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An individual retirement account, also known as an IRA, is an investment tool for retirement savings. They tend to offer more freedom than an employer-sponsored retirement plan, but like a 401(k), IRA accounts are tax advantaged, allowing you to keep more of the money you’ve earned and saved throughout your working career. The best IRA accounts offer customers great investing options and low fees over the long term.
The Best IRA Account in 2020
Many of the best IRA accounts are found at the exact same places where you’d open up an online stock trading account. These are all great choices, but you ought to look at your retirement accounts (IRA, Roth IRA, 401k) with a different set of eyes. Where retirement is concerned, you probably shouldn’t be actively trading; slow and steady, with minimal hassle, wins the race.
The best IRA account for any one person will vary based on a host of factors and personal tastes, which is why we’ll look at several quality companies whose IRA options may suit your retirement needs.
- Best IRA Overall: TD Ameritrade
- Best for Customer Support: Charles Schwab
- Best for No-Fee Mutual Funds: E*TRADE
- Best for Long-View Investors: Betterment and Wealthfront
- Cheapest IRA Option: Ally Invest
- Best for Active Traders: Fidelity
- Best for Experienced Investors: Vanguard
- Best for Real Estate Investing: Fundrise
What Makes These the Best IRA Companies?
All of these companies offer a variety of resources beyond acting as a mere vehicle to establish an IRA account. All have low trading fees. Three have office locations where you can go in and talk to a live person. Two that don’t (Betterment and Wealthfront) offer superior tools that can optimize your contributions and help keep your investments balanced according to your risk tolerance. Ally Invest also does not have offices, but it has cheaper fees and trading costs than the others.
Here are some more of the common features of these top IRA providers:
- Access to a variety of investment products at reasonable fees.
- Several types of IRA accounts available.
- Introductory deals on rollovers or new accounts.
- Access to quality customer support, research, and education.
Best IRA Account Overall: TD Ameritrade
TD Ameritrade is ranked as one of the best online brokers for both trading and long-term investing. As a client, you have access to any resource you need, from banking services to advanced trading tools, as well as face-to-face customer support at hundreds of brick-and-mortar branches nationwide.
What’s more, you can also receive up to $600 when you rollover your old 401k. TD Ameritrade also has Chartered Retirement Planning Counselors available to guide you step by step during your rollover, so every base is covered. You’ll also have access to planning tools, like a 401k rollover calculator, an IRA selection wizard, and a WealthRuler to help you plan your goals.
Five Reasons to Open an TD Ameritrade Account:
- No account minimum.
- Access to more than 300 no-fee ETFs.
- Speak with a Chartered Retirement Planning Counselor before making any decision, or visit one of many branch locations nationwide.
- Ranked #1 by Barron’s for Long-Term Investing and Novices.
- Ranked as “Best online broker for long-term investors” in 2018 by Barron’s.
A TD Ameritrade IRA is Best For:
- Retirement investors at all levels of experience.
- Those who want to roll over a 401(k).
- Beginners who want access to customer support.
Best IRA for Customer Support: Charles Schwab
Charles Schwab is known for its customer support and service. They take care of their clients, regardless of how much money they’ve got invested, and it shows: Charles Schwab took top honors for DIY investors in J.D. Power’s 2019 customer satisfaction study.
At $4.95 per trade, Schwab’s stock, ETF, and option fees are among the most competitive in the industry, and you’ll find many mutual funds that are almost completely free of fees. You can decide whether you want to be active or more passive in managing your account without having to worry about meeting a required trading volume.
Five Reasons to Open a Charles Schwab IRA:
- $0 to open an account.
- Low trading fees, no account minimum, and no maintenance fees.
- Immediate tax benefits for qualified users.
- Extensive retirement planning tools and resources.
- 24/7 service and support.
A Charles Schwab IRA Is Best For:
- New investors.
- People who want low commissions and dedicated customer support.
Best IRA for No-Fee Mutual Funds: E*TRADE
E*TRADE is a well-known online broker, offering access to every investment product and resource you could possibly need. E*TRADE is loaded with information about how to rollover your IRA, how to complete an IRA conversion, and how to just open a new account.
