If you don’t have access to a 401(k) retirement account through your workplace, the next best thing may be an IRA. Standing for Individual Retirement Arrangement, an IRA is a tax-advantaged account that lets you put money aside for the future. But while opening an IRA can be a smart financial decision, selecting the right provider can feel overwhelming. Read on for details on who offers IRAs, how to choose a provider and which firms offer the best IRA accounts.
[See: 11 Ways to Avoid the IRA Early Withdrawal Penalty.]
Understanding IRA Accounts
While contributions to a traditional IRA are tax-deductible, withdrawals in retirement are subject to income tax. Another option is to open a Roth IRA, which doesn’t offer any immediate deduction but does provide tax-free withdrawals in retirement. Up to $6,000 can be contributed to an IRA in 2019, and those age 50 and older can contribute $7,000.
IRAs are offered by numerous institutions, from national banks like Citi and Chase to investment firms like Fidelity and Charles Schwab. Plus, a new generation of online investment platforms such as Betterment and Wealthfront cater to those who want a hands-off experience for retirement savings. These new platforms are ideal for do-it-yourself investors who don’t feel the need to work one-on-one with a broker. Meanwhile, those who want their account actively managed by a professional may be best served by an IRA set up by a brokerage firm.
“I’ve seen many companies come and go,” says Walter Wisniewski, president of advisory firm Arcadia Wealth Management in Smithtown, New York. However, he says people shouldn’t be too worried about their IRA provider going out of business and taking their money with them.
IRA money held in a bank deposit account such as a savings account or certificate of deposit is typically insured for up to $250,000 by the Federal Deposit Insurance Corporation. Meanwhile, the Securities Investor Protection Corporation offers up to $500,000 of protection to customers of member brokerage firms.
Tips for Finding the Best IRA Account Provider
Victor Medina, certified financial planner and president of financial firm Palante Wealth Advisors in Pennington, New Jersey, says selecting an IRA provider comes down to factors such as cost, service and investment options.
“If you have higher trading costs and rebalancing costs, it is obviously going to eat into what you make,” he says. Some IRAs charge a percentage of the amount invested while others charge a fee per transaction. “If you’re going to be more active, having a flat fee to cover that is probably going to be cheaper in the long run,” Medina says. Per-transaction fees may range from $4.95 to $9.95 for stocks and up to $49.95 for mutual funds. Percentage fees can be as low as 0.25 percent of an account balance.
However, cost isn’t everything. “Absence of value, fees mean nothing,” says Mark Charnet, president and founder of financial firm American Prosperity Group in Pompton Plains, New Jersey. In other words, if an IRA doesn’t provide access to high-performing investment funds, the low fee doesn’t benefit you. Instead of choosing an IRA provider based on cost alone, consider what funds are available and how they have performed.
Steve Bogner, managing director at advisory firm HighTower Treasury Partners in New York City, suggests people consider what sort of customer service they’ll need to manage their IRA as well. Some may be comfortable with a hands-off approach to investing while others are looking for one-on-one advice. “You may want the ability to physically walk into a branch,” Bogner says.
Whether you’re looking for a higher level of service or lower prices, here’s a look at some of the best IRA accounts.
[See: 13 States Without Pension or Social Security Taxes.]
Best IRA Accounts Providers
For personalized service, consider working directly with a financial planner. That advisor can then direct you to the best IRA accounts for your needs. “The advice that we give is in the best interests of our clients,” Wisniewski says.
Working with an advisor can benefit both new and experienced investors. “Even Tiger Woods has a coach,” Charnet says. However, if you don’t already have a financial advisor, consider one of these firms which are known for having some of the best IRA accounts.
Fidelity. Fidelity gets high marks for its broad range of financial products and options. “They run a huge retirement plan business,” Bogner says. In addition to IRAs, the company administers 401(k) accounts, brokerage accounts, 529 college savings plans and more. All that has helped Fidelity assemble an impressive collection of financial planning tools that can benefit IRA holders, Bogner says. Plus, Fidelity operates branches across the country for those who want face-to-face service.
There is no minimum balance, opening fee or annual cost to open a traditional or Roth IRA at Fidelity. The company offers access to more than 10,000 mutual funds including many with no fees. Those that do have fees cost $49.95 to trade online. Customers who use Fidelity’s automated phone service for trades are charged around 0.56 percent of the principal, and representative assisted trades cost 0.75 percent of the principal, up to a maximum of $250. Stocks and ETFs can be traded online for $4.95.
Charles Schwab. Charles Schwab also excels at offering customers access to personalized advice. “I think their customer service level is the highest,” Medina says. It’s the company he uses with his clients. For those who want to open an account on their own, Charles Schwab has a network of storefront locations across the country.
A Schwab IRA can be opened with any amount since there is no minimum balance requirement, and there are no fees to open and maintain the account. Plus, the firm has no-transaction fee funds that can be traded online or through an automated phone service at no charge. Transaction-fee funds are free to sell and up to $49.95 to buy online or through the phone service. All broker-assisted trades cost an additional $25. ETFs can be traded online for no cost, and stocks cost $4.95 to trade.
Principal. Bogner says Principal is another company to consider for IRAs, particularly if you’re planning to roll over the balance from a 401(k) account. While it does not have retail locations, the company makes the rollover process easy. It also provides access to a team of professionals who help clients draw up an action plan to determine how much money they’ll need in retirement and what steps to take to reach that goal.
There are no opening or maintenance fees for accounts with a balance of $10,000 or more. For lower balances, there may be a $25 establishment fee and an annual cost of up to $35. Additional fees may be charged for trades within the IRA.
Betterment. If you’re comfortable managing your IRA online, try Betterment. The company is a relatively new provider but has quickly made a name for itself as having some of the best IRA accounts for hands-off investors. As a robo advisor, it recommends a portfolio based on financial needs, but doesn’t necessarily offer the same level of nuanced guidance you’d receive from a financial planner or full-service investment firm.
[See: How to Pay Less Taxes on Retirement Account Withdrawals.]
“The major advantage is that it’s a very low-cost platform,” Bogner says. There is no minimum balance for Betterment’s Digital plan, and the plan charges 0.25 percent of the fund balance as an annual fee. If you have $100,000 to invest, you can open a Premium plan, which charges 0.40 percent as an annual fee and provides access to certified financial planners. Betterment does not charge trading or transfer fees.
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Best IRA Account Providers originally appeared on usnews.com
