By: Kat Peach
Updated: March 20, 2019
Here at Investor Junkie, we’ve said a lot about Wealthfront — one of our top-rated robo advisors that has continually impressed us with its low fees and smart algorithms. And we’ve also said a lot about IRAs — individual retirement accounts that can help you grow your money and give you some big advantages when the Taxman cometh.
But what about Wealthfront and IRAs?
As it turns out, opening an IRA with Wealthfront can give you a considerable leg up when it comes to your retirement savings. So let’s take a look with this handy guide to IRA investing with this popular robo advisor.
Why Invest in an IRA?
First off, let’s quickly discuss just why opening an IRA is such a smart idea.
An IRA is a special investing account that allows you to save for your retirement while either deferring or eliminating your tax burden. You open an IRA with a financial institution (such as Wealthfront or another robo advisor, stock brokerage, bank, etc., that offers these types of accounts). And note that you can own an IRA separately from an employer-sponsored 401(k).
Although there are several different varieties of IRAs, each with its own specific advantages, we’ll focus on these two main types:
- Traditional IRA — With this type, you can deduct contributions on your tax return, and the earnings in your account can grow without being taxed until you withdraw your funds upon retirement. If you’re under age 70 1/2, you can contribute to a traditional IRA. However, there are income limits to be eligible for tax benefits.
- Roth IRA — With this type, you make contributions with money that you’ve already paid taxes on, so your account earnings have the potential to be tax-free (if you meet certain conditions). You can contribute to a Roth IRA even if you’re over age 70 1/2 as long as you’re still earning income. However, there are limits to how much you can earn and still contribute (although there are ways around this).
Both of these account types can help your retirement savings compound faster than with a regular taxable investing account. Although in most cases you won’t be able to touch your earnings until you retire (or face stiff penalties), IRAs can be the best investment option for the long game. Read here about Roth IRA vs. Traditional IRA
- Minimum Investment: $500
- Fees: 0.25%/year
- 401(k) Assistance: No
How to Open a Wealthfront IRA
As with many robo advisor accounts, Wealthfront’s IRAs are perfect for folks who are hands-off investors and don’t want to fuss with managing and adjusting a portfolio over time.
Wealthfront’s powerful computer algorithms custom-tailor a portfolio to meet your investing needs and risk tolerance based on Modern Portfolio Theory. Your portfolio will be automatically adjusted to keep your ideal asset allocation.
Your portfolio will be comprised of a selection of exchange-traded funds (ETFs) in three broad categories of asset classes: stocks, bonds, and alternatives such as . This diversity can definitely be a good thing for your portfolio!
All you need to do to open an IRA is set up a new account with Wealthfront and select either a traditional or a Roth IRA and answer a questionnaire about your financial goals, needs, and risk tolerance. You will need to make a minimum initial investment of $500. However, Investor Junkie readers can receive their first $5,000 managed for free by using this link.
Can You Transfer an IRA to Wealthfront?
If you already have an IRA hosted by another financial institution, you can transfer it to Wealthfront. When you open a new account, you will be presented with this option. Now, when you switch over, Wealthfront will sell your current portfolio holdings and use the proceeds to invest in its own portfolio options.
Wealthfront reports that it takes about five to 10 business days for this process. The good news: You won’t be taxed on the transfer.
Can You Convert a Traditional IRA to a Roth With Wealthfront?
Unfortunately, Wealthfront can’t convert to a Roth IRA for you. If you have a traditional IRA at another financial institution, you will need to complete the conversion process there before transferring your account to Wealthfront.
What Are the Fees for a Wealthfront Traditional or Roth IRA?
For both types of accounts, Wealthfront charges a flat 0.25% fee. This is relatively low, compared to some other robo advisors — especially when you use our Wealthfront promo code for $5,000 managed for free.
Now, note that you may incur fees from using Wealthfront’s ETFs. However, we’ve found these fees to be minimal: on average, 0.18%.
What Are the Other Advantages to a Wealthfront Account?
No matter what account you open with Wealthfront, one of the biggest benefits is access to free financial planning thanks to the robo advisor’s propriety computer algorithm known as “Path.” With Path, Wealthfront can help you set savings goals for your retirement (as well as other big events such as purchasing a home or sending your kids to college). Wealthfront takes into account all of your accounts — including those at other financial institutions — and gives you personal financial advice.