While commissions on stock trades are higher than average, E*TRADE allows you to invest in over 9,000 mutual funds, more than 4,400 of which have no transaction fee. In some areas of the country, there are E*TRADE branches where you can talk to a live person, but there are only 35 locations nationwide.
Five Reasons to Open an E*TRADE Account:
- Wide range of investment choices, including 4,400+ commission-free mutual funds.
- No account minimum.
- Deposit $10k or more and trade free for 60 days.
- Consistently maintains high rankings from Kiplinger’s.
- Access to extensive research (Morningstar, S&P, Credit Suisse) and professional guidance.
An E*TRADE IRA is Best For:
- Those who want a variety of investments in their IRA.
- Low-frequency traders.
- Long-term mutual fund investors.
Best for Long-View Investors: Betterment
Betterment is an online investment platform that helps individuals plan their retirements with a wealth of handy online tools. As a client, you’ll have access to included services such as tax-loss harvesting and automated portfolio rebalancing, and these services have some of the lowest fees out there. Betterment customers pay 0.25% or 0.40% annually with no trade fees, no transaction fees, and no rebalancing fees. (The latter is for a premium service with access to certified financial professionals.)
Betterment’s RetireGuide also helps streamline retirement planning by providing interactive tools to get you on track. Simply input the details of your financial situation into the RetireGuide, and answer a series of questions to receive detailed advice on what you’re doing right – and what you may be doing wrong.
5 Reasons to Open a Betterment Account:
- Five-minute account set-up.
- No account minimum, plus no minimum for withdrawals or deposits.
- Access to the RetireGuide, plus long-term investing tools.
- Automated tax loss harvesting and portfolio rebalancing.
- Access to low-cost, liquid ETFs.
A Betterment IRA is Best For:
- Knowledgeable investors who want to “set it and forget it.”
- Those who want to rollover a 401k.
- Novices who want to learn as they go.
- Investors who want help formulating retirement goals.
Best for Long-View Investors: Wealthfront
Wealthfront is one of the largest and fastest-growing online financial advisors in the industry, and that’s partly due to the many benefits it offers. In addition to tax-loss harvesting and automatic portfolio rebalancing, Wealthfront has a single-stock diversification program: Selling Plan, a service that’s unique to Wealthfront. This service helps anyone with public company stock sell his or her shares tax efficiently and commission-free.
Wealthfront charges customers one flat rate of 0.25%, no matter the size of their portfolios. Wealthfront does not let you trade individual stocks, but instead offers low-cost ETFs that give an investor broad diversification and exposure.
5 Reasons to Open a Wealthfront Account:
- Account minimum of only $500.
- No minimum for withdrawals or deposits.
- Access to Path, Wealthfront’s fully mobile financial planning.
- Refer-a-friend-program lets you earn more money management for free.
- Tax-optimized direct indexing, automatic tax loss harvesting, and automated portfolio rebalancing.
A Wealthfront IRA is Best For:
- Novices looking for a set-it-and-forget-it IRA option.
- Individuals and families in their 30s and 40s.
- Anyone who wants access to fully mobile investment management and financial planning.
Cheapest Option for Your IRA: Ally Invest
Ally Invest is an online broker known for providing great value: Ally’s commissions are among the lowest in the industry at $4.95 per stock or options trade, and customers who either keep a $100,000+ balance or make at least 30 trades per quarter pay just $3.95 per trade.
Ally Invest won’t hold your hand as much as the other full-service brokers, so their IRA account is more for self-directed investors and people looking to save money on trading costs. The savings can really add up over time even if you’re just making a few trades each year.
5 Reasons to Open an IRA Account with Ally Invest:
- No account minimum.
- Refund up to $150 in account transfer fees.
- $0 per trade and only $0.65 per options contract.
- Rated among the best options brokers by Barron’s.
- Trader network allows you to see what others are doing with their money.
An Ally Invest IRA is Best For:
- Higher-frequency traders or options traders.
- Self-directed investors looking for low commissions.
