Rating:  Betterment Rating

Betterment IRA review: Roth IRA, Traditional IRA, SEP and SIMPLE IRA. Betterment retirement accounts fees, commissions, rating, minimums, advantages and disadvantages.


Betterment IRA Accounts Offered
  • Traditional IRA
  • Roth IRA
  • Rollover IRA
  • SEP IRA
  • SIMPLE IRA

Betterment IRA Fees

  • IRA setup fee: $0
  • Annual IRA fee: $0
  • IRA termination fee: $0
  • Outbound full account transfer: $0
  • Outbound partial account transfer: $0

Betterment: The Company

Betterment is perhaps the best-known automated investment platform on the market. The firm offers a huge variety of investment options; everything from IRAs and brokerage accounts to trust funds. This Betterment IRA review will focus on the company’s IRA options. It will start with a brief overview of automated investing as a whole. It will then transition into how to open an account, the website’s layout, how to determine risk, their fees, and end with a summary. Keep reading to find out how a free IRA with Betterment works.


Overview of Automated Investing

Before going into Betterment IRA review, it makes sense to have a brief overview of automated investing. Automated investing is a recent technological development made possible by the growing power of computers.

An automated investment company, like Betterment, uses technology, financial experts, and statistics to streamline the investing process. They start by looking at the performance of all available funds and then select the ones they think are best. This basket of funds is what makes up each portfolio, in ratios specified by the customer. These ratios are based on each customer’s individual risk tolerance, and can be updated at any time. These portfolios are then automatically rebalanced, reinvested, and managed. The level of automation offered by these companies leads to a very simplified user experience and low maintenance fees.

All a user has to do is open an account, set their risk tolerance, contribute some money, and let the system do the rest.


How to Open an Account

Opening an IRA with Betterment is a breeze. The company will ask the standard personal information questions, tax information, and a few questions to gauge your initial risk tolerance. The whole process is very similar to the rest of the sites in the industry, with Betterment’s overall experience being slightly better.


Website Layout


Betterment ROTH IRA Review


After account creation a new customer is taken to the overview page. The first thing to notice about Betterment’s website is how clean and functional it is. One of the most useful things in Betterment is the projected return graph. You can get to the projected return graph by clicking on your account’s performance to see more details.

This graph shows the impact of a $50 monthly deposit. It will, on average, grow to $124,365 over the course of 45 years.


Betterment ROTH IRA Review

Using these graphs, Betterment shows the impact of regular contributions and risk level on an account over time. It is especially useful to individuals with IRAs, as they can help give estimates of how much income someone can expect in retirement.


Determining Risk

The beauty of automated investing platforms, like Betterment, is that account holders only need to make two decisions: how much risk to take and how much to contribute.

A good rule of thumb for retirement investments is to have a percentage of stocks between [120 minus your age] and [100 minus your age], and the rest in bonds. This means that a 25 year old should have between 75% and 95% in stocks, with the remaining 25% to 5% in bonds. The thinking behind this approach is that younger individuals can afford to take on more risk (stocks) because they will have years and years for their portfolios to recover. This is just a starting point for someone who is looking to get started; investors are always encouraged to do their own research.


Betterment IRA Performance

Betterment’s investment performance is… average. Don’t be fooled though: over 80% of investors underperform the average. Taking this in to account, “average” means that individuals in Betterment are in the top 20% of investors.

The reason for this is because the financial advisors at Betterment have picked a very diverse selection of stocks and bonds to be used in investors’ portfolios. This diversity makes sure that even the riskiest allocations aren’t as risky as they might otherwise be.


Betterment IRA Investing Fees

Betterment charges maintenance fee of 0.25% on account balance. This maintenance fee is low by industry standards. It is added on top of the existing fund expense ratios of between 0.05% and 0.15%. This means that the total expense ratio is somewhere between 0.30% and 0.40%. For reference, the average mutual fund net expense ratio is around 1%, which is more than double what Betterment charges. This choice between cost and convenience should be made on an individual level, but it is important to have all of the information first.

Unfortunately for IRA account holders, the extra 0.25% in yearly management fees adds up to a 12% reduction in account value over 50 years. That’s a pretty large chunk of money. M1 Finance offers $0 commission and fees investing and is definitely a better priced alternative.


Betterment IRA Review Conclusion

As an IRA account holder, Betterment’s fees hold it back from ranking well against the competition. The additional fees cut out a lot of potential earnings that an investor could use in retirement. Alternatives like Ally Invest IRA offer much lower expense ratios for their target date retirement funds but at a higher initial cost. On the bright side, Betterment offers a good way to start an IRA for someone who doesn’t know much about investing and has little money to start. For as little as $100 a month (of contributions) a new investor can start an IRA at Betterment.


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Betterment IRA reviewed by TopRatedFirms.com Rating: 4



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