Charles Schwab Roth IRA review

About Charles Schwab

The Charles Schwab Corporation is a brokerage firm and bank. Charles Schwab & Co., Inc. (Charles Schwab) is its brokerage subsidiary and one of the world’s largest investment companies. It offers various investment products and services, including investment accounts, such as taxable brokerage accounts, 529 college savings plans, and retirement accounts (e.g. Roth IRAs), funds such as mutual funds and ETFs, and financial advisory services.

Charles Schwab has been around for 47 years and holds 12 million active brokerage accounts with a total of $3.7 trillion in customer assets as of June 2019.

What are the benefits of Charles Schwab’s Roth IRAs?

No management fees

Charles Schwab does not charge a fee or require a minimum investment account to open and invest in a Roth IRA. This free service is for the self-directed service. If you’re looking for more guidance and hands-on support, Charles Schwab offers a robo-advisory service called Schwab Intelligent Portfolios®, which provides pre-selected portfolios and automatic portfolio rebalancing. While this service does not have a management fee, a minimum investment of $5,000 is required.

Offline access

Charles Schwab has a 24/7 customer support line and over 300 branch locations that its clients and prospective clients could access. You could speak to someone about the company’s investment products and what might fit your needs and goals or get help with different transactions, such as transferring your assets to Charles Schwab or how to use the Charles Schwab site. Its branch locations also hold educational workshops on different investing topics.

Customize your own portfolios with a wide range of investments

When you open a Roth IRA with Charles Schwab, you may decide what you want to invest in—whether that’s in stocks, bonds, ETFs, mutual funds, CDs, options, and more. As of June 2019, there are over 15,000 funds Charles Schwab clients could choose from.

Research and planning tools to guide you

Charles Schwab provides various tools to help guide you through your retirement planning process. It has a retirement savings calculator that helps you understand if you are on track to have enough for retirement by providing an estimate of how much you’ll need to save for retirement and could expect to spend once you retire. It also has a Roth IRA conversion calculator you could use to see whether converting to a Roth IRA makes sense for you.

When researching what to invest in, Charles Schwab provides fund screeners and prescreened lists to help with choosing mutual funds and ETFs. It also offers a tool called the Personalized Portfolio Builder, which helps you build a portfolio based on your financial goals, risk tolerance, and time horizon.

Who is Charles Schwab good for?

• Investors that don’t want to pay a management fee or one based on AUM
• Self-directed, hands-on investors that want to pick and manage their own investments
• Investors that want to have access to a wide range of investments
• Investors that the option of phone support that’s always open and/or access to branches

Who is Charles Schwab not for?

• Investors that don’t want to choose investments on their own
• Hands-off investors looking for active management of their accounts. (If you have a minimum investment of $5,000, you could consider their robo-advisory service called Schwab Intelligent Portfolios®.)

Drilling into Charles Schwab’s fees

Account fees

Charles Schwab offers Roth IRAs for free. Its free service doesn’t come with any advisory support. If you are interested in advisory services, consider Schwab Intelligent Portfolios® service that offers an automated investing service with no advisory fee, but there is a $5,000 investment minimum. If you want more guidance, consider the Schwab Intelligent Portfolios Premium™ service, which combines automated investing with professional guidance. There is a $25,000 minimum investment requirement, a one-time planning fee of $300, and a $30 a month advisory fee.

Fund fees

If you decide to invest in ETFs and/or mutual funds, they generally come with fund fees (aka expense ratios). These fees are for managing a fund. These management fees vary depending on the fund and is a percentage of your investments. For example, for a $1,000 investment, a 0.15% fund fee is $1.50. The fees are automatically deducted by the fund.

Trading fees

Online stock, mutual fund, and ETF trades at Charles Schwab are free. Online option trades are $0.65 per contract. Trades over the phone are $5, and if placed by a broker/financial consultant rather than the client are $25.

Account transfer and withdrawal fees

Charles Schwab does not charge a fee for withdrawals, unless the method is a wire transfer. Outgoing wire transfers are $25. If you want to transfer your Roth IRA to another company, there’ll be a $50 fee for a full (all of the assets) transfer or a $25 fee for a partial transfer.

What goes into a portfolio?

You decide what goes into your Schwab portfolio. You may choose from individual stocks, bonds, mutual funds, ETFs, CDs, options, and more. There are over 15,000 funds across different asset classes and fund companies that Schwab clients could choose from.

