $25,000 minimum, a $300 upfront fee and a $30 monthly advisory fee. Compared to Vanguard, the initial investment is lower but you could still pay less in advisory fees with Vanguard if you had under $120,000 in your account.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Advertiser Disclosure

Investing

What Is a Roth IRA? What You Need to Know

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When it comes to saving for your golden years, Roth IRAs are one of the most popular accounts out there. They combine many of the tax advantages retirement plans are famous for, along with the flexibility of being able to open one on your own instead of through your employer. This article covers everything you need to know about Roth IRAs.

What is a Roth IRA?

A Roth IRA is an individual retirement account that offers tax-free withdrawals in your retirement years. With a Roth IRA, you invest your already-taxed dollars in an investment account, where it has the potential to grow tax-free over the years. Once you reach the age of 59 1/2 and your account has been open for at least five years, you are able to withdraw your funds, tax-free.

How a Roth IRA works

  • It’s an account you open on your own, not through your employer. Unlike retirement plans that you can sign up for through your employer — 401(k) plans, for example — Roth IRAs are individual retirement plans that you open on your own. Most big banks and brokerage firms like Fidelity, Charles Schwab and Vanguard offer Roth IRA products with low minimum deposits and minimal fees.
  • It’s an investment account, not a savings account. When you open a Roth IRA, you’re investing your money rather than stashing it in savings. How much your investments gain — or lose — will depend on how you invest your funds. When opening a Roth IRA, your broker typically lets you choose an investment strategy based on your risk tolerance and age. Your Roth IRA may consist of ETFs, mutual funds, individual securities, stocks, bonds, U.S. Treasuries, annuities and even FDIC-insured CDs.
  • You have to pay taxes on your contributions. One of the core components of Roth IRAs is that they are funded with after-tax dollars, meaning you have to pay taxes on the money you contribute.
  • Your contributions and earnings grow tax-free, and are withdrawn tax-free. The chief benefit of Roth IRAs comes into play when it’s time to withdraw. Your contributions and earnings that compound and grow within your Roth IRA are able to do so tax-free, and you won’t have to pay taxes on the funds you withdraw. This is why Roth IRAs are often considered a great option for those who anticipate being in a higher tax bracket in the future — you’ve already paid taxes on the money you’re taking out, but at a lower rate.
  • There is no limit to how long you can contribute. The beauty of Roth IRAs is that there is no deadline as to when you are required to stop contributing. However, there are rules when it comes to contributions and withdrawals — which we dig into later in this article.

Roth IRA benefits

As a retirement savings vehicle, Roth IRAs offer a plethora of benefits including:

  • Tax breaks. The key benefit of Roth IRAs are the tax advantages they provide: Your earnings can grow tax free and you’re allowed qualified, tax-free withdrawals in your golden years.
  • No RMDs. Unlike other retirement plans, Roth IRAs stand out for the fact that they don’t require you to begin taking required minimum distributions (RMDs) once you hit a certain age. If you don’t want to be on a timeline for withdrawals, Roth IRAs are a good option for you.
  • No taxes for beneficiaries. If you want to pass down your Roth IRA to a beneficiary, they will benefit from being able to make tax-free withdrawals. It’s worth noting, though, that inherited Roth IRAs are subject to RMDs.
  • More lenient early withdrawal rules. Compared to other retirement plans, Roth IRAs are a bit more lenient when it comes to early withdrawals. IRA-specific exceptions to the early withdrawal penalty are relatively numerous and relevant: Medical bills or health insurance premiums, for example. In addition, you’re able to withdraw contributions (though not earnings) from your Roth IRA at any time, tax-free and penalty-free.

Roth IRA contribution limits

The IRS caps how much you’re allowed to contribute to your Roth IRA per year. For 2020, your contributions to both your traditional and Roth IRA (combined) cannot exceed:

  • $6,000 for those under 50
  • $7,000 for those 50 and older

In addition to how much you’re able to contribute to your Roth IRA, there are also rules as to who can contribute to a Roth IRA, based on income. In general, high-earners typically cannot contribute to a Roth IRA, or are capped at how much they can contribute annually. One way to get around this rule is through a backdoor Roth IRA. A backdoor Roth IRA is when you contribute to a traditional IRA (which does not have income limits) and then convert it to a Roth IRA. There are tax implications to this strategy, though, that are certainty worth considering.

