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Written by Logan Robison on December 13, 2021
Category: 
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M1 Finance Roth IRA Review 2022: Is This A Good Roth IRA?

Long term investors love the Roth IRA retirement account. This is a type of investment account that allows you to grow your wealth on a tax-sheltered basis. Each year, there is a set amount of money that you can contribute, and there are income limits for Roth IRA eligibility.

In 2022, that limit is $6,000. If you are over 50, that limit is $7,000!

Recently, a number of free investing apps have popped up offering free Roth IRA accounts. M1 Finance is no exception, offering a Roth IRA with a minimum opening balance of just $500. Other apps like Webull offer free retirement accounts too.

Many people are skeptical of the Roth IRA being offered by the relatively new investing platform known as M1 Finance. While we call it a newer platform, M1 has already established themselves as a dominant player with over $2 billion in assets on the platform.

In this article, we provide a complete deep dive on M1's Roth IRA offering.

  • Minimum Balance
  • Fees
  • Tax Minimization
  • Trading Window
  • Prebuilt Portfolios
  • Automation Tools
  • Dividend Reinvestment
4.1

Summary

Maximizing contributions to a Roth IRA is one of the smartest decisions you can make at any age. Investing in a Roth IRA through M1 Finance ensures that your money stays where it belongs, invested! No need to pay fees to brokerages, or have money sitting on the sidelines idle as you struggle to purchase whole shares.

You are not paying unnecessary fees cutting into your returns. The M1 Finance Roth IRA is just as good as any Roth IRA being offered elsewhere. In fact, for a number of reasons mentioned in this review, I think it is far superior.

Pros

  • Low $500 minimum
  • No fees or trading commissions
  • Free expert built portfolios including TDF's
  • Dividend reinvestment and automated rebalancing

Cons

  • Only 1 to 2 trading windows per day
  • No tax loss harvesting

What Is M1 Finance?

If you haven't heard of them before, you should probably jump over to our M1 Finance review to learn more about them. However, we will cover some of the basics here.

M1 Finance was launched in 2016, and is an online robo advisor and brokerage hybrid for everyday people who want to invest in stocks or exchange-traded funds (ETFs).

M1 Finance combines features of a traditional brokerage account with a modern robo advisor.

  1. First, you select your investments and your allocations.
  2. Then, you automate the entire portfolio!

M1 Finance Free Training

We put together a free 30 minute video training that walks you through the entire process, step by step. This training will help you get up and running in no time at all.

GET THE GUIDE

M1 Finance has become the go-to app for the modern-day passive investor. They are also very popular among dividend investors, who love the portfolio level DRIP and automated portfolio rebalancing feature. The auto-invest feature also makes it a perfect platform for dollar cost averaging.

When your cash balance exceeds $10, that money is automatically invested across your entire portfolio!

There are also a few other features offered...

M1 Borrow

Through M1 Borrow, you can get a low-interest loan borrowing against the securities in your M1 Invest account. This could be used for something like a home repair or even medical bills. The securities in your account serve as collateral.

The interest rates through M1 Borrow are much lower than a traditional loan since your assets are backing it. If you do not repay the loan, M1 Finance gets to keep your assets and sell them to repay it. The interest rate starts at 5.0%, though M1 Plus members get 3.5%.

You can also use M1 Borrow to invest on margin and magnify your portfolio returns and losses. In general, this is used by more advanced investors because it involves an increased level of risk.

M1 Spend

Now, with the addition of M1 Spend, you can have a checking account with them allowing you to earn interest while having your money ready on the sidelines to invest. For those who are interested, they offer a premium service called M1 Plus where you can get a cashback debit card.

Say goodbye to the three-day transfer when moving funds to your brokerage account! With M1 Spend, you can funnel money into M1 Invest that same day.

M1 Finance focuses on low-cost passive investing with additional features such as automatic rebalancing of your portfolio and tax minimization strategies.

The only fees you pay are the fees associated with any ETFs you invest in. You can minimize these fees by purchasing low fee index funds from companies like Vanguard or BlackRock. M1 Finance is a completely free investing platform!

M1 Credit Card

In addition to a debit card, M1 also offers a credit card, called the Owner's Rewards Credit Card. All M1 members can apply for this card and Plus members get the annual fee waived! Without a Plus membership, this card has an annual fee of $95.