If you’re unsure what funds to invest in, Schwab offers several tools and products to help investors select mutual funds. Schwab has a list called Schwab’s Mutual Fund OneSource Select List®, which is a list updated quarterly that includes rigorously screened actively managed funds with no transaction fees and organized by asset class.

For your Roth IRA, if you don't want to research which funds might fit your retirement needs and do the ongoing work necessary to maintain your portfolio, you could consider the target-date funds that Schwab provides. These funds are designed around your anticipated year of retirement and are managed by Vanguard fund managers. Their asset allocations are automatically adjusted over time as you get closer to your retirement age, and your portfolio is automatically rebalanced to ensure that the portfolio make-up doesn’t shift too much from its original design as the market changes.

Schwab offers two types of target date funds—Schwab Target Index Funds and Schwab Target Funds—both with no investment minimums. The Schwab Target Index Funds have low fund fees of 0.08% and are made up of mostly of index-based ETFs from Schwab and the Schwab Target Funds are made up of funds from Schwab and third parties with expense ratios ranging from 0.33% to 0.75%, depending on how far out you’ll be retiring. The father out you plan to retire, the most expensive, as there would be more resources put in managing the funds. Any retirement data beyond 2058 have an expense ratio of 0.75%.

How easy is it to do things at Charles Schwab?

Opening a Roth IRA account

You could open a Roth IRA online, by phone, or in one of over 300 branches. When you open your account online, you’ll be asked to provide personal information, such as mailing address, social security number, employer’s name, and more. All of this is standard required information for setting up investment accounts. The information is used for regulatory reporting and for investment qualifications. After opening your Roth IRA, you may invest by making deposits directly to the account, transferring a Roth IRA from another firm, or rolling over a 401(k) with a previous employer. You have to first open a Charles Schwab Roth IRA before you may do a transfer or rollover.

Buying and selling investments

You could trade individual stocks, mutual funds, ETFs, bonds, and CDs online by logging into your Charles Schwab account. You may trade stocks and ETFs from 9:30 a.m. to 4 p.m. ET or during an extended hour session. Charles Schwab offers two extended hour sessions—one before the market opens between 8:05 p.m. the previous trading day and 9:25 a.m. ET, which will be eligible for execution between 7:00 a.m. and 9:25 a.m. ET, and one after the market closes between 4:05 p.m. and 8:00 p.m. ET.

Mutual funds are executed once a day after the market closes at 4 p.m. ET. If you buy or sell shares of a mutual fund, your trade will be executed at the next available share price for the fund, or net asset value (NAV), which is calculated after the market closes and typically posted by 6 p.m. ET. This is the standard process for all mutual funds.

Withdrawing or distributing from a Schwab Roth IRA

Withdrawing from a Roth IRA is called a distribution. Charles Schwab offers several withdrawal methods, including requesting for a check or electronic funds transfer online, going into a branch, calling the support line, or submitting a form. 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.

Converting a Traditional IRA or SEP IRA to a Roth IRA

To convert a non-Roth IRA (e.g. Traditional IRA or SEP IRA) held at another company to a Schwab Roth IRA, you could take one of two options. The first is to transfer your non-Roth IRA or your 401(k) to an IRA at Schwab. Then, once the transfer is complete, you may initiate the conversion to a Roth IRA. The other option is to convert your non-Roth IRA or your 401(k) to a Roth IRA while it is still being held at the original institution. Once the conversion is complete, you may start a transfer to Schwab. Schwab has a questionnaire to help determine whether converting is right for you. Schwab also has a Roth IRA conversion calculator that helps compare the estimated future value of keeping your Traditional IRA vs. converting it to a Roth and provides an estimate of the taxes you'd owe if you convert. Note: there may be tax implications for converting your IRA. Do consult a tax advisor if you have questions.

How is your Roth IRA protected at Charles Schwab?

Asset protection

If Charles Schwab 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

Charles Schwab 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.

Kinks

In July 2018, Charles Schwab agreed to pay $2.8 million to settle SEC allegations that the firm “failed to file Suspicious Activity Reports (SARs) on suspicious transactions of independent investment advisers (ones that weren’t directly hired by Schwab, but advised Schwab clients) who were suspected of engaging in activities that didn’t put client’s interest first or conflicted with the interest of clients. More details about the allegations are available here.