M1 Finance Roth IRA Review: How To Save for Retirement with M1 Finance

An M1 Finance IRA can help you save for retirement while letting you control which stocks and ETFs you invest in. They don’t charge commissions or management fees, either. But is this robo-advisor IRA worth it?

Anna Yen   Updated January 11th, 2022

Some of our posts may contain links from our affiliate partners. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

Summary

  • M1 Finance is a brokerage platform that lets you open a retirement account
  • You can invest in portfolios of stocks and ETFs, building your own or using expert protfolios
  • Account types: traditional, Roth, SEP IRAs; IRA and 401(k) rollovers
  • Minimum investment: $500
  • Trading commissions: none
  • Management fee: none
  • Investments: over 6,200 stocks and ETFs, including fractional shares; over 80 expert portfolios, including target date portfolios

Pros

  • Low minimum investment
  • No asset management fees or trading costs
  • Over 80 expert portfolios, including target date funds and socially responsible portfolios
  • Fractional shares
  • Dynamic rebalancing
  • Dividend reinvestment
  • One-stop shop with brokerage, banking, borrow options

Cons

  • No mutual funds or bonds
  • No human financial advisors
  • 1-2 daily trading windows
  • Fees to close your retirement account

What is M1 Finance?

M1 Finance is an investment platform that helps you secure your future with self-directed investing. They offer three main services:

  • M1 Invest: commission-free brokerage and retirement accounts
  • M1 Borrow: margin loans with a 2.0%-3.5% interest
  • M1 Spend: high-yield cash management accounts with up to 1% APY and a credit card that pays you back up to 10% in stock

M1 Invest, which includes IRAs, is known for its “pie” portfolio model. You can create a custom portfolio from scratch, like building your own pie from over 6,000 stocks and ETFs. Or you can choose to model your “pie” after one of over 80 expert portfolios M1 Finance has put together. All this comes with no management or brokerage fees. (Though the service isn’t 100% fee-free, as we’ll see below.)

🔔 Read the full review of M1 Finance and its pie portfolio model.

What is an IRA and should you open one?

IRAs, or individual retirement accounts, offer tax benefits to people who want to save for retirement.

There are two main types of IRAs: traditional and Roth. Self-employed individuals can also explore SEP IRAs. M1 Finance supports Traditional, Roth, and SEP IRAs for the self-employed.

Traditional IRAs 

With a traditional IRA, you contribute money first and pay taxes later.

  • You can deduct your contributions on your annual tax return as your money grows tax-free
  • You pay income taxes when you withdraw the money in retirement, starting at age 59 ½
  • If you want to withdraw the money before age 59 ½, you will face a 10% penalty
  • Traditional IRAs are best for people who believe their income will go down in retirement, and they’ll pay less in tax when they withdraw the money

Roth IRAs 

When you contribute to a Roth IRA, you pay taxes upfront.

  • The account grows tax-free, and you don’t pay income taxes when you withdraw the money in retirement
  • Contributions to Roth IRAs aren’t tax-deductible
  • You can withdraw the principal without penalties before age 59 ½
  • A Roth IRA works best if you believe your income will go up in retirement

IRA contribution limits

Both Roth and traditional IRAs have contribution limits. As of 2022, you can contribute up to $6,000 per year. Those over 50 can contribute $1,000 more in catch-up contributions for a total of $7,000.

You can contribute to a traditional IRA no matter what your income is. However, Roth IRAs have income caps.

In 2022, if you make more than $144,000 as a single filer or $214,000 for joint filers, you are not eligible for a Roth IRA. However, you may be able to bypass these limits through a backdoor Roth IRA, which involves converting a traditional to a Roth IRA. Consult a tax professional if you are considering this option.

M1 Finance IRAs: How they work

If you are looking to transfer your IRA or roll over a 401(k), M1 Finance could be a solid option. There are no account management fees or commissions, and you can build portfolios and have them rebalanced to meet your goals.

What IRA accounts can I open? 

M1 supports traditional, Roth, and SEP IRAs for self-employed individuals. In addition, you can transfer an IRA or roll over a 401(k) from an employer.

M1 Finance IRA minimums

You must make an initial deposit of $500 into your IRA when you open an account. After that, you can deposit as much or little as you’d like on your schedule.

M1 Finance IRA fees

M1 Finance doesn’t charge management fees or commissions on its IRAs. But you will have to pay $100 for outgoing account transfers or to close your IRA altogether.

How to open an IRA with M1 Finance

To open an IRA, you need to open an M1 Finance brokerage account first. After that, you can add a retirement account with a click. Once you’ve funded your account with at least $500, you will have the option to set up automatic deposits.

Once you have an M1 Finance IRA, you can also transfer another IRA to M1 Finance in under 5 minutes or roll over your 401(k). To roll over the 401(k), you will need to contact your current 401(k) administrator and ask them to start a rollover.

How to build a portfolio for your M1 Finance IRA

M1 Finance uses an approach called “pie investing” to help you build your investment portfolios. Think of a pie as a way to organize stocks and funds in your portfolio. Each pie is made of “slices,” or your holdings of individual stocks and/or ETFs. Here is what a sample pie looks like:

You can invest in pies in two ways. The first is to choose from around 80 “Expert Pies” that M1 Finance provides, which include two socially responsible investing pies. (We’ve created our own responsible investing pie, too.) The second is to build your own pies.

In addition, M1 Finance has created target date portfolios that help you save for retirement. You need to tell them when you plan to retire, e.g., 2050, and they will create a portfolio of stocks and bonds to match your expected retirement date. As you get closer to retirement, the portfolio will get more conservative, holding more bonds.

🔔 Are you interested in responsible investing? Check out our socially responsible retirement guide.

M1 Finance IRA criticisms

While M1 Finance is getting a lot of buzz, one common complaint is the $100 fee for closing your IRA or transferring funds to an outside account.

A few investors also dislike the limited trading opportunities (1-2 times per day, depending on whether you are an M1 Plus member). However, M1 Finance explicitly targets long-term investors. So if you are investing for retirement, you shouldn’t be trading multiple times a day anyway.

💰 Should You Open a Retirement Account With M1 Finance?

  • M1 Finance is a solid choice for your IRA. With a variety of do-it-yourself and expert portfolios, including socially responsible options, M1 is easy to use for beginners and experienced investors alike
  • And there are no commissions, management fees or hidden fees. After you’ve designed your portfolio, all you have to do is let your money work

🔔 Want to explore investing your IRA in alternative assets, like crypto or startups? Check out our review of Rocket Dollar.

NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.

Make an impact with your money. Sign up for our newsletter

Read more