This credit card offers members up to 10% cashback! All purchases provide 1.5% cashback. However, if you own stock with the company that you are making a purchase with, then you can qualify for more, up to 10%. There are over 70+ participating companies. Companies such as Walmart, Amazon, and Netflix are all on the list. These companies are split into 3 tiers. The first tier of companies makes 2.5% cashback, the second 5.0%, and the third 10.0%.

Fee-Free Roth IRA

That's right, you read that correctly.

M1 Finance offers completely fee free Roth IRAs with a minimum balance of just $500.

While others might eventually follow suit, M1 Finance is currently one of the only brokerage accounts out there offering completely free retirement accounts. Many of these other brokerages charge fees as well as trading commissions to customers.

M1 Finance does not charge any commission on trades placed on the platform and there are no fees to invest with them.

Instead, they make money in a few different ways:

  1. First, through interest payments on M1 Borrow.
  2. Second, interest earned when lending securities to short sellers.
  3. Third, earning interest on uninvested cash.
  4. Fourth, the annual fee on the M1 Plus debit card.
  5. Fifth, payment for directing order flow.

For more info on this, check out our comprehensive article on how M1 Finance makes money.

This is exactly how other platforms like Robinhood and Webull are making money too. Instead of making money by charging a commission for trades and charging asset management fees, they decided to be creative and make money in other areas. These methods are used by many of the older online brokerages as well and are widely accepted business practices.

Another reason why they are able to offer free accounts is because they keep costs extremely low. Tax forms and statements are sent over email, and there are no brick and mortar M1 Finance locations. They operate with a lean business model.

That being said, you need to be prepared to handle all of your statements electronically. If you are looking for paper statements and tax documents, you will not find this with M1 Finance.

FeatureExplanation
Minimum Investment$500
AssetsStocks, ETFs
Portfolios30+ Expert Pies, Including Target Date Retirement Funds
FeesNo Fees
CommisisonsNo Trading Commissions
Trading Window1 Per Day, 2 With M1 Plus
Dividend ReinvestmentYes
Fractional SharesYes
Contribution Limit$6,000 Or $7,000 50+
Age LimitNone
Income LimitYes, Check With IRS Website
Tax DeductibleNo

How To Open A Roth IRA

As mentioned earlier, the only requirement M1 Finance has is that you have a minimum balance of $500.

Beyond that, the IRS has some limitations regarding who can and can't fund a Roth IRA.

For the 2022 tax year, you can fund a Roth IRA if you make less than $129,000 as a single filer or $204,000 if you are married filing jointly.

If you fall under these requirements, you are good to go!

Here's how to do it:

1. Open an account with M1 Finance.

Start by opening an M1 Finance account here.

When you sign up, you will be guided through a process to build your portfolio or pie.

You may choose to create a custom pie from a variety of ETFs and stocks offered on the M1 Finance platform.

You can also choose from a variety of expert pies that are designed by M1 Finance for a more passive approach. We recommend checking out the TDF's or target date retirement funds. These are a great option for a Roth IRA retirement account.

The fact that you have access to all of these expert portfolios without having to pay a single dollar in fees is a significant differentiator for M1. Most robo-advisors would charge investors a fee for the ability to invest in an expert-designed portfolio, but on M1 this is available for no cost.

Your pie may contain 1 stock/ETF or up to 100.

M1 Finance has a great feature called fractional shares, meaning the share price of each stock or ETF in your portfolio is totally irrelevant. In fact, you can purchase as little as 1/10,000th of a share!

2. Select "Retirement Account" when choosing your account type.

Once your account is open, you will be guided to create your brokerage account.

This is where you will put in your personal information and decide which type of investment account you are going to open up (individual brokerage account, retirement account, etc.). You can have more than one account type with M1.

They will ask you for information such as your name, address, social security number and other personal information. This is because they are required to verify your identity and share your investment activity with the IRS. They may also ask you what your level of investment experience is, as well as whether or not you or family members work for FINRA or own more than 10% of a publicly traded company.

3. Link your bank account to fund the account.

After you have set up your M1 Finance account, you will be able to link a bank account and begin funding your account.

