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Investing

Retirement Plan Options When You’re Self-Employed

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Self-employment is a dream for many who crave the flexibility and sense of autonomy being your own boss provides. No more worrying about taking those long lunches or running out of vacation days. On the flipside, it also means you’re on your own when it comes to saving for retirement. There are no company-sponsored plans or matching funds, and no human resources department to consult about your best options — it’s all up to you.

The good news is there are a host of great investment tools to help you plan for your future and build a solid nest egg for retirement, many of which have similar benefits as employer-sponsored plans. Here are six of the most common retirement plans for self-employed individuals.

1. Traditional Individual Retirement Account (IRA)

How it works

There are several types of Individual Retirement Accounts (IRAs) you can establish if you’re self-employed. First up is a traditional IRA, which allows you to deposit money in an investment account before paying taxes on it. Your funds then grow — tax-deferred — over the years until you reach retirement, at which point you will have to pay taxes on the funds as you withdraw them.

IRAs are more flexible than 401(k)s in that you can withdraw money from them at any time without paying a penalty to cover certain costs, including higher education, buying your first home and medical costs. You will, however, need to pay taxes on the funds in the year in which they’re withdrawn with a traditional IRA. You also can’t leave your funds in an IRA forever. Required minimum distributions begin at age 70 and a half.

Contribution limits

You can invest up to $6,000 in a traditional IRA in 2019 (an increase of $500 in 2018). If you’re over the age of 50, you can contribute an additional $1,000 a year ($6,500 in 2018 and $7,000 in 2019) as “catch-up” contributions. Note: This is the total yearly limit for all Roth and traditional IRA contributions.

Some additional limitations may apply depending on your income and you or your spouse’s participation in other work-sponsored retirement plans.

How it’s taxed

A traditional IRA allows you to invest the maximum amount for growth (as opposed to paying taxes up front, which is the case with a Roth IRA) because the funds aren’t taxed until after they’re withdrawn.

Your contributions may also be fully or partially tax deductible in the year in which you make them, so that may also decrease your taxable income.

Who it’s best for

Typically, traditional IRAs are a good option if you’re currently in a higher tax bracket and expect to be in a lower one when you retire. They’re also an attractive option if you want the ability to access funds before retirement for certain expenses without paying a penalty.

2. Roth IRA

How it works

A Roth IRA works much like a traditional IRA, but there’s one big difference: when you actually pay taxes. With a Roth IRA, you pay taxes on your contributions in the year in which they’re made. Those funds then grow tax-free over the years until you reach retirement. When you’re ready to withdraw them — as long as you’ve reached the age of 59 and a half — they’re yours, tax-free.

IRAs are more flexible than 401(k)s in that you can withdraw money from them at any time without penalty to cover certain costs, including higher education, buying a home and paying for medical costs. There are no required minimum distributions.

Contribution limits

You can invest up to $6,000 in a Roth IRA in 2019 (an increase of $500 from 2018). If you’re over age 50, you can contribute an additional $1,000 a year ($6,500 in 2018 and $7,000 in 2019). Note: This is the total yearly limit for Roth and traditional IRAs combined.

How it’s taxed

Contributions to a Roth IRA aren’t tax-deductible, so you don’t get a tax break in the year they’re made. However, because you pay taxes up front, those funds are not counted as taxable income when you retire.

Who it’s best for

In general, Roth IRAs are a good option if you’re currently in a lower tax bracket and expect to be in a higher one when you retire. They’re also good if you want the ability to access your funds before retirement for certain expenses without paying a penalty or paying taxes on the funds when needs arise.

3. Solo-401(k)

How it works

A solo-401(k), also referred to as a one-participant 401(k) plan, works much like a traditional, employer-sponsored 401(k); however, it’s designed for individual business owners or the owner and their spouse. It allows you to invest funds in a retirement savings account that then grows tax-deferred — traditional solo-401(k) or tax-free (Roth solo-401(k) — over the years until you withdraw them at retirement.

Penalties apply for early withdrawal if the account is less than five years old and you haven’t reached the age of 59 and a half. However, you may be able to take out a loan from your 401(k).

Contribution limits

Like a traditional 401(k), you can contribute up to $19,000 in 2019 ($18,500 in 2018). If you’re over the age of 50, the limit increases to $25,000 in 2019 ($24,500 in 2018).

