Vanguard Roth IRA: Pros, Cons and Fees - NerdWallet (2024)

Roth IRAs are a popular retirement savings account, and Vanguard is big with retirement savers thanks to its low costs and wide selection of funds. Does that mean you should open a Vanguard Roth IRA?

Maybe. There’s a lot to love about a Vanguard Roth IRA, but it won’t necessarily fit everyone’s situation. Here's what you ought to know before you decide.

1. Is a Roth IRA right for you?

A Roth IRA offers many advantages. While you don’t get an immediate tax break, all your money, including investment earnings, comes out tax-free in retirement.

That’s a sweet deal. But if you would rather not wait for your tax break, you could save for retirement in a traditional IRA, which could mean a tax break every year you contribute. Here’s more on how to choose between a Roth IRA vs. a traditional IRA.

2. Is a Vanguard Roth IRA right for you?

So, you’ve decided the Roth is for you. The next question is: Is Vanguard the best provider for you?

What's good about a Vanguard Roth IRA?

Low costs

Wide selection of funds

You can build a successful investment portfolio from a handful of mutual funds or ETFs (for ideas, check out these simple portfolio strategies), but Vanguard makes it easy to find just the right combination of funds.

The company offers more than 160 Vanguard no-transaction-fee mutual funds, plus more than 3,000 funds from other companies. All of the exchange-traded funds (ETFs) on its platform are offered commission-free.

Still, commission-free ETFs are the norm these days at most brokers, and other brokers have an even higher number of no-transaction-fee mutual funds, so it might make sense to shop around.

What's not as good about a Vanguard Roth IRA

Trading costs

If you’re likely to trade in and out of investments a lot in your Roth IRA, you’ll want a broker with lowƒmutu or no trading commissions.

While Vanguard offers a large number of no-transaction-fee mutual funds, Vanguard’s trading fee for mutual funds outside of that group ranges from $8 to $50. If the mutual funds you want are in that latter group, consider shopping around for lower-cost trades elsewhere.

Fund minimums

A barrier to entry for some would-be retirement savers is having enough saved up to open an account: Many brokers don’t impose account minimums but mutual funds sometimes have their own investment minimums.

Most Vanguard mutual funds require a minimum investment of $1,000 to $3,000. (Exchange-traded funds from Vanguard or other providers generally don’t have investment minimums.)

There are many mutual funds available at other brokers that have no minimums or lower minimums.

3. What are your other options?

In addition to Vanguard, you can open a Roth IRA with another online broker, a robo-advisor or a bank.

Brokers

An online broker lets you choose your own investments. This tends to be one of the lowest-cost options:

Robo-advisors

Like a broker, a robo-advisor will give you access to stock and bond investments. With a robo-advisor, you pay a fee so that the advisor picks and manages investments on your behalf. If you like the idea of letting someone else manage your retirement savings, a robo-advisor may make sense. (Vanguard has a robo-advisor, called Vanguard Digital Advisor.)

Banks

Generally, an online broker or robo-advisor is going to be a better choice than a bank for your retirement savings. With a broker or robo-advisor, you’ll have access to a diversified lineup of stock and bond investments, which have more opportunity for growth than a bank's typical offering of a certificate of deposit.

For a long-term goal such as retirement, it makes sense to accept some stock market volatility in exchange for possibly higher average growth rates.

That said, if retirement is just five or so years away — that is, you don’t have time to ride out market volatility — then the relative safety of a bank IRA might be a better choice.