What are the best index funds for Roth IRA?
Great question! Let’s start with the basics.
This post is all about the best index funds for Roth IRA.
What is a Roth IRA account?
A Roth IRA is a tax advantaged type of retirement account, typically you open for yourself, where you contribute post-tax money for tax-free gains and tax-free withdrawals.
The pros:
-
Tax-free gains
-
Tax-free withdrawals
-
Fully in your control
Tax advantaged accounts come with some stipulations.
So…what’s the catch?
Maximum contribution limit of $6,000 per year
There’s an annual contribution limit of $6,000 per year. Fortunately, you have until the tax day of the following year to contribute for the previous year’s limit.
Example: You’d have until April 18th, 2022 to contribute towards 2021’s limit.
Early withdrawal penalties
While there are exceptions, a Roth IRA is still a retirement account intended to be used as such. If you end up withdrawing before you retire, there’s a possibility you’ll incur penalties.
Eligibility depends on your income.
Not everyone is eligible to contribute to a Roth IRA. Or perhaps people are eligible up to a point.
In 2022, if you file as single and your income is greater than $129,000, the amount you can contribute to a Roth IRA starts to decrease until you reach an income of $144,000. At that point, you’re no longer eligible to contribute to a Roth IRA.
Now, since this is a retirement account, some people may want some control over their investments, but not too much control. That’s why investing in Index Funds may be the best option for those who want to forego the management fees, but still want diversification.
There are many different Index Funds you can choose from. Today, the focus will be on Fidelity’s Index Funds since they offer zero percent expense ratio funds!
The Best Index Funds for Roth IRA Examples:
FZROX
Fidelity Zero Total Market Fund
- Total Market Index
- Large Blend
- Zero Expense Ratio (No Transaction Fee)
FNILX
Fidelity Zero Large Cap Index Fund
- Large Cap Index
- Large Blend
- Zero Expense Ratio (No Transaction Fee)
FZILX
Fidelity Zero International Index Fund
- International Index
- Foreign Large Blend
- Zero Expense Ratio (No Transaction Fee)
FZIPX
Fidelity ZERO Extended Market Index Fund
- Extended Market Index
- Mid-Cap Blend
- Zero Expense Ratio (No Transaction Fee)
FSKAX
Fidelity Total Market Index Fund
- Total Market Index
- Large Blend
- 0.015% Expense Ratio
- $0.15 per $1000
FXAIX
Fidelity 500 Index Fund
- Large Blend
- 0.015% Expense Ratio
- $0.15 per $1000
FSMAX
Fidelity Extended Market Index Fund
- Mid-Cap Growth
- 0.035% Expense Ratio
- $0.35 per $1000
FZILX
Fidelity Zero International Index Fund
- International Index
- Foreign Large Blend
- Zero Expense Ratio (No Transaction Fee)
FZIPX
Fidelity ZERO Extended Market Index Fund
- Extended Market Index
- Mid-Cap Blend
- Zero Expense Ratio (No Transaction Fee)
FPADX
Fidelity Emerging Markets Index Fund
- Diversified Emerging Markets
- 0.075% Expense Ratio
- $0.75 per $1000
FSGGX
Fidelity Global ex. U.S. Index Fund
- Foreign Large Blend
- 0.055% Expense Ratio
- $0.55 per $1000
To summarize, the following index funds were mentioned above.
Fidelity’s Zero Funds:
- FZROX – Fidelity ZERO Total Market Fund
- FNILX – Fidelity ZERO Large Cap Index Fund
- FZILX – Fidelity ZERO International Index Fund
- FZIPX – Fidelity ZERO Extended Market Index Fund
U.S. Fidelity’s Funds:
- FSKAX – Fidelity Total Market Index Fund
- FXAIX – Fidelity 500 Index Fund
- FSMAX – Fidelity Extended Market Index Fund
International:
- FPADX – Fidelity Emerging Markets Index Fund
- FSGGX – Fidelity Global ex. U.S. Index Fund
Real Estate:
- FSRNX – Fidelity Real Estate Index Fund