M1 Finance requires a minimum deposit of $100 ($500 for retirement accounts) to begin investing.

Typically, it takes about three business days to link your bank account and fund your account. Major banks can link automatically by inputting your bank credentials. However, if this method does not work, you can verify with the two small deposits in your bank account.

4. Maximize your Roth IRA contribution. (Optional)

If you want to take full advantage of the Roth IRA account you just opened (why wouldn't you?) the next step is to maximize your contribution to this account.

If you are eligible for a Roth IRA in the first place, you can contribute up to $6,000 in 2022 or $7,000 if you are 50 or older.

You can fund this Roth IRA anytime from January 1st to April 15th of the following year, giving you a 15 month window. If you don't have all the cash ready at once, you can fund the Roth IRA throughout the year. The only requirement is a $500 initial deposit.

5. Rollover an old 401k from a previous employer. (Optional)

Another option M1 Finance gives you for funding this account is a 401k rollover.

They have a dedicated rollover concierge team that will help you through the entire process, step by step.

If you have an old 401k from a previous employer, or you are looking to move your current 401k over to M1 Finance, you can accomplish this with a rollover.

Not all 401k's are created equally, so if you have an account that is high in fees, it might be advantageous to move that over to a fee free option like M1 Finance.

You can also rollover a regular taxable brokerage account to a taxable M1 Finance account.

M1 Finance Investments

Before you fund your M1 Finance account, you have to decide what to invest in.

You have a couple of options in front of you for your new Roth IRA:

  1. First of all, you can go the self directed route and invest in individual stocks or ETFs (using the Custom Pie feature).
  2. Or, you could let M1 Finance do the leg work and invest in an expert pie, which includes TDF's.

Let's break each of these options down:

Custom Pies (Stocks/ETFs)

If you go the self directed route, you can build an M1 Finance pie from scratch.

This can include any stocks or ETFs you choose, as long as they trade on the NASDAQ or NYSE (most do).

Gone are the days of boring retirement accounts. If you want to, you can invest in exciting growth stocks like Amazon and Netflix within your Roth IRA! Each stock or ETF becomes a slice in your M1 Finance pie.

Each slice can make up as little as 1% or as much as 100% of your portfolio. That means, you can have up to 100 stocks or ETFs in your custom pie.

Thanks to fractional shares, the share price of each stock and ETF is totally irrelevant.

Expert Pies (Prebuilt Portfolios)

M1 Finance offers expert pies crafted by, you guessed it, industry leading financial experts.

Unlike other investing platforms out there, M1 Finance does not charge any kind of asset management fee for investing in these prebuilt portfolios.

This includes portfolios ranging from basic stock and bond allocations to hedge fund followers based on the same portfolios of the greats like Warren Buffett!

TDFs (Target Date Funds)

M1 Finance offers something called a TDF or target date fund.

This is a fund that changes the asset allocation as you get closer to retirement. To put it simply, you tell M1 Finance what your desired retirement year is (for example, 2055) and they do everything else for you. As you get closer to retirement, the portfolio becomes more conservative.

M1 Finance Roth IRA: The Verdict

To put it simply, M1 Finance has once again changed the game forever.

While others may follow suit with time, they are one of the only brokerages offering free retirement accounts that include the array of features investors love. Dividend investors love this platform because of the portfolio level dividend reinvestment. Retirement investors love the fee free Roth IRA, and the expert pies (including target date funds) are a perfect match for this.

Maximizing contributions to a Roth IRA is one of the smartest decisions you can make at any age. Investing in a Roth IRA through M1 Finance ensures that your money stays where it belongs, invested! No need to pay fees to brokerages, or have money sitting on the sidelines idle as you struggle to purchase whole shares.

You are not paying unnecessary fees cutting into your returns. The M1 Finance Roth IRA is just as good as any Roth IRA being offered elsewhere.

But the most important thing when it comes to retirement investing is that you get started. Whether it is with M1 Finance or one of the many other Roth IRA providers out there, opening an account and putting your money to work is what matters.

Article written by Logan Robison
Logan graduated with a degree in finance from Brigham Young University and currently works in merchandising for a large retailer. In his free time he loves to hike and camp with his wife and son. Logan is also heavily involved in real estate investing and owns properties in Utah and Arkansas.

Read more

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