The Rest of the Best IRA Account of 2020
You won’t need a minimum deposit to open a traditional IRA with Fidelity and you also won’t be charged a steep monthly fee. You may, however, need to reach a certain threshold in order to invest in some of Fidelity’s mutual funds. Other available investment vehicles include ETFs, stocks, bonds, and CDs.
Fidelity also makes it as easy as possible to perform an IRA rollover from another institution. There are no annual fees and online U.S. equity trades cost just $4.95 each.
Online trading platform. If you’re an active trader, you’ll appreciate Fidelity’s online platform, Active Trader Pro. It’s available to all clients and lets you view your investments and make decisions in real-time. Set alerts to help you track when to buy and sell certain stocks or explore trading opportunities with a robust set of filters.
IRA trading discount. When you fund your traditional IRA with a certain balance, earn free trades to save you in the long run. IRA accounts between $50,000 and $99,999 get 300 free trades, while that jumps to 500 free trades for accounts above and beyond $100,000. You have up to two years to utilize your free trades with your Fidelity IRA.
A traditional IRA from Vanguard gives you access to more than 100 free mutual funds. For total ease of investment, consider selecting a target retirement fund. Each one is named by the approximate year in which you plan to retire. Browse each one and see how assets are allocated as well as how the fund has performed compared to the industry average.
Fee structure. Rather than charging an annual percentage of your total assets under management, Vanguard charges an annual $20 for each mutual fund or ETF in your portfolio. It is possible, however, to get this fee waived when you sign up for e-delivery service. The fees are also automatically waived when you reach $10,000 in your account.
Investor questionnaire. To get an even more personalized recommendation for your traditional IRA, fill out Vanguard’s investor questionnaire. After you accept some terms and agreement, you’ll answer questions about your plans for retirement as well as your attitude about investing. This leads to a custom recommendation that is meant to be built for your risk tolerance as well as your projected retirement target.
Additional support. In case you have questions about your IRA, you can call Vanguard and connect with an investment expert to help you gain clarity on your options.
Fundrise is known for opening the doors of commercial real estate to ordinary investors. You can also invest in their eREITS through a tax-advantaged IRA. The minimum investment is $1,000. That may seem high compared to a traditional brokerage or robo-advisor, but it’s actually a low threshold for most commercial real estate investment opportunities.
Fees and partner. Fundrise’s IRAs are managed by a company called Millennium Trust Company. You’ll pay $75 a year for each eREIT in which you invest, although the total is capped at $125. On top of that, there’s a 0.15% advisory fee and a 0.85% management fee.
Plan options. Fundrise investors can choose between three different plans based on your goals: Supplemental Income, which is focused on dividends to give you a higher return; Balanced Investing, which balances dividends with appreciation; and Long-Term Growth, which lowers your level of dividends to focus on appreciation of your IRA. You can view each plan’s projected growth to help you decide.
Additional help. If you’re still not sure what to choose for your Fundrise IRA, you can fill out a brief questionnaire to help guide your decision.
|Provider||Minimum Deposit||Online Trading Fee||Promotion|
|TD Ameritrade IRA||$0||$0 on stocks/bonds; $0.65 on options||Up to $600|
|Merrill Edge IRA||$0||$0 on stocks/bonds; $0.65 on options||$100 - $600|
|Fidelity IRA||$0||$0 on stocks/bonds; $0.65 on options||None at this time|
|Betterment IRA||$0 for standard; $100,000 for premium||0.25% - 0.40% management fee||Up to one year of free management|
|Vanguard IRA||$1,000||$7 - $20||None at this time|
|Charles Schwab IRA||$0||$0 online||None at this time|
|Ally IRA||$100||0.0% - 0.30% management fee||Up to $3,500|
|E*TRADE IRA||$0||$0 on stocks/bonds; $0.65 on options||Up to $600|
All About IRAs
Now that you know which companies offer the best IRAs, here’s everything else you need to know about opening an IRA account, including how and how much you’re able to contribute to it each year and the differences between a Roth IRA and a traditional IRA.
