Vanguard Roth IRA: What You Need To Know (2024)

A Roth IRA is one of the most useful tax-advantaged retirement accounts around. You contribute money on which you’ve already paid taxes, your investments grow tax free and you get tax-free withdrawals in retirement—what’s not to love?

A Vanguard Roth IRA is among the best ways to make use of this superior type of individual retirement account. The company is one of the most well-known and well-respected brokerage firms in the U.S., offering a top-ranked investing experience.

What Makes Vanguard Different?

Vanguard invented the index fund in the 1970s, and this type of investment vehicle epitomizes the company’s focus on diversification, long-term growth and rock-bottom fees.

The original index fund soldiers on today as the Vanguard 500 Index Fund. It has $821 billion in assets, 12.16% returns over the last 10 years and an expense ratio of 0.04%.

Vanguard’s advocates are so enthusiastic that some refer to themselves as Bogleheads, a moniker derived from the name of the company’s late founder, John Bogle.

When Bogle started the company in 1975, he gave it a unique structure of investor ownership. Vanguard is not publicly traded, so it’s not controlled by shareholders or focused on quarterly earnings. As of March 31, 2023, the company is owned by its 432 investment funds, which in turn are owned by over 30 million investors.

Vanguard’s Roth IRA Account

You don’t have to fund a Vanguard account the minute you open it. You can open your account as soon as the inspiration strikes and move money into it later.

Account Fees

The annual fee for a Vanguard Roth IRA is $20. However, you can easily avoid this fee by opting in to electronic statements and notifications instead of having Vanguard send you everything in the mail. You can also avoid the fee by having at least $1 million in qualifying assets at Vanguard.

Investment Minimums

Here’s how much you’ll need for your first investment in most securities at Vanguard.

• Target retirement funds: $1,000
• Vanguard index funds: $3,000
• Actively managed Vanguard funds: $3,000
• Vanguard ETFs: $1
• Non-Vanguard ETFs: the cost of one share
• Stocks: the cost of one share
• Money market funds: $3,000
• CDs: $1,000

Additional investments in funds can be as little as $1. Check the fund’s prospectus for details.

Automatic Investing

One of the best ways to make sure you consistently save and invest for retirement is to make it automatic.

Vanguard lets you set up automatic investments to purchase Vanguard mutual funds. If you want to invest in something else, you’ll have to handle each transaction manually.

Vanguard Roth IRAs in Managed Accounts

When you invest in a Vanguard managed account, a robo-advisor algorithm manages your money for you.

Vanguard tied with Betterment for the highest score in our evaluation of the best Roth IRAs in part because of its automated investing option, Vanguard Digital Advisor, which constructs a portfolio of low-cost ETFs designed to meet your investment goals.

The annual fee for Vanguard Digital Advisor is no more than 0.20% of your account balance. The investment minimum is $3,000.

Vanguard Investment Selection

Vanguard offers a wide range of investments for your Roth IRA needs. These include hundreds of mutual funds and exchange-traded funds from both Vanguard and other brokerage firms, as well as stocks, bonds, certificates of deposit and money market funds.

Vanguard also offers two types of all-in-one mutual funds that can be attractive to retirement investors: target retirement funds and LifeStrategy funds.

These funds can be a good choice if you don’t want to create your own portfolio. They all hold a broadly diversified mix of stocks and bonds so you don’t have to select or monitor multiple investments.

Vanguard target-date funds are more heavily weighted toward stocks early on and gradually transition toward owning more bonds by your targeted retirement year. They’re meant to be a set-it-and-forget-it solution to retirement investing.

The Vanguard Target Retirement 2060 Fund ranked as one of our best target-date funds for 2023.

Vanguard’s four LifeStrategy funds let you choose preset allocations of stock and bond funds based on how conservative or aggressive you want to be in seeking higher returns. For example, the Moderate Growth Fund is 60% stocks and 40% bonds. Unlike retirement funds, these asset allocations do not change over time.

Vanguard Investment Fees

The average annual asset-weighted expense ratio for Vanguard’s U.S. funds is highly competitive at just 0.08%, meaning that for every $10,000 you invest in Vanguard funds, your annual cost to own them will be $8.

By comparison, the industry average in 2022 was 0.66% for actively managed stock mutual funds, 0.37% for bond mutual funds, 0.16% for stock ETFs, 0.11% for bond ETFs and 0.05% for passively managed index mutual funds, according to the Investment Company Institute.

Here’s what you’ll pay by fund type at Vanguard:

• Target retirement funds: 0.08%
• LifeStrategy funds: 0.11% to 0.14%
• Index funds: 0.04% to 0.22%
• Actively managed mutual funds: 0.09% to 1.83%
• ETFs: 0.03% to 0.22%

Transaction Fees

Traditionally, investors pay commissions each time they buy or sell a mutual fund, exchange-traded fund, stock or other security. At Vanguard, you won’t pay any commissions on Vanguard mutual funds or ETFs.

Vanguard also doesn’t charge commissions when you buy or sell other companies’ mutual funds or ETFs online. Nor does it charge commissions on stocks or new-issue bonds. However, if you trade any of these by phone and have less than $1 million at Vanguard, you’ll pay $25.

Vanguard also charges a $50 early redemption fee if you sell a no-transaction-fee non-Vanguard mutual fund within 60 calendar days of your most recent purchase of the same fund.

Vanguard’s Mobile App

Vanguard’s mobile app allows you to view your account balances, account activity and investment performance. You can use it for mobile check deposits, electronic transfers and trading, too.

Account Security

Vanguard’s main form of two-factor authentication relies on your phone, which isn’t the most secure but is still common practice among brokerage firms and banks.

Vanguard will also let you use a physical security key that uses USB, bluetooth or NFC to communicate with your computer. You can also use the Vanguard app for two-factor authentication. However, while both the app and security key options are more secure than getting a call or text, both rely on your phone as a backup, rendering them potentially ineffective.

In addition, Vanguard does not offer security features that some of its competitors offer, such as voice recognition and money transfer lockdown. Further, its customer service is only available Monday through Friday from 8:00 am to 8:00 pm Eastern time.

The good news is that Vanguard does not use email for two-factor authentication. Most important, the company pledges to reimburse you for every dollar of any unauthorized transactions if you follow basic security practices, including not sharing your login credentials.

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