The built-in tax benefits of a Roth IRA increase the value of your retirement savings. Becoming a Roth IRA holder is quite easy; you have to first determine where to open your account, fill out the necessary application and paperwork as you would for a regular checking account, and then start making deposits or set up automatic contributions. Here’s a look at where to open a Roth IRA.
What are your options?
You can open a Roth IRA at a mutual fund company, brokerage firm, bank or automated investing service.
Set up a Roth IRA with a broker if you want to invest in a variety of stocks and exchange traded funds (ETFs) and/or you’re looking for low account fees and commission costs (a discount brokerage can lower your costs of investing). Two leading brokerage firms you can consider are Scottrade and TD Ameritrade. Scottrade does not charge a fee for opening an IRA and there is no account maintenance fee either. You need a minimum of $500 to set up an IRA, and have access to more than 3000 mutual funds. TD Ameritrade offers over 100 commission-free ETFs; does not have a minimum investment restriction; and does not charge account set-up and maintenance fees.
Discount broker E-Trade has no account minimums and annual fees, while offering more than 8,000 ETFs, IPOs and mutual funds. Another online broker – ShareBuilder – doesn’t have annual custodial fees and allows you to make investments on a schedule as part of its Automatic Investment Plan (AIP).
When you’re deciding where to open a Roth IRA, make sure you consider banks. You can set up a low risk IRA such as FDIC-insured CDs and savings accounts at a well-known bank like Ally or EverBank. Ally offers high-yield IRA CDs and – based on the amount of initial deposit – a bonus of up to $500 on new IRA accounts. EverBank has a vast range of CD products and its 5-year CD has been a rate leader on numerous occasions.
Mutual fund companies
When you’re starting off, consider one among the big three mutual fund companies – Vanguard, T. Rowe Price and Fidelity – as they offer a huge variety of funds across just about every investment style and segment you wish.
Fidelity has a no-fee IRA, a $2,500 minimum initial deposit and a choice of 4,500 mutual funds
The Vanguard Group also offers a no-cost Roth IRA for a minimum deposit of $1,000
T. Rowe Price has a $10/year fee up until the time you grow your balance to more than $5,000, after which no fee is charged
Automated investment services
Automated investment services or robo advisers as they are sometimes called, save you the effort and time to invest, by building a portfolio, investing in ETFs, reinvesting dividends and also offsetting taxes on income and gains (“harvesting”). Wealthfront and Betterment are two avenues you can explore to automate your investments. Both build a portfolio around your risk tolerances and invest in a mix of ETFs.
When deciding where to open a Roth IRA, consider factors such as minimum initial investment, account fees, investment options, automatic contributions and the provider’s reputation, to make an informed decision.