Roth IRA income limits are based on your modified adjusted gross income; for 2020, the income limits are as follows:

Filing statusEligible to contribute up the full amountEligible to contribute reduced amountNot eligible to contribute
  • Single
  • Head of household
  • Married but filing separately (if you did not live with your spouse during the year)
$123,999.99Income of $124,000 to $138,999.99Income of $139,000 or more
  • Married filing jointly
  • Qualified widow(er)
Up to $195,999.99Income between $196,000 and $205,999.99Income of $206,000 or more
  • Married filing separately (if you did live with your spouse)
N/AIncome up to $9,999.99Income of $10,000 or more

Any contributions you make must be made with what the IRS considers “earned income,” (such as wages, salaries, tips or commissions). That means the following types of funds are not eligible for a Roth IRA:

  • Earnings and profits from properties
  • Interest and dividend income
  • Pensions or annuity income
  • Unemployment income
  • Social Security

However, one exception to this rule is the Roth spousal IRA. A Roth spousal IRA allows a working spouse to make contributions on behalf of a nonworking spouse.

Roth IRA withdrawal rules

While Roth IRAs do come with the major benefit of not having to make required minimum distributions — meaning you don’t have to start making withdrawals at a certain age — you do have a few rules that you must follow.

In order to reap the core benefit of a tax-free and penalty-free withdrawal, you have to be at least 59 1/2 years old and have had the Roth IRA for a minimum of five years. Exceptions to the early withdrawal penalty include:

  • Qualified higher-education expenses
  • First-time home purchases
  • Medical expenses
  • Disability claims
  • Health insurance
  • Substantially equal periodic payments
  • Involuntary distribution due to an IRS tax levy
  • Reservist distributions

Roth IRA vs. Roth 401(k)

A Roth IRA is not the only Roth iteration of a retirement plan — there’s also the popular Roth 401(k) option. The chart below outlines the main differences and similarities between a Roth IRA and a Roth 401(k).

 Roth IRA Roth 401(k)
Annual contribution limits $6,000 for those under 50
$7,000 for those 50 and older
$19,500 for those under 50
$26,000 for those over 50
Income requirements Income limits based on modified AGINo income limitations
Contribution taxationContributions are made with after-tax dollars Contributions are made with after-tax dollars
Withdrawal taxationContributions and earnings for qualified withdrawals are not taxed Contributions and earnings for qualified withdrawals are not taxed
Required minimum distributions NoneMust begin no later than 72 unless you’re still working or own less than 5% of the company for whom you work

Roth IRA vs. Traditional IRA

Roth IRAs are also highly-comparable to traditional IRAs, and while they share many of the same core features, they also have significant differences. The chart below stacks up the Roth IRA against the traditional IRA.

 Roth IRA Traditional IRA
Annual contribution limits $6,000 for those under 50
$7,000 for those 50 and older
$6,000 for those under 50
$7,000 for those 50 and older
Income requirementsIncome limits based on modified AGINo income limits
Contribution taxationContributions are made with after-tax dollars and are not deductible Contributions can be made with pre-tax dollars and are deductible
Withdrawal taxation Contributions and earnings for qualified withdrawals are not taxed Deductible contributions and earnings for withdrawals are taxed as regular income
Required minimum distributions NoneRequired beginning in the year you turn 72

How to open a Roth IRA

Opening a Roth IRA can be easily done at an online brokerage firm, robo-advisor, bank or other financial institution. While each financial intuition has its own set of instructions when opening a Roth IRA, you can expect to take the following steps:

  1. Determine your eligibility. Before opening a Roth IRA, make sure your income does not make you ineligible and that you have earned income to contribute.
  2. Select your account. With so many financial institutions offering Roth IRAs, the process can be daunting. You can check out our top picks for Roth IRA providers, in which we prioritized factors including fees, portfolio construction, customer service, research offerings, account minimums and firm reputation.
  3. Select your investments. After opening a Roth IRA, you have to tell your contributions where to go. Most Roth IRAs offer the option to either select a complete portfolio in a single fund (such as a target date fund) based on when you want to retire and your risk tolerance, or the ability to customize your own portfolio.
  4. Fund your account. Typically, you can fund your account with money from a check or a direct transfer from your bank account, funds that are rolled over from a 401(k) or from an existing IRA.

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