One notable upside to this plan is you’re allowed to contribute additional funds because you act as both the employer and employee when you’re self-employed. Total contributions can’t exceed $56,000 for 2019 ($55,000 for 2018), unless you’re over the age of 50, when there are allowances for “catch-up” contributions.

How it’s taxed

Like IRAs, you can choose either a Roth or a traditional solo-401(k). With a traditional solo-401(k), taxes are deferred on the money you contribute to your account until you withdraw funds in retirement.

If you choose to designate some of your funds as Roth contributions, however, you will pay taxes on them up front, with tax-free withdrawals in retirement. Contributions to a traditional solo-401(k) aren’t counted as taxable income in the year they are made, while Roth solo-401(k) contributions are.

Who it’s best for

A solo-401(k) is a good option if your income surpasses the IRA limits and you want to invest more for your future.

4. Savings Incentive Match Plan for Employees (SIMPLE) IRA

How it works

Traditional and Roth IRAs are funded entirely by employee contributions, whereas SIMPLE IRAs allow contributions from both the employer and employee, which means you’re playing both roles if you’re self-employed.

Like with other IRAs, there are penalties for early withdrawal (before the age of 59 and a half), and there are exceptions for many expenses, including education, health care costs and buying a first home. If you withdraw funds before your plan is two years old, however, that withdrawal is subject to a hefty 25 percent tax penalty.

Contribution limits

You can contribute up to $13,000 in 2019 (an increase of $500 from 2018) to a SIMPLE IRA, but not more than the amount you earn. Additional “catch-up” contributions up to $3,000 can be made if you’re 50 or older.

As the employer, you can also contribute dollar-for-dollar matching funds up to 3 percent of your net earnings or make an additional non-elective contribution equal to 2 percent of your income, up to $280,000 in 2019 (an increase of $5,000 from 2018).

How it’s taxed

Contributions to a SIMPLE IRA aren’t taxed in the year in which they are made, but they are taxed when they’re withdrawn in retirement. Contributions are also tax deductible by the employer in the year in which they are made.

Who it’s best for

A SIMPLE IRA is a good option if you want to contribute funds in excess of the limits of traditional and Roth IRAs. They’re also worth considering if you have 100 employees or less, as they’re easy to set up and don’t come with the same startup and operating costs that other plans may have.

5. Simplified Employee Pension (SEP) IRA

How it works

Like other IRAs, a SEP IRA allows you (as the employer) to invest funds, tax-deferred, until you need them in retirement. There are penalties for early withdrawal (before the age of age 59 and a half) and there are minimum distribution requirements.

There are two primary differences that set the SEP IRA apart from others:
1. A SEP IRA has higher contribution limits than traditional and Roth IRAs, and;
2. If you have employees who meet certain qualifications, you must make contributions to their SEP IRA in equal amounts for all employees. Contributions are only made by the employer (which is you) if you’re self-employed.

Contribution limits

You can contribute up to 25 percent of your net earnings to a SEP IRA, up to a certain limit. In 2019, the limit is $56,000, an increase of $1,000 from the prior year (2018). There’s no extra allowance for catch-up contributions as there is with other retirement accounts.

How it’s taxed

Contributions to a SEP IRA are tax deductible, as funds are taxed when they’re withdrawn in retirement. There’s no Roth option to pay taxes up front, as the contributions are made by the employer.

Who it’s best for

A SEP IRA is a good option if you’re self-employed and want to save a large amount of money for retirement. It’s also a good option if you have 100 employees or less and want to establish a retirement plan without the associated costs of other plans.

6. Defined benefits plan

How it works

Like an employer-sponsored pension, an individual defined benefits plan lets you put away a certain amount of money for a guaranteed return in retirement. The amounts are based on a formula that takes into account the number of years you’ve worked and how much you earn. You must enlist the help of an actuary to help determine your contribution and benefits.

Contribution limits

The amount you may contribute is based on a formula and will vary from person to person. Generally, however, the annual benefit can’t be more than the highest salary they were paid for three years in a row, or surpass the annual limit of $225,000 in 2019 (a $5,000 increase from 2018).

How it’s taxed

Taxes are deferred up front and paid on the funds when they’re withdrawn during retirement. The contributions are tax deductible in the year in which they are made.

Who it’s best for

A defined benefits plan may be a good option if you’re a high earner and want to save aggressively for retirement.

