The average American in their 30s is saving half the amount they should for retirement. Or to put it another way, they should follow the rule of thumb of many financial experts and save 1-2 times their annual salary so they can retire comfortably by age 67.
A 35-year-old earning $45,000 a year should have up to $90,000 in their retirement accounts, for example.
That’s a lofty goal, but it can be accomplished by contributing regularly to a 401(k) retirement at work. If that isn’t enough, you can also fund an Individual Retirement Account, or IRA, that you open individually on your own.
An IRA won’t have the matching contribution that some employers offer in a 401(k), but an IRA will have more investment options, such as individual stocks and bonds. An IRA can also diversify your tax advantages.
Many companies sell IRAs, usually without charging commissions or requiring a minimum account balance. Most are sold by investment brokerages that you may already be doing business with and most are online brokers with automated investing platforms.
Overview of the best IRA account providers
Here are nine of the best traditional and Roth IRA account providers we’ve found, with highlights of what they do best.
Best IRA account providers
The first thing to know about IRAs is that they should probably supplement an employer-sponsored retirement plan. If your employer is matching all or part of your 401(k) contributions, it’s essentially free money you’re being given for saving for retirement. Don’t let that gift slip through your fingers by skipping a 401(k) and going straight to an IRA.
There are four types of IRAs
, but our focus is on two main types: Traditional IRA and the Roth IRA. We won’t go into the weeds of how they work, but the basics to know about each are:
- Traditional IRA: You may receive tax breaks now, since contributions grow tax-deferred and you’re taxed when you take money out at retirement.
- Roth IRA: No immediate tax breaks, since qualified withdrawals at retirement are tax-free.
If you expect to be taxed at a higher rate when you begin making withdrawals in retirement, then a Roth IRA may be best for you because the tax benefits happen later. While traditional IRAs require paying taxes on the money taken out at retirement, those taxes may still be low because people usually have lower incomes when they’re not working.
Here are the nine best IRA providers we’ve found.
Most IRA providers don’t charge fees for making online trades, including Charles Schwab
. That doesn’t mean you want to become a day-trader with your retirement fund, since buying and holding is a smart way to avoid the ups and downs of the stock market.
Charles Schwab is a great place to open an IRA because it has a large selection of no-transaction-fee mutual funds with low or no minimums. That will diversify your portfolio without having to pay fees.
The company is also well known for providing excellent research on investment options, giving investors online planning tools to research and compare mutual funds. It has a mutual fund screener to compare funds easily, including information such as:
- Fund performance
- Morningstar rating
- Experts’ top mutual funds picks for each quarter
It also offers hundreds of socially responsible funds to invest in, and helps investors find funds to meet a target retirement date or provide a monthly income.
is a robot-advisor, also called a robo-advisor
. They collect information from clients about their financial goals and situation through an online survey and use the data to offer advice.
Betterment automates investments by using deposits to rebalance a customer’s portfolio. This is meant to keep your IRA on track and save you money on taxes.
This portfolio rebalancing, as the company explains it, is needed because stocks generally rise faster than bonds, so a stock portion of a portfolio will be out of proportion and can expose an investor to more risk. Betterment deals with this portfolio drift by automatically rebalancing to a target allocation set by the customer. Investments are bought or sold to level the risk.
Betterment charges a fee of 0.25% per year on a retirement account balance. For every $10,000 invested, that equals $25 per year. No fees are charged for a $0 balance. It doesn’t charge additional trade or transaction fees.
One thing Fidelity is known for is its low fees, and as a trading platform doesn’t charge trading fees or other account fees for a basic Roth or a traditional IRA.
It does, however, charge what it calls an advisory fee on two types of IRAs, called “Fidelity Go” and “Fidelity Personalized Planning and Advice” IRAs.
The fee depends on the balance. For the Go account it’s free for less than $10,000 in assets, but then rises to $3 each month for a balance of $10,000 to $49,999, and to 0.35% per year for $50,000 and higher.
The other plan charges a 0.50% annual advisory fee, though Fidelity says no other fees are charged.
One advantage of the two higher-level plans is that instead of being on your own to choose and manage investments, Fidelity does that work for you with your goals and risk tolerance taken into account. Extra personal assistance is also offered.
