Many people prefer to take a passive approach towards saving for retirement in their IRAs, while others want more choices and control over their investments. Whatever category you fit into, you may have considered a robo-advisor and want to learn more about them. In this article, we will compare 2 of the most prevalent robo-advisors with IRA investment account support- Acorns and Betterment.
In this post, we will only be comparing the IRA accounts within Acorns and Betterment. Take a look at this Betterment vs Acorns article that compares all the account types they each offer.
We will give a deep look at both the Acorns and the Betterment IRA accounts and compare the following features of each:
- Fees
- Minimum balance
- Use-ability
- Available funds/stocks
- Tax-Loss Harvesting
- Dividend reinvest
- And more!
To learn everything there is to know about Acorns and Betterment’s IRA accounts and which one would be best for you, read this entire guide.
Acorns IRA Account – Acorns Later
Acorns claimed to fame is their unique investment strategy- investing your “spare” change through automatic roundups. Once you link your debit or credit card to Acorns, every purchase you make will be rounded to the nearest dollar.
Spent $2.37 on some ice cream? Boom! $0.63 goes straight to Acorns. Saving pennies a day could compound quicker than you think!
It is a great way to invest extra money, but it lacks a focus that some serious investors strive for. Check out this great Acorns review article for a detailed look at everything the app offers.
Within Acorns, you can choose between a standard brokerage account or an IRA, called “Acorns Later”. Besides automatic round-ups, you can schedule automatic deposits of larger chunks of money.
Acorns Spend has the following IRA options available to users:
- Roth IRA
- Traditional IRA
- SEP IRA
When you are signing up for Acorns Spend, the app will help you determine which type of IRA is right for you.
Acorns’ IRA has a low flat fee of $3 per month and includes a free “Acorns Spend” checking account. The checking account is FDIC insured up to $250k and provides access to over 50k ATMs with no fees.
The Acorns Later IRA investment vehicle is very easy to use- you can set it and forget it if you so choose to. Or you can take a more hands-on approach and invest more when you want to with “one-time deposits”.
Acorns Later IRA has 5 different types of investment you can choose from:
- Aggressive – 100% stocks: 55% large company stock, 10% medium company stock, 5% small company stock, 30% international stock
- Moderately Aggressive – 80/20 stocks/bonds: 47% large company stock, 6% medium company stock, 3% small company stock, 24% international stock, 6% short term USD bonds, 14% US aggregate bond
- Moderate – 60/40 stocks/bonds: 35% large company stock, 5% medium company stock, 2% small company stock, 18% international stock, 12% short term USD bonds, 28% US aggregate bond
- Moderately Conservative – 40/60 stocks/bonds: 24% large company stock, 4% medium company stock, 12% international stock, 18% short term USD bonds, 42% US aggregate bonds
- Conservative – 100% bonds: 20% ultrashort term government bonds, 40% ultrashort term corporation bonds, 40% short term government bonds
Besides the above default portfolios, you cannot modify and tweak your investment plan. For example, if you want to invest 100% of your money in VTI or VOO you cannot do that. You have to use one of the 5 standard portfolio allocations.
Dividend reinvestment is easy with Acorns Later in their IRA. It is streamlined and does it automatically without you having to lift a finger. If for some reason you do not want to reinvest your dividends, there is no option to stop dividend reinvestment in Acorns Later.
Lastly, there is no tax-loss harvesting solution built into the Acorns Later IRA investment product. This means you cannot minimize your capital gains tax and reduce your tax bill.
Betterment IRA Account
Betterment is the original robo-advisor, revealing its face to the world at the start of the 2010s. They are a simple and easy to use, low-cost investment app. There are many good reasons to invest your IRA with Betterment. Similar to Acorns, they carry multiple account types:
- Retire- the Betterment IRA, traditional, SEP, Roth, and Roth conversion options
- 401(k)s and rollover IRA are also available in the Retire account
- Invest- the Betterment brokerage account
- Save– the Betterment high-yield savings account
- Spend- the Betterment checking account
Pop over to this full Betterment review if you would like to weigh the pros and cons of all Betterment accounts, as we are only reviewing the IRA account here. When you are setting up your Betterment IRA initially, they will help determine what type of IRA account to open.
Betterment has low fees- no monthly service fee, only a small management fee of 0.25% per year. This is amongst the lowest fees on the market and equates to only $2.50 per year per $1,000 invested!
Within the Betterment app, you invest on a schedule, contribute $100 a week, a month, or a day. Betterment has many ETFs that IRA portfolios will be invested in.
Instead of investing and picking the ETFs yourself, however, you select your stock/bond allocation. This is limited if you prefer to pick and choose specific investments. Here are some of the ETFs Betterment offers that can be used in your portfolio allocation:
- Emerging Market
- Stocks: SPEM & VWO
- Bonds: PCY & EMB
- US
- High-Quality Bonds: AGG
- Short-Term Bonds: JPST
- Small-Cap Value Stocks: SLYV & VBR
- Mid-Cap Value Stocks: VOE & IJJ
- Large-Cap Value Stocks: SPYV & VTV
- Total Stock Market: ITOT & VTI
- International
- Developed Bonds: BNDX
- Developed Stocks: SCHF & VEA
- Other
- Inflation-Protected Bonds: VTIP
- Short-Term Treasuries: SHV
Betterment proforms automatic rebalancing for your IRA. For example, if your target is 60% stocks and 40% bonds and it starts to drift away from this because of different growth rates, Betterment will sell/buy more of one investment class to keep it as close to 60/40 as possible.
Betterment also offers a great feature of automatic tax-loss harvesting. This helps reduce the tax bill on your investments, setting you up nicely with more cash for your investments.
Lastly, Betterment provides access to human advisors if you would like to work with a person. However, it costs an additional fee of about $200-$300 per session. If you are just getting started with investing, a human-advisor might be able to help to get you started.
Conclusion: Acorns Vs Betterment- The Battle of the IRAs
Choosing Acorns or Betterment’s IRA depends on the “style” of investing you prefer. If you prefer a more passive investing approach with minimal work, where you contribute small automatic round-ups, Acorns might be your jam. If you prefer a more direct approach to your IRA investing, but still don’t have to pick specific investments yourself, Betterment would be a match for you.
Here is a recap of what each has to offer:
- Acorns IRA (Acorns Later)
- Automatic round-ups, scheduled investments, $3/month fee, no tax-loss harvesting, must choose 1 of 5 portfolio types, traditional IRA, SEP IRA, and Roth IRA options are available.
- Betterment IRA (Betterment Retire)
- Scheduled investments, 0.25% per year fee, automatic tax-loss harvesting, must choose stock/bond allocation, traditional IRA, SEP IRA, rollover IRA, Roth IRA, and Roth conversion accounts are available.
Whether you choose Acorns or Betterment for your IRA to build your wealth, you will be setting yourself up nicely for retirement!