How to open a self-employed retirement plan

To open any of these retirement plans, there are numerous online brokerages that can help, or if you prefer a more personal approach, you can seek out a financial advisor in your area. Banks can also help you establish some of these accounts as well. It may also be wise to work with an accountant to make sure you file the proper forms and pay the correct amount of taxes.

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.

Julie Ryan Evans
Julie Ryan Evans |

Julie Ryan Evans is a writer at MagnifyMoney. You can email Julie here

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Investing

Best Online Brokers for Beginner Investors 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’re an investing novice, learning how to put money in the markets can seem overwhelming. There are countless online services at your disposal, which can make it challenging to pick the right one and get started.

Not sure where to begin? Let’s take a closer look at the best online brokers and the best robo-advisors. Both product categories offer low fees, lots of flexibility and functionality that simplifies the investing process. Either can make it simple to take your first steps in the world of investing.

Deciding whether you need a robo-advisor or an online broker is straightforward. If you prefer to actively manage your investments, an online broker is what you’re looking for. A broker’s job is to help you buy and sell securities, and many brokers offer educational and research resources to help beginners learn. Below we’ve included our top online brokers for beginners.

If you prefer a more hands-off approach to your investments, go with a robo-advisor. These automated investing services put your money into diversified portfolios of stocks and bonds that are customized to your needs. Best of all, they charge low annual fees. Since computer algorithms do the hard work, you’re freed from actively managing your investments. See below for our top robo-advisors for beginning investors.

How we chose the best investment platforms for beginners

We regularly review the landscape of investment services. For this review, we began with a selection of brokers and robo-advisors that represent the best in the industry. For the brokers, we evaluated 20 different services in our latest round; for the robo-advisors, we evaluated 19 different services. We then distilled each list down to the top four choices. All of the brokers and robo-advisors listed below are worth considering, with those at the top of each category scoring best.

The things we weighed most heavily when ranking the best online brokers were trading fees, account minimums, the diversity of investment products offered (stocks, bonds, exchange-traded funds or ETFs, and mutual funds), and low account fees (annual fees, transfer fees, and inactivity fees). 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.

See our methodology article for a more detailed explanation of how we create our rankings.

The best robo-advisors for beginners

Robo-advisor

Annual Management Fee

Average Expense Ratio (moderate risk portfolio)

Account Minimum to Start

Wealthfront

0.25%

0.09%

$500

Charles Schwab Intelligent Portfolios

0.00%

0.14%

$5,000

Betterment

0.25% (up to $100,000); 0.40% ($100,000.01 or more)

0.11%

$0

SoFi Automated Investing

0.00%

0.08%

$1

Wealthfront: Low fees, high cash management APY

Wealthfront Advisers LLC Wealthfront is one of the most visible names in the robo-advisor space, and its low annual cost and free financial planning tools make it a great fit for beginners. The $500 minimum deposit to open an account is higher than peers, many of whom have no minimum. If you would like to fund your account but also want to keep some money on the sidelines, Wealthfront offers a cash management account with an attractive 2.51% APY. Wealthfront intentionally offers very little opportunity for human interaction on its platform. This keeps fees low, but could be a drawback for those who want personalized attention or who have complicated tax situations.

Wealthfront Highlights:

  • $500 minimum to start investing is beginner-friendly
  • Low fees: 0.25% management fee; 0.09% avg ETF expense ratio
  • 20 portfolios available to fit a variety of investing goals, from conservative to aggressive
Learn moreSecured
on Wealthfront’s secure website

Charles Schwab Intelligent Portfolios: Backed by a major brokerage

The Charles Schwab Corporation Charles Schwab Intelligent Portfolios is a great choice if you’d like to start with automated investing but anticipate becoming more actively involved in managing your investments over time. Note that Intelligent Portfolios requires a relatively steep $5,000 minimum deposit to start investing. Also, do not be misled by the 0% management fee, as it’s not the only cost involved using this robo-advisor.

Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in a cash management account that offers a 0.67% APY. This requirement will eat into overall returns in years where the market returns above 0.67%. And this is on top of an average 0.14% expense ratio for a moderate-risk portfolio.

That said, this robo-advisor has an exceptionally detailed description of their ETF selection methodology. Intelligent Portfolios users also get access to Charles Schwab’s 300 U.S. branch locations, where you can talk to advisors and handle administrative tasks in person.