If you already know what you need to about Roth IRAs, Traditional IRAs, and other IRA accounts, skip down to the section titled “What is an Online Financial Advisor?”
What Is an IRA?
An IRA, or individual retirement account (or individual retirement arrangement, as the IRS calls it), is basically a tax-advantaged investment account designed to help you save for retirement.
An IRA is the best way to invest your money to take advantage of tax breaks, whether you receive them upfront (with a traditional IRA) or when you withdraw your money tax-free later in life (as with a Roth IRA). Those tax benefits come with some restrictions, however, and you’ll generally incur a penalty if you withdraw funds from a traditional IRA before you’re 59.5 years old.
There are 11 types of IRA, but only four are really worth considering, and only two will likely apply to your situation:
The four most common types of IRAs:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
Not included in this list is a Rollover IRA. That’s because it’s not a type of IRA; rather, it describes what you do when you transfer your retirement funds from a previous job’s 401(k) into a Roth or traditional IRA.
Before we get to the more popular Roth IRA and traditional IRA, let’s briefly look at two of the less commonly discussed IRAs—the SEP IRA and the SIMPLE IRA:
SEP IRA — Also known as the Simplified Employee Pension Individual Retirement Account, this IRA allows an employer to contribute to your Traditional IRA. So instead of your employer adding money into a pension fund, it goes into your IRA as if you were investing it yourself.
SIMPLE IRA — This stands for Savings Incentive Match Plan for Employees, and it’s set up very similarly to a 401(k) plan, meaning the employer matches the contributions made by the employee.
Again, the SEP IRA and SIMPLE IRA are not too common, because the business has to set it up, whereas an individual sets up their own Roth or traditional IRA.
Roth vs Traditional IRA
There are a few key differences between a Roth IRA and a traditional IRA, but they do share some of the same rules and regulations:
Contribution limits: Roth IRA contribution limits and traditional IRA contribution limits are exactly the same. In 2019, you can contribute up to $6,000 per year if you’re 49 years old or younger, and $7,000 if you’re between 50 and 70.5 years old (there’s no upper age limit on Roth IRA contributions). That limit applies to your total contributions across all IRA accounts—so if you have both a Roth IRA and a traditional IRA, you can’t contribute more than $6,000 total (or $7,000, if you’re over 50) between them.
Funding an IRA account: You can fund your Roth IRA or traditional IRA with cash or cash equivalents, but not other assets. However, rollovers can include any asset or investment product — the IRA is not cashed out in the case of a rollover.
Choosing investments: Unlike a 401(k) or other workplace retirement plans, the best IRA accounts generally offer access to all the investment products available at an online brokerage. Both traditional and Roth IRAs allow you to hold investments like stocks, bonds, mutual funds, ETFs, and more.
The Key Differences Between a Roth and Traditional IRA
Tax deductions: You get tax breaks with either option, but there’s a pretty big difference in when these occur.
With a traditional IRA, you’re allowed to deduct your yearly contribution (in most cases) off your taxable income each year, lowering your tax bill in the current year. When you withdraw money from a traditional IRA later in life, it will be taxed as ordinary income, like any other investment.
You contribute after-tax dollars to a Roth IRA, so it won’t have an impact on your current-year tax return. It does hold a major tax advantage in the long run, however, especially if your account makes money. With a Roth IRA, you don’t have to pay income tax when you withdraw the money from your account at retirement.
Income restrictions: Traditional IRAs allow anyone younger than 70.5 years old to contribute regardless of income. In order to contribute to a Roth IRA, a single filer must make less than $137,000 and married couples must make less than $203,000 combined.
Age restrictions: You can keep your money in a Roth IRA as long as you want, but a traditional IRA forces you to start taking distributions at age 70.5. You also can’t make any contributions to a traditional IRA after that age, but you can continue contributing to a Roth IRA as long as you’d like. Keep in mind that beneficiaries of Roth IRAs will not owe taxes either.
A Roth IRA also requires that you have the account open for at least five years before qualifying for a distribution. For example, if you open an account at age 57, you’ll have to wait until you’re 62 to take the money out without penalty, versus taking it out at 59.5 years old.
