I think everyone who is eligible to open a Roth IRA should consider it. The long term tax advantages usually make the Roth IRA a great way to invest for your retirement, giving investors the opportunity to invest for long term growth, and not pay any taxes on their qualified withdrawals in retirement age. Opening a Roth IRA is also very easy, all you need to do is fill out a form or two and make a contribution. The most difficult part about opening a Roth IRA is deciding where to open your account, and which investments to purchase. I can’t tell you which stock, bond, or mutual fund to purchase, but I can show you a few of the best Roth IRA companies where you can get started.
Where to Open a Roth IRA
Examine your investment needs. Many financial institutions can act as a custodian for your IRA, and we can break them down into three main categories: banks, mutual fund companies, and brokerage firms. Banks usually only offer CDs, money market accounts and similar investments. Some banks may offer other investment options, but they often have higher commissions and expense ratios than mutual fund companies or brokerage firms. Unless your bank offers a full service brokerage and reasonable costs, you can probably do better with a mutual fund company or a discount brokerage.
Mutual fund companies vs. brokerage firms. For most people, mutual fund companies and the large brokerage firms are the best option because they offer a wide variety of investments with low expense ratios and low commissions. For the more experienced investor, or the day trader at heart, a discount brokerage firm may be a better option.
Best Discount Brokerages for Roth IRAs
If you want to invest in individual stocks, one of your main concerns will be cost per transaction. Discount brokerages such as those listed below offer low cost stock trades to meet most investors’ needs. Each of the following discount brokerages offers unique features that may make them a better option for your situation. Note that all of these brokerages offer IRAs without any associated custodial fees or minimum balances.
TD Ameritrade. TD Ameritrade offers over 35 years of experience, more than 100 local branches, and multiple awards, including 4 ½ out of 5 stars for Long-term Investing from Barron’s and rated “best broker for your IRA” by Kiplinger’s. You can easily link your account to TD Bank and you can have access to flat rate commissions on all trades, independent research as well as access to research from industry leaders like S&P, Morningstar Associates and ResearchTeamTM. You can download their trading platform to your desktop or laptop, use the web browser interface, or their mobile trading platform. To top it off, there are no account minimums or maintenance fees.
- Flat-rate $9.99 commissions on every Internet equity trade.
- Over 100 commission-free ETFs selected by Morningstar Associates.
- Over 100 local branches.
- No minimum initial deposit required to open an IRA.
- No IRA maintenance fees.
- Read our TD Ameritrade Review.
- Trade free for 60 days when you open a new TD Ameritrade account.
Scottrade. Scottrade is one of the most well respected discount brokerage firms and offers a feature that none of the other major discount brokerages offers – local branches. This is a great feature for someone looking for that “personal touch.” Scottrade also features advanced trading tools, low cost commissions, free tax management tools, and much more. Scottrade Roth IRA Account Features:
- Local branches.
- $7 stock trades.
- No custodial fees, no minimum balance for Roth IRAs accounts.
- Read Scottrade Review.
- Open an IRA with Scottrade.
E-Trade. E*Trade has been rated #1 Online Broker for 3 consecutive years by Smart Money Magazine (07-09). In addition to a full service brokerage, E-Trade also offers a full scale bank, including top rated checking and savings accounts. This makes their Roth IRA option very attractive if you prefer to do more of your banking with one financial institution. E-Trade Roth IRA account features:
- Full feature bank.
- $9.99 stock trades (and lower, depending on volume).
- No custodial fees with electronic statements, no minimum balance for Roth IRAs accounts.
- Read E-Trade Review.
- Open an IRA with E-Trade.
*Bonus Offer. Trade Free for 60 Days at E*TRADE Securities LLC. Offer good for new customers who open a new E*Trade account with a minimum deposit of $10,000.
