About Betterment

Betterment is a digital investment platform and robo-advisor. Like most robo-advisors, Betterment charges a fee that’s a percentage of your investments, also known as assets under management (AUM) for managing your investments on its platform. Betterment offers different investment accounts, including individual retirement accounts (IRAs) and non-retirement brokerage accounts. Among its retirement offerings are Roth IRAs.

Betterment is both a registered investment advisor and a broker-dealer (aka brokerage) that buys and sells securities.

What are the benefits of Betterment’s Roth IRAs?

Pre-selected investments portfolios

Betterment provides pre-selected investment portfolios that its investment team has researched, meaning that if you don’t want to figure out the specifics of what to invest in, you don’t have to. This also means that if you want to have greater control of what you want to invest in, Betterment might not be right for you. See below for what’s included in Betterment’s portfolios.

Automated investment management

Betterment provides automated management of your Roth IRA so that you don’t have to do much management of your own. So, Betterment is good for those that want to be more hands-off with managing their Roth IRAs. Among the investment management features that Betterment provides are automatic rebalancing to keep your investments aligned with reaching your retirement goal.

Retirement tracking in one place

Betterment allows you to connect and sync your external accounts that you have with other companies onto the Betterment platform. This enables you to see all of your retirement investments (along with other types of investments) in one place and track how you’re doing towards your retirement savings.

Financial planners

Betterment offers unlimited access to a financial planner with its Premium plan. (That does come at a higher cost with a $100,000 investment minimum.)

Who are Betterment Roth IRAs good for?

• Hands-off investors that are comfortable with investing in pre-selected portfolios
• Investors comfortable with online-interfaces and technology-driven investment management
• Investors that want to see and manage all of their retirement accounts, including their non-Betterment accounts in one place

Who is Betterment not for?

• Investors that want to pick their own investments or invest in specific stocks
• Investors that are looking for offline support; Betterment is very much and foremost a digital platform
• Investors who don’t want to pay a management fee or a one based on AUM

Drilling into Betterment’s fees

Advisory fees

Betterment offers two pricing tiers: Digital and Premium. The Digital plan has a 0.25% advisory fee for the investments that you have on the Betterment platform and there isn’t a minimum investment amount (although Betterment has a minimum deposit of $10). For its Premium plan, Betterment charges a 0.40% for your investments and there is a $100,000 investment minimum.

Betterment’s fees are charged quarterly (at the end of March, June, September, and December) and based on your average daily balance within each quarter. The fees are automatically deducted from your investment balance.

Fund fees

Betterment’s portfolios are made up of exchange-traded funds (ETFs). These funds also have management fees in addition to the advisory fee. These management fees range from 0.07%-0.15% of the fund’s AUM per year. For a $1,000 investment, a 0.15% fee is $1.50. The fees are automatically deducted by the fund.

Trade or transaction fees

Betterment doesn’t charge a fee for trades or transactions.

Withdrawal fees

Betterment doesn’t charge a withdrawal fee. See the Withdrawal section below for additional details about withdrawals from Betterment. Note: withdrawing from a Roth IRA could have tax implications, such as a penalty for when you take money out of your Roth IRA early. See IRS distribution rules and consult a tax advisor if you have questions.

Rollover or transfer fees

Betterment does not charge a fee for you to roll over or transfer into or out of a Betterment Roth IRA account.

What goes into a Betterment portfolio?

Betterment’s portfolios are based on a combination of fund selection and asset allocation. With most online investment platforms or robo-advisors like Betterment, the portfolios that it offers are made up of funds called exchange traded funds (ETFs).

What’s in the ETFs that Betterment includes in its portfolios?

The ETFs include equities (stocks) in global, emerging and developing markets and bonds in governments, agencies and corporations around the world.