Withdrawal exceptions: A Roth IRA offers a number of advantages over the traditional IRA when it comes to withdrawal flexibility. If you withdraw from your Roth IRA early, you’re only hit with a penalty tax on the investment gains, not the money you originally put into the account.
Anything you put into a Roth IRA you can take out at anytime without being penalized. The only case where you would have to pay a penalty fee is if you withdraw investment gains you’ve earned prior to being 59.5 years old.
A traditional IRA is much different. You’ll be hit with a 10% penalty on any amount you withdraw before 59.5 years old.
Roth IRAs add additional layers of flexibility as well. You’re allowed to withdraw funds for qualified educational expenses, making them a handy alternative to 529 college savings plans. First-time home buyers are allowed to take out up to $10,000 in earnings. That money is tax-free and you will not be assessed a 10% early withdrawal penalty.
You can take out $10,000 from a traditional IRA as a first-time homebuyer as well without paying the 10% penalty, but you’ll have to pay taxes on the distribution. Even the best traditional IRA can’t help you avoid distribution taxes.
|Traditional IRA||Roth IRA|
|Age requirements:||Contribute until age 70 1/2.||No age limit.|
|Income restrictions:||No income limits.||For 2019, eligibility begins to phase out after $137,000 (or 203,000 for married couples).|
|Tax benefits:||Tax-deductible contributions, tax-deferred growth.||Tax-free withdrawals in retirement, tax-free growth.|
|Early withdrawal penalties:||Possible 10% penalty if you withdraw before age 59.5.||Earnings withdrawn before age 59.5 may be subject to taxes, plus a 10% penalty (contributions can be withdrawn tax- and penalty-free).|
|Taxes on withdrawals:||Withdrawals are taxed as ordinary income.||Withdraw contributions tax free and pay no federal taxes on investment gains withdrawn after age 59.5.|
Who’s a Roth IRA Best For?
- Younger adults without large incomes.
- Those who want flexibility to take out investments prior to retirement.
Who’s a Traditional IRA Best For?
- High earners who want to reduce their taxable income each year.
- Adults who start an IRA account later in life.
How Does a Rollover IRA Work?
A rollover IRA is not necessarily a “type” of IRA but an action. It occurs when retirement funds are transferred into a traditional IRA or Roth IRA. Again, all of the best IRA accounts will have the capability to do a rollover. The most common rollovers are from a 401(k) or a 403(b) workplace retirement plan.
You’ll want to do a rollover IRA if you have retirement savings from your previous job and you’ve moved onto something else. If you have multiple retirement accounts, it also makes sense to consolidate your investment accounts in one place at some point.
Avoiding a 20% Withholding Penalty on a Rollover
The best IRA companies will assist you with a seamless transfer from your old account to your new IRA. One thing to note is that, if the transfer is done with a check, you’ll get charged a 20% withholding penalty. Obviously, you’ll want to avoid this at all costs, so inform your new IRA provider that you want the funds to be transferred directly from your previous account to this one.
What Is an Automated Investing Service?
Automated investing services (sometimes called “robo-advisors“) like Betterment and Wealthfront use modern portfolio theory to build you a diversified basket of low-fee ETFs, or exchange-traded funds that offer much lower fees than standard mutual funds. Then they automate many functions like portfolio rebalancing, goal setting, and tax-loss harvesting (for non-IRA accounts).
Invest in Your Financial Future
It’s never too late to get started by opening a Roth IRA or traditional IRA with one of the companies mentioned above. Even if you don’t have thousands of dollars each year to invest, anything you can get into an IRA account will pay off down the road. The money has the ability to compound year after year and to grow into something very significant.
No investment is guaranteed to make you money over time. However, you’ll at least have the opportunity to let your money grow and to avoid paying taxes when you invest or when you withdraw the funds (depending on whether you choose a Roth IRA or traditional IRA).
- Roth IRA vs. 401k? You May Not Have to Choose
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- Four Ways to Use a Roth IRA That Have Nothing to Do With Retirement
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