E-Trade Roth IRA Fund Options
E-Trade offers online trading and discount brokerage services to retail investors. The company is owned by Morgan Stanley (MS), the financial services company. Although E-Trade does not offer its own family of funds, it does offer a variety of funds from other companies. E-Trade was founded in the early 1980s and purchased by Morgan Stanley in an all-stock deal in October 2020. As a discount broker, E-Trade offers free commissions for online US-listed stocks and exchange-traded funds (ETFs).
Investors in the United States have access to several tax-efficient savings plans, including 401(k), Individual Retirement Accounts (IRAs), and Roth IRAs. The main difference between a Roth IRA and a traditional IRA is that the former is funded with after-tax dollars. This means that contributions to Roth IRAs are not tax deductible, where they are with traditional IRAs. But unlike a traditional IRA where funds withdrawn are taxed, a Roth IRA allows investors to withdraw funds tax-free.
Key points to remember
- E-Trade was founded in the early 1980s and offers thousands of mutual funds and ETFs from parent Morgan Stanley and fund families from other companies.
- When setting up a retirement account, a broad stock fund and a broad bond fund are a good base, either as a comprehensive base to invest in or to build on to more complex investments.
- Roth IRAs allow you to avoid paying taxes on investment returns by investing the after-tax income now.
- BKLC and BKAG can serve as good starting points when researching Roth IRA investments from E-Trade.
Below, we take a closer look at a broad-based equity fund and a broad-based bond fund available to e-commerce investors. As mentioned, E-Trade is not a fund provider with its own family of funds available. For this reason, we have selected the cheapest diversified funds, as index funds offer broadly similar products if they perform well and track the same or similar indices. In these cases, cost is a major determining factor. All figures below are as of February 28, 2022, unless otherwise stated.
- Expense ratio: 0.00%
- Assets under management: $516 million
- Total return over 1 year: 14.7% (as of February 25, 2022)
- 12-month yield: 1.20% (as of March 2, 2022)
- Creation date: April 7, 2020
BKLC tracks the Morningstar US Large Cap Index, an index comprised of large cap stocks listed in the United States. The main portfolio managers of the passive ETF are David France, Todd Frysinger, Vlasta Sheremeta, Michael Stoll and Marlene Walker Smith, who have managed the fund since October 2020.
BKLC has approximately 229 holdings. Nearly 100% of them are ultra-large-cap companies with market capitalizations of $25 billion or more, and all of them are based in the United States. Information technology (IT) companies make up just under a third of the portfolio, followed by healthcare and consumer discretionary companies.
Diversified equity funds carry risks, but also a fairly high growth potential. A broad-based equity fund like BKLC can generally be used as the foundation of most investment portfolios. However, investors with a very low tolerance for risk or nearing retirement may instead seek a more income-oriented portfolio.
- Expense ratio: 0.00%
- Assets under management: $259.7 million
- Total return over 1 year: -2.6% (as of February 25, 2022)
- 12-month yield: 1.61% (as of March 2, 2022)
- Creation date: April 22, 2020
BKAG seeks to track the performance of the Bloomberg Barclays US Aggregate Total Return Index, which provides broad exposure to the broad US bond market. The passive ETF’s primary portfolio managers are Gregory Lee and Nancy Rogers, who have managed the fund since its inception.
The fund has approximately 2,302 holdings with a weighted average maturity of 8.6 years as of January 31, 2022. Broken down by sector as defined by BNY Mellon, approximately 39.5% of the portfolio is Treasury, followed by 27.6% agency fixed rate, with the remaining third being in banking, consumer staples, technology, communications and other fields. All bonds in the ETF are investment grade, including: 71.8% rated AAA and the second largest category, BBB, representing 15.2% of the portfolio.
A broad-based bond fund is generally a much safer, but lower-returning, type of investment compared to an equity fund. These funds have a lower risk of losing money, although the risk is not zero. They tend to rise more slowly than other funds, but have lower fluctuations. Bonds are useful both for more risk-averse investors and for diversifying a portfolio to include uncorrelated asset classes. Investors with a higher risk tolerance or with a long time to retirement may wish to opt for a smaller bond allocation.
Does E-Trade have fees for IRA accounts?
E-Trade does not charge commissions on stock or ETF transactions for its Roth IRA accounts. Bond trades cost $1 per bond for online trades in the secondary market. Additionally, there is no required minimum distribution (RMD) for investors in a basic Roth IRA.
Does E-Trade offer both Roth IRAs and traditional IRAs?
E-Trade offers a variety of IRA options. In addition to Roth and traditional IRAs, the company offers rollover IRAs, juvenile IRAs, beneficiary IRAs, and other options.
Can you withdraw money from an E-Trade Roth IRA?
Yes, you can withdraw money from an E-Trade Roth IRA at any time. However, withdrawals generally have a 3-5 day processing time and may be subject to early withdrawal fees.
A Roth IRA offers investors certain tax benefits. Roth IRAs are unique in that they are funded with after-tax dollars and are not taxed when the funds are withdrawn at a later date. In short, funds invested in a Roth IRA can grow tax-free. After opening a Roth IRA, the types of investments chosen will depend on the individual investor’s risk tolerance and the amount of time and energy they have to research various investments.
For investors in this category, one option is to opt for a few large diversified funds, allocating part of their money to a broad-based equity fund and another part to a broad-based bond fund. These large diversified funds can also create a solid foundation for many investors who have the extra time and energy to evaluate other, sometimes riskier, investment options involving investments in individual companies or specific market niches.