Charles Schwab Intelligent Portfolios Highlights:

  • Schwab offers many additional account types and services for investors looking to expand beyond robo-advising down the road
  • 0% management fee, though you do need to hold a portion of your portfolio in cash and an avg 0.14% expense ratio still applies
  • Over 300 physical branch locations for in-person assistance
Learn moreSecured
on Schwab Intelligent Portfolios Premium™’s secure website

Betterment: Great choice for smaller balances

Betterment Holdings Inc. Betterment is another good choice for beginner investors, offering strong features at low cost, with no minimum deposit. Their step-by-step account creation process translates your financial goals into investment recommendations, helping to ensure that your portfolio fits your objectives. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio, which is in line with peers. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40% — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment Highlights:

  • $0 minimum to open an account makes it easy
  • Low 0.25% management fee for account balances under $100,000 plus low 0.11% avg ETF expense ratio
  • Premium features available for account balances greater than $100,000, including unlimited access to Betterment’s financial advisors
Learn moreSecured
on Betterment’s secure website

SoFi Automated Investing: Low costs, great perks

SoFi Securities LLC SoFi Automated Investing aims to minimize fees and eliminate investing friction points, and they succeed at both. The firm’s 0% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Beginners will find the free access to SoFi financial advisors as an especially valuable perk. Others include free career counseling and discounts on loans.

The main downside with Automated Investing is that SoFi’s portfolios are less customizable than those of competing services. It offers only five risk levels to choose from, as opposed to at least 10 available with other services. SoFi does not offer tax loss harvesting.

SoFi Automated Investing Highlights:

  • Rock-bottom fees: 0% management fee, plus 0.08% avg expense ratio
  • Free access to financial advisors
  • SoFi also offers brokerage accounts for investors looking to trade individual stocks or ETFs
Learn moreSecured
on SoFi Wealth’s secure website

Best online brokers for beginners

Broker

Fee per trade

Commission-free ETFs

No-transaction-fee Mutual Funds

Charles Schwab

$4.95

514

3,457

Fidelity

$4.95

503

3,636

TD Ameritrade

$6.95

571

3,887

E-Trade

$6.95

277

4,222

Charles Schwab: Full-featured offering

The Charles Schwab Corporation Charles Schwab can support your investing journey from your first steps as a novice through to advanced trading strategies. Schwab has no account minimum, charges only $4.95 per trade in commissions, and allows you to trade many products commission free. Accounts come equipped with a suite of tools to help you construct your portfolio and pick the correct mutual funds, ETFs and stocks. Schwab also offers 24/7 phone support and has over 350 branches if you need in-person help.

Charles Schwab Highlights:

  • Affordable trading with $4.95 per trade commissions and no minimum deposit to open an account
  • More than 500 commission-free ETFs and over 3,000 no-transaction-fee mutual funds
  • Robust research tools for beginners include analyst reports and screeners for stocks, bonds, mutual funds and ETFs
Learn moreSecured
on Charles Schwab’s secure website

Fidelity: Strong mutual funds options

Fidelity Brokerage Services LLC Fidelity is well known for its retirement offerings and has a lot to offer beginners. Their $0 minimum to open an account, low $4.95 per trade commission and excellent selection of commission-free ETFs and mutual funds make this service a great choice for new investors. Beginners looking to learn about investing will appreciate Fidelity’s stock screening tools, library of analyst reports and portfolio selection tools. Fidelity also offers clients exclusive access to several proprietary mutual funds that have no transaction fees and 0.00% expense ratios.

Fidelity offers strong customer support with representatives available by phone 24/7 and at over 190 branch locations if you need in-person help. Some reviews on their site suggest that response times can lag for support though. Low fees, no minimum to start and a large menu of investments to choose from make Fidelity a compelling option for beginners.

Fidelity Highlights:

  • $0 minimum to open an account and no fees on account transfers
  • Tons of low-fee options: Over 500 commission-free ETFs and more than 3,600 no-transaction fee mutual funds
  • Stock screening tools, analyst reports, and portfolio selection tools will be helpful for beginners
Learn moreSecured
on Fidelity’s secure website

TD Ameritrade: Broad offering of investments

TD Ameritrade TD Ameritrade’s long-standing commitment to helping clients access financial markets make it a strong choice for beginners. TD Ameritrade offers a wide assortment of commission-free mutual funds and ETFs, helpful customer service and educational tools. Beginners starting with stocks and bonds will appreciate TD Ameritrade’s analyst reports, charting tools and watch lists. Another upshot is that there is no minimum deposit required to open an account.