Like many other brokerages that allow investors to buy stocks, TD Ameritrade
charges no fees for making stock, options and exchange-traded fund trades in IRAs. It charges $25 for a broker-assisted stock trade.
One thing it does best, we think, is offer outstanding investor education and support. It has digital education in many formats, including videos, articles, slideshows, quizzes, live online seminars, and presentations at its branches across the country. The branches are temporarily closed, however, due to Covid-19.
It also has a fully immersive curriculum where real coaches walk you through a range of investing and trading topics so you can become a more informed investor.
These services fit in well with what Charles Schwab offers in research tools, which is important because Schwab announed in November 2019 that it was acquiring TD Ameritrade.
New accounts can be opened at TD Ameritrade for at least the next year or so. All accounts will eventually be moved over to Charles Schwab, according to an October 2020 announcement by the company that says the integration of operations will happen over the next 18 to 36 months.
If you’re a long-term investor who believes buying and holding stocks is the best way to wealth (and you should be with an IRA), then Vanguard
makes this easy for you.
Vanguard founder Jack Bogle created the first index mutual fund in 1976 as a low-cost way for individuals to invest. The company has been synonymous with low-cost investing ever since.
It has commission-free ETF trades, more than 3,100 no-transaction-fee mutual funds, and tons of other types of funds to keep your IRA money in. It also joined the broker price revolution in late 2019 and dropped its trading fees that were as high as $7 to $0.
When buying mutual funds
and ETFs, or exchange-traded funds, Vanguard’s prices can’t be beat. Its average expense ratio is 0.10%. The average expense ratio across all mutual funds and ETFs is 1.05%, according to Morningstar, an investment research firm. That savings with Vanguard can put thousands of saved dollars in your pocket over 30 years of investing.
To discourage short-term, speculative trading, on some mutual funds Vanguard charges fees from 0.25-1% of the amount of the transaction. Also, it charges a $20 annual account service fee for all brokerage accounts and IRAs, though it can be waived by signing up for electronic statements.
Checking your IRA balance every day or multiple times a day probably isn’t good for your well being. It may encourage you to trade often if the markets drop, causing you to sell low and buy high.
However, if you’re anxious to see how your IRA is doing while you’re out to lunch, an excellent mobile app at E*Trade
makes it easy. It can be used on Apple and Android devices, including tablets and an Apple Watch.
The app may be mostly useful to day traders, but even boring old IRAs that you contribute to regularly and don’t trade often can be viewed and researched on it. Remember, you have much more control over an IRA than you do the investments in a 401(k), so you may want to research your investment options in depth more. This doesn’t mean you need to trade often in an IRA, but your investments should be well-researched.
is good for low-cost trading, including IRAs, but its biggest benefit may be for its Ally Bank customers.
The investment arm of the company is tightly integrated with the banking side, making it easy to buy stocks and ETFs if you have an Ally bank account. The company’s mobile app allows quick bank transfers and auto-updating quotes in a few seconds so that you can buy stocks for an IRA by knowing what their immediate prices are and transferring money quickly and easily.
Not only can you move money around the Ally services you use, but investors can move cash out of an investment to pay personal loans. IRA investments, however, shouldn’t be used for such expenses because they’ll likely come with a tax penalty if you’re not near retirement age.
Bank of America
Some of the financial institutions we reviewed have physical offices where you can speak with certified financial planners and new investors can get customer support, financial planning, educational resources, retirement planning, and investment accounts. Some have closed during the coronavirus pandemic.
Bank of America
remains open and has 4,300 branches in the U.S. Most, if not all, remain open, as far as we can find.
That gives newbie investors a lot of places to get persona-to-person help in opening an IRA, funding it and choosing investments. You can also go online to do this, but it can give you a little peace of mind knowing that you can walk into a bank and get help if you need it.
The investment IRAs at Bank of America are offered through Merrill Edge, which is owned by Bank of America. It currently has a promotion giving $100 to $600 in cash for opening a brokerage account, depending on the amount deposited. For $100 back, $20,000 must be deposited.
is a robot-advisor, though that shouldn’t be a worry.
Like Betterment, it also does automatic rebalancing of investments so that you’re not too heavily weighed in one area. For hands-off investors, which IRAs are best for, Wealthfront makes investing easy.
