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Where’s the Best Place to Open an IRA?


I’ve been bugging my wife to open an individual retirement account (IRA) in addition to her state retirement plan. Of course, she’s looking to me for the basics like…”OK, where do I open the account?”

Easy question; tricky answer.

I’ve held IRAs in two places. A few years back I rolled over a 401(k) to an IRA at TDAmeritrade. Today, all of my IRAs are with Fidelity.

I didn’t have bad experiences at either broker, but I’m hesitant to immediately recommend either. For one, both brokerages are big and clunky. They may be great for sophisticated and active traders, but we are decidedly the opposite. (And unless you inherit millions at 22, young investors don’t need anything fancy from a broker).

What to Look for In an IRA

When opening an IRA—whether it’s a Roth IRA, a traditional IRA, or a rollover—young investors should look for:

  • A Selection of Low-Cost Mutual Funds — These funds are great for the long-term buy-and-hold investing most of us will do with our Roth IRAs.
  • No Minimum Investment — You should be able to open a Roth IRA even if you don’t have the $2-5k many brokers and fund companies require to open an account. Fortunately, many places will waive this requirement if you enroll in an automatic investment plan.
  • Low Trading Fees — If you do want to buy stocks or ETFs for your Roth, you shouldn’t have to pay an arm and a leg. Why would you? It’s not like you’re starting your own hedge fund, you just need to make a few trades now and then.

So who has it?

Before writing this article, I turned to my blogging friend Mike Piper of The Oblivious Investor who has covered this topic before and says the best place to open a Roth IRA is either Vanguard or TradeKing.

He recommended Vanguard for buy-and-hold investors because of their widely-respected and low-cost mutual funds; TradeKing for investors who want to trade a bit and not pay big commissions.

Vanguard

Vanguard provides high quality, low-cost mutual funds, making it a great place to open an IRA.I definitely agree with Mike that if you’re going to invest in mutual funds for the long-term, Vanguard is the place to be. It’s where I’ll recommend my wife open an IRA, and eventually I’ll even get around to moving mine there, too.

Vanguard has an incredible reputation for being on investors’ side, which is reflected by their costs—or lack thereof. By Vanguard’s calculation, their funds have an average expense ratio of 0.23% compared to an industry average ratio of 1.19%. That’s an annual saving of $96 per $10,000 invested. You can imagine how that adds up over the lifetime of your IRA.

The downside to Vanguard is that most mutual funds require a $3,000 minimum investment. Probably not a problem if you want to open a rollover IRA, but the minimum may be discouraging if you want to start investing with smaller monthly contributions. Finally, Vanguard isn’t the place to invest if you’re going to make more than 25 trades per year. If you have less than $50,000 invested, your first 25 trades in a calendar year are $7 and all other trades are $20. (Trades get less expensive if you have more invested). Finally, all investors can trade Vanguard ETFs for free.

Open an IRA at Vanguard

TradeKing

Though Mike and I are both buy-and-hold guys, I think we both recognize that some investors just need to trade. And for you, there’s TradeKing.com†.

TradeKing is a solid but no-frills (in a good way) online discount broker that has no minimum balance requirements, no annual fee, and $4.95 stock/ETF trades…all the time. The downside with using brokers for IRAs, however, is that trading no-load mutual funds is pricey. TradeKing charges $14.95 for no-load fund trades, although this is cheaper than many (E*Trade charges $19.99, TDAmeritrade $49.99). Hence, it’s a good idea to decide on an investing strategy (buy and hold in funds or trade stocks and ETFs), or at least maintain separate accounts for each.

Switch to TradeKing and get up to $150 in transfer fees reimbursed.

What do you think? Where’s the best place to open an IRA online? Where do you have yours? Are you happy?

† This site accepts advertising from the following businesses mentioned in this article: TDAmeritrade and TradeKing. For more, please read our disclosures.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. TradeKing does not reimburse up to $150 when transferring into an IRA. The offer only applies to non retirement accounts.

  2. I’m pretty happy with Fidelity, as long as you keep an eye on your expense ratios. From my point of view, I like the selection of index funds and reasonable managed funds as well. Just my $0.02

  3. I am young and underemployed (which I am hoping will change in a year or so when I move to a city with a better job market), but I want to start saving for retirement. After all of my research, I think a Roth IRA would be best for me (I have a separate way of saving to cushion my emergency fund). I was looking for an article with a recommendation on where to open an IRA, and while this was helpful, I definitely do not have $3k (or anywhere near it). I also know that, at this point, I am not and probably never will be an active trader. What are some suggestions for how to save specifically for retirement? Should I just open a regular savings account separate from my emergency fund and when it reaches $3k (in a couple of years at the earliest) THEN open an Roth IRA account? (I’m hoping that a future employer will offer an avenue for such saving, but that is not in the foreseeable future.)

  4. Nice blog here! Also your website lots up fast! What web host are you the usage of? Can I get your affiliate link in your host? I wish my site loaded up as quickly as yours lol

  5. When I was in college I started my Roth with Scottrade because only $500 was needed to get going and many funds had no transaction fees. But they had no way to make contributions without mailing in checks or going to the stores and I didn’t make enough money to do direct deposit. When I graduated I moved to Vanguard because I’m a huge fan of their products and the company. The rollover was kind of confusing but they do have dedicated staff that do a lot of the work for you. I haven’t looked back and keep a Roth and traditional IRA with them now.