TD Ameritrade’s high $6.95 per trade commission is a drawback, though beginners are unlikely to be placing enough trades for this to have a large impact. With 24/7 phone support and branches spread across the country for in-person help TD Ameritrade is solid broker choice for beginners.

TD Ameritrade Highlights:

  • Keep fees low with nearly 4,000 no-transaction-fee mutual funds and over 550 commission-free ETFs
  • $0 minimum to open an account
  • Current TD Bank account holders may qualify for special promotions based on amount deposited including free trades and account rebates
Learn moreSecured
on TD Ameritrade’s secure website

E-Trade: Good research options

E-Trade Securities LLC E-Trade is a well-known online broker and offers a wide assortment of available investments for beginners. The $500 minimum to open an account and high $6.95 trading fees could deter folks with a small amount to invest, though. E-Trade’s breadth of no-commission ETFs and mutual funds offers a wealth of choices for first-time investors step into the market. E-Trade’s mobile tools stand out for dynamic charting and easy access to research materials. For investors seeking to automate a portion of their portfolio E-Trade also offers their Core Portfolios robo-advisor product for a 0.30% management fee.

E-Trade Highlights:

  • Respectable selection of low-fee options with over 250 commission-free ETFs and more than 4,000 no-transaction-fee mutual funds
  • Mobile tools feature beginner-friendly charting, research, and trading
  • E-Trade’s robo-advisor, E-Trade Core Portfolios, is available for users who’d like to automate a portion of their portfolio
Learn moreSecured
on E-Trade’s secure website

FAQs about online brokers

A robo-advisor is an automated service that selects investments for you utilizing sophisticated computer algorithms. Robo-advisors help investors take advantage of the best parts of wealth advising — like diversification and asset allocation — without incurring the cost of hiring a human advisor to manage your accounts.

Most robo-advisors begin the investing process by asking you a series of questions about your assets, investing history and investing goals to help establish the right balance in your investment portfolio. Then the robo-advisor automatically manages your money and sets you on the path to achieve your financial objectives.

When considering which robo-advisor to choose, you should evaluate several different things:

  • Minimum Balance: The minimum amount you need to invest can help you narrow the field of robo-advisors. A number of newer robo-advisors have no minimum to start, while the ones offered by the traditional large brokerage houses will typically require an initial deposit of several thousand dollars.
  • Fees: Even small fees can add up to thousands of dollars of lost returns over time. The top-rated robo-advisors in our ranking typically charge a flat yearly management fee of 0.00% to 0.50% of your deposited balance. In addition to the management fee, robo-advisors also charge investors an expense ratio to cover fees that ETF companies charge for the funds that make up your portfolio. Average expense ratios typically range from 0.08% to 0.15%.
  • Ease of use: When you create your account, ask yourself: Do I understand what the robo-advisor is telling me? Can I easily figure out how to deposit and withdraw money? Do their planning tools help me understand how much I need to invest and when? If the answer is no to any of these, you might be better off going with another option.

Online brokers help you purchase and trade investments on your own, without the need for an advisor or investment manager. Online brokers put you in the driver’s seat. Instead of relying on a particular firm’s recommendations, you can select the stocks, mutual funds and bonds that work best for you. Online trading is also convenient; you can manage your assets from anywhere, without having to wait on anyone else. Even better, online brokerage accounts tend to be more cost-effective than traditional brokerage accounts because they often have fewer fees.

Keep in mind that the earlier you get started with investing in markets, the more your money can grow. Even if you have only a small amount to invest, investing with an online broker can help you lay a strong foundation to build wealth. Start with what you can afford and contribute regularly to begin boosting your returns. Before you start investing, be sure that you’ve paid down high-interest debt and saved enough money for an emergency fund. This will ensure that you can avoid potential losses from having to withdraw your investments early in case of big, sudden expenses.

While there’s always risk with investing, online brokerages are typically quite safe. Most brokerage sites will have a section on their website that details their security measures. Your accounts are also often protected by the Securities Investor Protection Corporation (SIPC), which helps safeguard you against the loss of your investments if the brokerage closes.

