A Betterment IRA??
Imagine my excitement when I got this email in my inbox! Betterment.com, my financial advisor, is working on offering IRA’s!
This would definitely give me reason to move my Roth from where it currently is into Betterment. (I am a brand ambassador for Betterment and this is a partner link.)
Or at least I could open a new Betterment IRA and just split the contribution max.
Can I Open an IRA with Betterment?
If you are not familiar with an IRA, that is an Individual Retirement Account. It is a great way to save and invest for retirement.
There are two main types of IRAs, the Roth and the Traditional.
There are also IRAs for those that are self employed but we will just focus on the Traditional and the Roth.
Betterment Offers a Traditional IRA
An option to open a Betterment account as a traditional IRA would be appealing to many investors. I’ve already mentioned in my review of Betterment that I thought the only thing that they were lacking is an IRA option. A traditional IRA offers a way to shelter your current income from current taxes.
When you contribute to a traditional IRA, you do so with pre-tax income.
That means that if you’ve already paid taxes on the money, you will get a tax refund based on the amount of the contribution as long as it falls in the allowable parameters. TurboTax or your accountant can help you with this.
If you are an independent contractor and you are not paying taxes up front then you will not have to pay taxes on that income, at least for right now.
With a traditional IRA you pay taxes upon retirement at the point of withdrawal. And you pay taxes based on your tax rate at the time of withdrawal.
But what if you don’t want to pay taxes in the future, and you’d rather pay them now?
Betterment IRA for a Roth Account
A Roth IRA is also a possibility for you if you meet the requirements.
Everyone is not eligible to contribute to a Roth IRA.
There are certain income restrictions. I know that one day I will meet those income restrictions so I am contributing to a Roth today.
If Betterment does offer the option for a Roth IRA I will be opening one.
The benefit of a Roth IRA is that I do not have to pay taxes on my withdrawals when I retire, as long as I meet the qualifications. The rules could change so be sure to visit IRS.gov to get the details on that.
Some people who expect to be in a higher tax bracket at the time of retirement may opt for a Roth IRA.
The reason I prefer a Roth IRA to a Traditional IRA, is the fact that I do not have to pay taxes on the gains in a Roth IRA. Because I’ve already paid taxes on the initial contribution, everything else, interest, dividends, and capital gains are mine to keep, tax free.
Should I Keep my Personal Betterment Account?
So if I open a Betterment IRA, should I keep my personal Betterment account?
I plan to.
I like the personal account because I am using it as a travel fund and I plan to make contributions and deductions often.
There are penalties for withdrawing funds early from a retirement account so I know I will still use my personal account.
Should You Choose Traditional or Roth IRA?
Not sure which type of IRA is right for you? Use this tool.