Choosing a Brokerage When Opening an IRA

Anyone eligible for opening a Roth IRA really should consider doing so. A Roth IRA has many tax advantages that are long term, making them a great investment vehicle for retirement. Opening a Roth IRA is easy. You just need to fill a form out and them make a contribution to your account. The hardest things about starting one are choosing where the account should be opened and deciding on what investments to buy. Although it’s difficult recommending which mutual funds, bonds or stocks to invest in, there are some good places that can be recommended for opening an account.

Opening a Roth IRA
The first thing you need to do is examine what your investment needs are. There are many financial institutions available for acting as your IRA custodian. They can be divided into three major categories: brokerage firms, mutual fund companies and banks.

Usually banks offer only money market accounts, CDs and other similar type investments. There may be other investment options offered by some banks, but there are often higher expense ratios and commissions with banks than there are with brokerage firms and mutual fund companies. Unless a bank is offering full service brokerage at a reasonable cost, you will probably be better off going with a discount brokerage or mutual fund company.

Brokerage Firms vs Mutual Fund Companies
Big brokerage firms and mutual fund companies are usually the best option for most people, due to the fact that they have low commissions, low expense ratios and offer a wide array of different types of investments. For investors who are more experienced or at heart are day traders, a better option may be discount brokerage firms.

Best Roth IRA Discount Brokerages
If you are interested in investing in individual stocks, a primary concern of yours will be transaction costs. The discount brokerages listed below all offer stock trades with low costs to help meet the needs of most investors. Each of the discount brokerages that follow offer unique features. You will need to compare them to find the best option for your individual situation. All of the IRA offered by these brokerages come without minimum balances or associated custodial fees.

Scotttrade
Scotttrade is a highly respected discount broker firm. It offers local branches, which is a feature that other major discount brokerages don’t offer. This option is great for those looking to have a personal touch.

Scotttrade’s Roth IRA Account includes the following features:

$7 stock trades
local branches
no minimum balances or custodial fees on their Roth IRA accounts

E-Trade
E-Trade, for three years in in a row (2007-2009), was ranked as Smart Money Magazine’s No. 1 Online Broker. E-Trade offers full service brokerage and is also a full fledged bank that offers top rate savings and checking accounts. If you prefer doing all or most of your banking in one place, it makes E-Trade’s Roth IRA a very attractive option.

The Roth IRA E-Trade account features:

$9.95 stock trades
full feature bank
Roth IRA accounts with no minimum balance and with electronic statements there are no custodial fees

Bonus Offer: For new customers opening a Roth IRA E-Trade is offering 100 stock trades fee.

Zecco
A couple years ago Zecco burst onto the scene of discount brokerages by offering all members free stock trades. Eventually the free trades became more limited. Now you can make 10 trades a month that are free if your balance is $25,000 or over or you make at least 25 trades a month. However ETF and stock trades are just $4.50 each. That is a lower rate than is offered my many of the other discount brokerages. The Roth IRA Zecco account features:

Roth IRA accounts with no minimum balance or custodial fees
$4.50 stock trades

TradeKing
TradeKing has received the best ratings for customer service and best discount broker overall. They offer free trading tools, $4.95 trades, free Maxit Tax Manager access, a learning center, and community for investors to share information and tips. They also offer a reimbursement of $150 when transferring assets from another brokerage to TradeKing. The Roth IRA TradeKing account features:

Roth IRA accounts with no minimum balances and no custodial fees
$4.95 stock trades

ShareBuilder
Inexpensive $4 or less trades are offered by ShareBuilder on automatic stock trades and their real time trades are only $9.95. ING Direct owns ShareBuilder, making it easy to link your brokerage account with your savings account. This feature is great for quickly transferring money for a trade. The Roth IRA ShareBuilder account features:

$4 (or less) automatic trades
Linking ShareBuilder accounts with ING Direct accounts
Free automatic DRIPS
On Roth IRA accounts, no minimum balance or custodial fees

Individual investor needs are all different. However, the options above are great places to start looking for somewhere to open an IRA account.

Best IRA Mutual Fund companies
For most investors, mutual funds and index funds are usually the best investment options, particularly for new investors. Make sure you carefully examine fund expense and commission ratios, the quality and variety of investment options, minimum required investment accessibility to funds, low balance fees, annual management fees and other types of fees. You will want to avoid or pay as few of these fees as possible.

Vanguard
This mutual fund company is a nonprofit and passes their savings to their customers. They have some of the industry’s lowest expense ratios and offer a wide array of mutual funds with top ratings. In terms of low expense ratios, Vanguard’s index fund selections are very competitive. Many long term customers have great things to say regarding their investment options and customer service.

With electronic statements there are no account fees
For Vanguard funds commissions are free, although early redemption fees could apply. For outside funds, commissions vary
Minimum investment requirements on most funds is $3,000, with $1,000 being the lowest

Fidelity
A wide array of low cost index fund and mutual fund options are offered by Fidelity. Trading funds that are owned by Fidelity is free, although if you sell them too quickly there could be early redemption fees. For opening an IRA there is a $2,500 minimum investment requirement. However all fees are waived with $200 automatic monthly investments. One downside to a Fidelity Roth IRA is the $10,000 minimum investment requirement for their index funds, which makes it hard to invest in index funds using a Fidelity IRA account. However, an IRA account could be opened by investing in their low cost mutual fund selections and then transferring assets later to an index fund once you have amassed $10,000.

Commissions: no sales charges, no-load mutual funds, no commissions for Fidelity Funds. For outside funds, commissions vary.
$2,500 minimum investment. Waived with automatic $200 monthly investments.
No IRA account fees.

T. Rowe Price
A majority of funds with T. Rowe Price have expense ratios that are lower than Lipper averages. That means more investment dollars are working for you and not the broker. Annual fees on mutual fund accounts can be avoided by maintaining a $5,000 minimum balance. Or if you have a $50,000 balance or more of T. Rowe Price investments. The minimum amount for opening an IRA with T. Rowe Price is $1,000. However, they waive their minimum investment requirement when you participate in their Automatic Asset Builder Service with contributions of $50 or more per month.

Commissions: On T. Rowe Price funds there are no-load funds that have no commissions or sales charges. There can be early redemption fees.
Minimum Investment is $1,000. With $50 or more monthly investments, the minimum investment can be waived.
Account Fees: If balance is under $5,000 there is a $10 IRA account fee. If an individual maintains a T. Rowe Price balance of $50,000 or more, the account fee is waived.

If you would like to trade ETF’s or individual stocks and prefer an approach that is more hands-on, consider opening your Roth IRA account through one of the discount brokerage firms. Individual stock trades are less expensive than they are with a majority of mutual fund companies.