When shopping for an online broker, there are a few factors to keep in mind before making a decision:

  • Fees: While you can’t control the returns on your investments, you can control what you pay in fees. Look for an online brokerage that offers low trading fees; some even offer free trades on select investments or if you meet certain account usage criteria.
  • Investment advisory services: While online brokerage companies give you flexibility, it can be helpful to check in with a professional once in a while. Some give you the option to connect with an investment advisor to help you stay on track.
  • Research tools: Access to research tools can help you choose the right investments. Look for an online broker that offers research tools to help you analyze and choose investments based on past performance and professional recommendations.
  • Investment mix: You want to be able to invest in a wide range of investments, including stocks, mutual funds, exchange-traded funds (ETFs) and bonds.
  • Customer service: Customer service can be key, especially if you have trouble with your account. You want an online broker with easy-to-use customer service tools so you can get the help you need quickly.

Many online brokers allow you to invest in a wide range of investments, including stocks, bonds, mutual funds and ETFs. Online brokerage accounts offer you a great deal of flexibility, so you can invest in what makes sense for you.

To begin investing and trading online, you have to open an account with an online brokerage firm. To do so, click on the company’s website and select “open an account” or “apply now.” The site will prompt you to enter your personal information, such as your name, address, employment details, Social Security number and proof of identity. Next, you’ll be asked to enter your bank details so you can make an initial investment and set up recurring deposits if desired. Verifying your account can take a few days, but then your account will be in effect and you can begin investing your money.

About our ranking

Please see the full lists below of brokers and robo-advisors that we considered for this ranking.

All brokers considered:

Ally Invest
Charles Schwab
Fidelity
Firstrade
Interactive Brokers
J.P. Morgan You Invest
Just2Trade
Lightspeed
Merrill Edge
Robinhood
E-Trade
eOption
SogoTrade
Stash
T. Rowe Price
TD Ameritrade
TradeStation
USAA Investments
Vanguard
Zacks Trade

All robo-advisors considered:

Acorns
Ally Invest Managed Portfolios
Betterment
Charles Schwab Intelligent Portfolios
E-Trade Core Portfolios
Ellevest
Fidelity Go
Folio Investing
FutureAdvisor
Merrill Guided Investing
Motif
Personal Capital
SigFig
SoFi Automated Investing
TD Ameritrade
Vanguard Personal Advisor Services
Wealthfront
Wealthsimple
WiseBanyan

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.

Joshua Rowe-Heupler
Joshua Rowe-Heupler |

Joshua Rowe-Heupler is a writer at MagnifyMoney. You can email Joshua here

Kat Tretina
Kat Tretina |

Kat Tretina is a writer at MagnifyMoney. You can email Kat here

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Investing

Ally Invest Managed Portfolios Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Ally Invest Managed Portfolios is a robo-advisor option from a trusted online-only financial institution.

It can make managing your money simple: Just answer a few basic questions about your goals and risk tolerance and your funds are invested for you. However, while fees are competitive, they aren’t the lowest among other robo-advisors’ offerings.

If you don’t mind the lack of bonus for opening the account, and you want to take a hands-off approach to building wealth, Ally Invest may be a good option.

Ally Invest Managed Portfolios
Visit AllySecuredon Ally Invest Managed Portfolios’s secure site
The Bottom Line: Ally Invest Managed Portfolios is a decent robo-advisor that’s competitive with other managed portfolios online. But its lack of tax-loss harvesting, and fees that slightly exceed competitors may prompt you to look elsewhere if you’re not already an Ally customer.

  • The minimum deposit to invest in Ally Invest Managed Portfolios is $100
  • The management fee is 0.30%, no matter how high your account balance
  • Customer service is available 24/7, but there are no local branches to visit

Who should consider Ally Invest Managed Portfolios?

If you’re looking for a robo-advisor that allows you to build a diversified portfolio without a lot of advanced knowledge about investing, Ally Invest Managed Portfolios has you covered.

You’ll answer a few questions about your age; timeline for investing and risk tolerance; and whether you’re investing for retirement, wealth-building or a big purchase. Then, Ally Invest comes back with a recommended portfolio you can accept or tweak.

You can open a joint, custodial or Individual taxable account with Ally Invest Managed Portfolios, or can opt for a Traditional IRA, Roth IRA or Rollover IRA. Unfortunately, unlike with Ally Invest’s self-directed accounts, there’s no promotion or bonus for transferring funds into a managed portfolio. And, you’ll need quite a bit of money to get started — more than many competitors in the robo-advisor industry require.