TradeKing. TradeKing has been rated best overall discount broker and best in customer service. They offer $4.95 trades, free trading tools, free access to Maxit Tax Manager, a learning center, and a community where investors can share tips and information. TradeKing also offers a $150 reimbursement when you transfer your assets to TradeKing from another brokerage. TradeKing Roth IRA account features:
- $4.95 stock trades.
- No custodial fees, no minimum balance for Roth IRA accounts.
- Read TradeKing Review.
- Open an IRA with TradeKing.
Each individual investor’s needs are different, but the above options are a great place to start when looking for a place to open your IRA.
How to best manage your IRA? It can be difficult to manage your IRA if you have multiple retirement or investment accounts. I use and recommend Personal Capital, which is a free online tool that helps you track your spending and investments and gives you an in depth view of how your accounts are allocated. This makes it easy to “see into” your portfolio and makes it easier to balance your investment portfolio. Learn more in our review, or sign up for a free account today.
Best Mutual Fund Companies for IRAs
Index funds and mutual funds are often the best investment option most investors, especially those who are new to investing. Be sure to examine commissions and fund expense ratios, minimum required investment, variety and quality of investment options, accessibility to funds, annual IRA management fees, low balance fees, and other fees. You want to avoid these fees or pay as little as possible.
Compare IRAs. Take a look at the IRA comparison tool from Mint.com to compare types of IRAs and brokerage firms. Get Started here.
Vanguard. Vanguard is a nonprofit mutual fund company that passes savings on to the customer. They have a wide variety of top rated mutual funds and some of the lowest expense ratios in the industry. Their index fund selection is particularly competitive when it comes to low expense ratios. I have been with Vanguard for about 7 years now and have nothing but good things to say about their service and investment options.
- Minimum investment. $3,000 for most funds, $1,000 lowest.
- Commissions. Free for Vanguard funds, early redemption fees may apply. Commissions vary for outside funds.
- Account fees. None with electronic statements.
- Sign up for a Roth IRA with Vanguard.
Fidelity. Fidelity offers a wide variety of low cost mutual fund and index fund options, and trading Fidelity owned funds is free, though early redemption fees may apply if you sell too quickly. There is a minimum investment requirement of $2,500 to open an IRA, but they will waive that fee if you can commit to automatically invest $200 per month. The downside to opening a Roth IRA with Fidelity is that their index funds require a minimum of $10,000 to open, making it more difficult to invest with index funds in your IRA. However, you can open an IRA from their great selection of low cost mutual funds and later transfer your assets into an index fund when you amass $10,000.
- Minimum investment. $2,500; can be waived with monthly investment of $200.
- Commissions. No-load mutual funds, no sales charges, or commissions on Fidelity Funds; commissions vary for outside funds.
- Account fees. None for IRAs.
- Sign up for a Roth IRA with Fidelity.
T. Rowe Price. Most T. Rowe Price funds have expense ratios lower than their Lipper averages, which means more of your money works for you instead of your broker. You can avoid annual fees for mutual fund accounts if you maintain a balance of at least $10,000 or if you are an individual with a balance of at least $50,000 or more invested with T. Rowe Price. T. Rowe Price requires a minimum of $1,000 to open an IRA and additional contributions are a minimum of $100.
- Minimum investment. $1,000.
- Commissions. No-load funds with no sales charges or commissions for T. Rowe Price funds; early redemption fees may apply.
- Account fees. $20 for IRA if under $10,000. Can be waived if individual maintains $50k or more with T. Rowe Price.
- Who is this account for? This account is best for investors who already have at least $10,000 they can invest in an IRA with T. Rowe Price, so they can avoid the annual fee.
- Sign up for a Roth IRA with T. Rowe Price.
Which IRA is the best for you? Take a look at the IRA comparison tool from Mint.com to compare types of IRAs and brokerage firms. Get Started here.
If you prefer a more hands on approach to investing and want to trade individual stocks or ETFs, then read consider opening a Roth IRA with a discount brokerage firm, where individual stock trades cost much less than with most mutual fund companies.