Opening an individual retirement account for the first time can be intimidating. Unlike a 401(k) that is sponsored by an employer, those saving for retirement in an IRA must decide where to open the account. This decision is often dictated by the types of investments you want for your retirement savings.
Further complicating the decision are the many choices available. An IRA can be opened at a brokerage firm, mutual fund company, bank or even one of several automated investing services. There are advantages to each of these options.
— Broker. Best for those who want to invest in exchange-traded funds and stocks
— Mutual fund company. Ideal for those who want to invest in mutual funds or ETFs from one company
— Bank. A good option for those who want to invest in certificates of deposit
— Automated investing service. Best for those who want to invest in stock and bond funds, but prefer to have a service do most of the work
Here are some of the IRA options within each category:
Brokers
Online brokers are an ideal place to open an IRA for those looking to invest in a wide array of ETFs and stocks. The best options offer IRA accounts with no setup or maintenance fees and very low cost trades. These are two options for discount brokerage services.
TD Ameritrade. With commission-free trades on more than 100 ETF’s, TD Ameritrade is a popular option for IRAs. There is no minimum initial investment for an IRA, and there are no account setup fees or account maintenance fees.
Scottrade . There is no fee to open an IRA account and no account maintenance fee. The minimum amount required to open an IRA is $500. Scottrade offers stock and ETF trades for $7 and has a network of 500 locations across the country. They also offer more than 3,100 mutual funds on a commission-free basis.
Mutual Fund Companies
Investing directly with a mutual fund company is ideal for those looking to focus on a single fund family. In addition, many firms offer brokerage services as well. Two popular options are Vanguard and Fidelity.
Vanguard . Vanguard is the world’s largest mutual fund company with more than $2.4 trillion dollars under management. It is best known for low cost index mutual funds and ETFs. Fees can be as low as 5 basis points. It also offers funds that cover every conceivable asset allocation plan. Vanguard’s target-date retirement funds make retirement investing as simple as buying a single mutual fund. Vanguard then does the work to divide the investment across four funds covering U.S. equities, international equities, U.S. bonds and international bonds. Opening an IRA is free.
Fidelity . Fidelity Investments is one of the largest investment trustees in the world, particularly in regard to retirement plans. There are no fees to maintain a Fidelity IRA account and no minimum required initial investment. The company offers more than 175 of its own no-load mutual funds. The typical minimum investment is $2,500. Fidelity also offers commission free trades on 70 iShares ETF’s. And if you want to trade stocks, there is a commission of $7.95 per trade.
Banks
Many banks offer IRA accounts for those looking for the security of a CD. While rates currently are at historic lows, CDs are FDIC insured. Here are two examples of banks that offer IRAs.
Ally . Formerly GMAC, Ally Bank offers high yield IRA CDs. It also offers up to a $500 bonus on new IRA accounts, depending on the size of the initial deposit.
Everbank . Unique among banks, Everbank offers a variety of CD products, including many in foreign currencies or precious metals. It also guarantees that its yields will be in the top 5 percent nationally.
Automated Investment Services
Frequently referred to as robo-advisers, these companies automate the process of investing. The advantage with these platforms is that for a small fee they handle the investment selection, portfolio allocation and rebalancing. Here are two options to automate your investments.
Betterment . They determine your risk tolerance through a simple questionnaire and then build a portfolio allocation that will match that tolerance. Betterment then invests in a mix of low cost ETF’s, and offers tools to track your investments, change your asset mix and project the growth of your account. The cost for its services ranges from 0.15 percent to 0.35 percent in addition to the costs of the ETFs. There is no minimum deposit required to open an account.
Wealthfront . Wealthfront works similarly to Betterment in that it also determines your risk tolerance, builds a portfolio to accommodate it and uses ETF’s to execute the investment plan. Its asset allocation includes real estate investment trusts, commodities and a high dividend yield ETF. The cost is 0.25 percent in addition to the cost of the ETFs. There is a $5,000 minimum deposit required to open an account.
With the brokers on this list, you should be able to find one that works for you, even if you’re looking for a broker that’s a little bit out-of-the-box.
Rob Berger is the founder of the personal finance blog the Dough Roller.
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