Still, if you don’t mind the lack of brick-and-mortar locations and marginally higher fees, Ally Invest is a worthy competitor to consider when looking for help managing your money.

Ally Invest Managed Portfolios fees and features

Amount minimum to open account
  • $100
Management fees
  • 0.30%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $50 full account transfer fee
  • $50 partial account transfer fee
  • $0 inactivity fee
Current promotions

Ally Invest offers a $50 cash bonus plus free trades if you deposit or transfer at least $10,000. Bonuses go up from there and increase up to a cash bonus of as much as $3,500 if you deposit or transfer at least $2 million in assets.

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account (ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Portfolio
  • Ally managed portfolios cover 3 asset classes and 9 major market segments
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS, Android, Windows Phone
Customer supportPhone, 24/7 live support, Chat, Email

Strengths of Ally Invest Managed Portfolios

Ally Invest Managed Portfolios has some significant advantages worth considering:

  • Investing in a diversified portfolio is easy. You’ll answer basic questions about your investment goals and Ally Invest will suggest a portfolio with an appropriate mix of U.S. and foreign bonds, international and U.S. stocks, and cash. You can also tweak the suggestions Ally Invest Managed Portfolios makes, so you take on more or less risk based on your comfort level.
  • Ally requires a low minimum deposit of just $100 to open a managed portfolio account. While some of Ally’s competitors (such as Betterment) don’t have a minimum deposit requirement at all, $100 still falls on the very low side of the scale and makes this account extremely accessible to new investors.
  • Ally Invest Managed Portfolios offers automatic portfolio rebalancing. This helps to ensure you remain invested in the right mix of assets if certain investments under- or over-perform.
  • Customer service. Ally Invest offers phone, Email, and chat support. Customer service agents are available 24/7 with little or no wait. Agents will do their best to provide answers, although it may take a little time if your questions are technical since you may need to be transferred to an investment advisor.

Drawbacks of Ally Invest Managed Portfolios

You’ll also want to consider the potential downsides of choosing Ally Invest Managed Portfolios.

  • Ally Invest Managed Portfolios charges fees that are slightly higher than several competitors. You’ll pay .30% for Ally’s robo-advisor service, compared with .25% for Betterment’s digital account or for Wealthfront.
  • Ally Invest Managed Portfolios currently does not offer tax loss harvesting, which involves selling investments at a loss to offset taxable gains (although they do offer tax advantaged portfolios which add municipal bonds to Ally’s core portfolios). Competitors such as Betterment do offer this feature. However, Ally representatives indicate tax loss harvesting is expected to be rolled out in 2019 and investors with managed portfolios will be able to transition their accounts into a portfolio with tax loss harvesting.
  • No physical branches. If you’d prefer to go into a branch for local customer support, you’ll need to look elsewhere, such as E-Trade, which has more than 30 branches across the country.
  • Mobile apps aren’t very advanced. While Ally Invest allows you to use mobile apps on iPhone and Android phones to access basic account information, the offered apps aren’t as feature-rich as competitors such as Betterment.

Is Ally Invest Managed Portfolios safe?

Whenever you invest your money, there’s a risk you may lose some or all of it. This is no different with Ally Invest Managed Portfolios. The assets your robo-advisor invests you in could decline in value and your portfolio could lose money.

But Ally Invest is as safe as any trusted online brokerage, and there’s little risk of losing assets if the investment firm goes bankrupt. Ally Invest is in compliance with regulatory requirements according to FINRA’s Broker Check tool. Ally Invest is also a member of the FDIC and SIPC, both of which ensure cash in bank and brokerage accounts respectively.

Final thoughts

Ally Invest Managed Portfolios is a viable choice for investors looking for an easy, hands-off way to invest — especially with its low $100 minimum deposit requirement. Ally also promises to offer a broad range of socially-responsible portfolios, which should interest investors who want to consider more than just financial returns. But the lack of a promotional offer, higher management fees, and the fact tax loss harvesting isn’t currently offered makes Ally a less-than-ideal option for investors looking for the most affordable way to build a diversified portfolio. If you want a lower-cost option that does offer tax-loss harvesting, consider robo-advisors such as Betterment or Wealthfront.

Open an Ally Invest Managed Portfolios accountSecured
on Ally Invest Managed Portfolios’s secure website

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Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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