It has a simple online calculator to help you figure out which type of IRA is best for you. It takes into account your filing status, income, age, and if you already have a 401(k) or traditional IRA.
The company says its software keeps your portfolio globally diversified to buffer you against downturns, and seeks out ways daily to lower your tax bill through tax-loss harvesting.
Its advisory fee is the same as Betterments at 0.25% annually, though Wealthfront requires a $500 account minimum deposit.
Best IRA providers summary
Note that under “trading fees,” these can be higher than listed here because some companies charge management fees, annual fees, or other fees. Transaction fees for making a stock trade at Charles Schwab, for example, can range from zero if done online, to $5 for an automated phone trade or $25 for assistance from a financial advisor. Each company should offer a detailed pricing guide that may include many other fees for investors.
What is a Rollover IRA?
One type of IRA that we didn’t review is a Rollover IRA, which you will likely see advertised by brokerage firms such as the ones above. They’d like you to place all of your money in their accounts, and a Rollover IRA is another way to do that.
A Rollover IRA is an account where you move funds from your old employer-sponsored retirement plan into an IRA. It keeps the tax-deferred status of your retirement assets without paying taxes or early withdrawal penalties from the transfer.
When you leave an employer with a 401(k) retirement plan there, there are four things you can do with it:
- Roll over to an IRA
- Roll over to a new employer’s plan
- Leave in your former employer’s 401(k) plan
- Cash out
Putting it in an IRA can lower your administrative fees, simplify your finances by putting your money in one place, and can give you more investment choices.
What are the contribution limits?
How much money you can put in a retirement account is regulated by the Internal Revenue Service, and sometimes it changes.
In 2021 the limit on annual contributions to a traditional or Roth IRA remains unchanged from what it was in 2020 and 2019: $6,000.
People 50 and older can make additional “catch-up” contributions of $1,000, for a total limit of $7,000.
How do I avoid fees with an IRA?
Thanks to a move by brokerage firms in 2019 to drop stock trading fees to zero, instead of paying $7 or so per trade, it can be tempting to trade in and out of mutual funds, specific stocks and other investments because you won’t pay a fee to do it.
There are many reasons not to do that, mainly starting with having a long-term view for your retirement savings.
But if you want to be a day-trader, or just a monthly trader, with your IRA then you can. But some fees may still pop up.
Many brokerages charge for assistance from a broker to make a trade. So if you can’t do it yourself online, expect to pay $25 or so for professional help. Some companies charge a percentage commission on your account balance, so you’ll pay some amount per year whether you trade often or not.
There may also be all kinds of fees if you want to buy foreign stocks. Doing that in the U.S. over-the-counter, or OTC, market can cost $50 in a foreign transaction fee just for an online order. Get a broker’s help and it goes up to $75.
The best way to avoid fees is to make regular contributions to a mutual fund with low fees, and to leave it and forget about it. We don’t mean forgetting it entirely, of course, but checking it at least once a year and adjusting it if necessary.
Why you should open an IRA
Few people save as much as they should for retirement. An IRA is one way to get there, but you may only want to open one if you’re already maxing out a 401(k) plan at work.
A 401(k) contribution is sometimes matched by employers, which is basically free money from your employer so you can save more for retirement.
But if your employer doesn’t offer a match, or it doesn’t offer a retirement plan or you work for yourself, then an IRA is a great way to save for the day when you won’t work anymore. You can take the tax savings now with a traditional IRA, or take them later with a Roth IRA.
An IRA is also a good idea if you haven’t started saving yet and are past your 20s or 30s. The older you are, the more money you’ll need to save for retirement
. Someone in their 30s may only need to have twice their annual salary in retirement accounts, but older people will need more to catch up.
of your income in your 30s for retirement is a good goal, but someone in their 40s may need to save four times their annual salary.
The bottom line
Opening a Roth IRA or traditional IRA isn’t difficult, and it should encourage you to save more for retirement.
It requires a little work researching what to invest in, but a good mutual fund is easy to find. Almost every brokerage firm or bank we’ve recommended has great educational tools on their websites to help IRA holders pick the investments that meet their risk tolerance level.
Whether you’re just starting to save for retirement or you’ve maxed out your employer’s plan, opening an IRA can be a smart way to save for your future.