Stocks

• U.S. Total Stock Market
• U.S. Value Stocks - Large Cap
• U.S. Value Stocks -Mid Cap
• U.S. Value Stocks - Small Cap
• International Developed Market Stocks
• International Emerging Market Stocks

Bonds / Fixed Income

• U.S. High Quality Bonds
• U.S. Municipal Bonds
• U.S. Inflation-Protected Bonds
• U.S. High-Yield Corporate Bonds
• U.S. Short-Term Investment Grade Bonds
• International Developed Market Bonds
• International Emerging Market Bonds

What about asset allocation?

Betterment determines asset allocation on when you need to access your retirement money and your risk tolerance. For someone younger who won’t need retirement income until 20 or more years from now, the recommended investments are generally riskier, meaning your portfolio will likely include more equities, which are typically risker and don’t have fixed income like bonds do, but often provide the opportunity to have higher returns. Betterment starts you off with an assumed risk level, for your retirement goal. You can change this to be more conservative or aggressive. Betterment limits asset allocation changes to one per business day.

How easy is it to do things at Betterment?

Opening a Betterment Roth IRA account

You can set up a Betterment Roth IRA by opening a Roth IRA directly and making deposits towards it or by rolling over or transferring a 401(k) account with a former employer or an IRA account held at another institution.

During the signup process, you’ll be asked to provide personal information, such as age, address, social security number, financial information like income, other financial accounts you have, and retirement goal information. All of this is standard required information for setting up investment accounts. The information is used for regulatory reporting and for investment qualifications.

Converting a Traditional IRA or SEP IRA to a Roth IRA

You can convert a Traditional IRA to a Roth IRA on Betterment’s platform. The platform lets you convert a Betterment Traditional IRA to a Betterment Roth IRA. This means that if you don’t have a Betterment account and want to convert a Traditional IRA with another provider, you’ll have to first create a Betterment account, roll over the Traditional IRA to a Betterment Traditional IRA, and then convert the Betterment Traditional IRA into a Roth IRA. This last step can be done online on your own. Converting a SEP IRA to a Roth IRA is a little more involved. You’ll have to reach out to Betterment staff first to get your SEP IRA rolled over into a Betterment Traditional IRA. From there, you can do the rest online. There may be tax implications for conversions. Do consult a tax advisor if you have questions.

Withdrawing or distributing from a Betterment Roth IRA

You can initiate a Roth IRA distribution directly on the Betterment site. Withdrawals take about 4-5 business days to process. Funds will automatically be sold and sent to your linked bank account. There is no Betterment transaction fee for withdrawals. There may be tax implications for withdrawals, e.g. withdrawing from your Roth IRA early has penalty implications. Betterment offers an estimate of taxes you may owe before you make a withdrawal. Do consult a tax advisor if you have questions.

Betterment doesn’t support wire transfers to bank accounts or issue checks made out to you personally for withdrawals. Also, you must wait 60 days to withdraw from a deposit that was made through an IRA Rollover.

How is your money protected at Betterment?

Asset protection

If Betterment must liquidate their assets, your Roth IRA investments are insured by the Securities Investor Protection Corporation (SIPC). Each “separate capacity” account is protected up to $500,000 with a limit of $250,000 for uninvested cash. For more details on what’s a “separate capacity” account, visit the SIPC site. The SIPC is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000. SIPC is funded by all of its member brokers/dealers. In some cases, it also protects against unauthorized trading or theft in the account. Market losses and promises of investment performance are not covered.

Other protections

Betterment is registered with the Securities and Exchange Commission (SEC), an independent agency of the United States federal government that enforces and proposes federal securities laws and rules and regulates the securities industry. It’s also a member of the Financial Industry Regulatory Authority (FINRA), an independent non-governmental organization that writes and enforces rules that control registered brokers and broker-dealer firms in the United States.

Some kinks

In 2016 after the Brexit vote, Betterment suspended trading for 2.5 hours without notifying its customers, raising concerns about whether it acted in its clients’ best interest. See details here.

In 2018, Betterment was fined by FINRA for alleged violations that took place between 2012 and 2015. See details here.