An Individual Retirement Account (IRA) is one of the most popular ways to invest for retirement. Not only are you saving for your future, but you’re also getting a generous tax advantage for doing so, thanks to the U.S. government. If you’re looking for a quick start to funding your retirement, an IRA is the perfect place to begin, and you can complete the entire account setup online in just a few minutes.
The Best Opportunity to Build Capital
One of the best opportunities to build capital is investing in the financial markets, and to do this you will need a brokerage account or a robo-advisor:
Brokerage Account
A brokerage account allows you to choose your investments yourself, including individual stocks, mutual funds, bonds, and more.
Robo-Advisor
The robo-advisor will build a portfolio for you, selecting funds and allocating your assets based on your risk level and time horizon.
Best IRA Accounts to Open in January 2024
Charles Schwab
Wealthfront
Fidelity Investments
Vanguard
Betterment
Interactive Brokers
Schwab Intelligent Portfolios
Merrill Edge
Fundrise
E*TRADE
Firstrade
Fidelity Go
The IRA: What You Need to Know
With a traditional IRA, you can receive a tax deduction this year while saving for retirement. You will also enjoy tax-deferred growth on your investments until you withdraw money from the account in retirement, which is defined as age 59 and a half or older. Generally, you will be able to avoid taxes on any contribution you make to the account, making it a good way to reduce current taxes.
It can be helpful to think of an IRA as a “shield” or “wrapper” around a regular account that protects it from taxes. Many financial companies offer IRAs, including banks, brokerage firms, insurance companies, and robo-advisors, and each may allow you to make different types of investments.
These investments determine what you will ultimately earn in your IRA. If you invest in historically strong assets like stocks, you may perform better over the long term than with certificates of deposit or bonds. However, there is a trade-off to consider – high-performing investments require you to take on more risk, while safer assets generally fluctuate less, or in some cases (like certificates of deposit) carry no risk.
You will want to read the full details about IRAs so you can maximize your benefit from the plan and avoid common mistakes. You’ll quickly see why it’s such a popular way to save for retirement.
Overview: Best IRA Accounts in January 2024
Here are some of the best brokers or robo-advisors to use when setting up your IRA.
Charles Schwab
Charles Schwab handles all of the basic brokerage functions well, and its long-standing reputation with investors precedes it. Whether you’re looking for stocks, bonds, or funds including certificates of deposit in your IRA, Schwab can get the job done. In fact, Schwab offers thousands of mutual funds with no transaction fees. Additionally, with commission-free trades and quick customer service, the broker consistently ranks at the top in the industry. Of course, if you want to trade more actively, you can access Schwab’s flagship trading platform, thinkorswim, to execute your trades.
Best suited for: investors looking to manage their IRA actively or passively.
Wealthfront
Wealthfront is a leading robo-advisor and can build your retirement portfolio based on your risk level and the time you need for the money. Wealthfront automatically rebalances your portfolio to keep your allocations on target. You also have access to a sophisticated goal-based planning tool (even if you don’t have an IRA here) as well as a full-featured cash management account. The management fee is 0.25 percent per year, or $25 for every $10,000 you invest, and you will pay for the ETFs you hold in your portfolio, just as you would anywhere else.
Suitable for
Greatly suitable for: investors looking to manage a professional portfolio at a low cost.
Fidelity Investments
Fidelity is considered one of the best general brokers, and you can see it in everything they do: friendly and helpful customer service, robust trading platforms for active traders, a policy of not charging fees for every possible service, and a wide range of investments (including thousands of mutual funds available without transaction fees). It also doesn’t hurt that the broker offers four mutual funds with no management fees, making them great options for IRA investors. Fidelity does everything at a high level, and you are likely to be satisfied.
Greatly suitable for: investors who want to be active traders or invest passively.
Vanguard
Vanguard is a great choice thanks to its low-cost mutual funds, even if you can buy its funds at another broker. However, Vanguard is a fantastic option if you are a passive investor, even though most major brokers have also eliminated online trading commissions for stocks and ETFs to zero. Vanguard also offers more than 3,000 mutual funds with no transaction fees. So if this is your style, you shouldn’t have any trouble finding the funds you’re looking for.
Greatly suitable for: investors who want to manage their IRA passively, especially with Vanguard funds.
Betterment
If you’re okay with letting someone else manage your IRA, Betterment is likely a good choice. For a low, flat fee of 0.25 percent, this robo-advisor will manage your portfolio from start to finish, and all you have to do is add money. You will enjoy valuable features such as tax-loss harvesting and automatic rebalancing at no additional cost. Furthermore, if you pay a slightly higher fee and contribute $100,000 or more to the account, you will have access to human advisors for all your detailed questions.
Greatly suitable for: investors who want a robo-advisor to manage their IRA, or who may want to access a human advisor from time to time.
Interactive Brokers
Interactive Brokers is a broker that gives you ample access to global markets, so if you want a “go anywhere” company, this is the right choice for you. Interactive Brokers has long been known as a broker for serious active traders, although you don’t have to trade actively to open an IRA here. Choose the Pro brokerage platform known for its superior execution, or select the Lite platform where your trades are free. Either way, you will be investing with one of the most secure institutions in the world.
Greatly suitable for: investors who trade actively and want access to all types of markets.
Schwab Intelligent Portfolios
Schwab brings its friendly credibility to Schwab Intelligent Portfolios, a robo-advisor that manages your IRA with a personalized portfolio. You will enjoy Schwab’s management fees – none – and low-cost ETFs in addition to the prestigious customer service available around the clock. If you want access to financial advisors, you can move to the premium tier, which costs a flat fee of $30 a month (after a one-time setup fee of $300). In either case, you will need to bring some money to the robo-advisor: $5,000 for the basic service or $25,000 for the premium tier.
Greatly suitable for: investors looking for professional management at a low cost with the option for unlimited access to human advisors.
Merrill
Edge
As a client of Merrill Edge, you’ll benefit from strong brokerage offers and access to research on stocks, along with robust customer service. Additionally, Merrill is a great option if you may need personal assistance, as the parent company Bank of America provides a Merrill representative in over 2,000 branches, which is a real competitive advantage. Another perk: if you’re already a bank customer, it’s easier to have all your financial business in one place.
Best suited for: investors who want to trade actively or passively, or may need help from a human advisor.
Fundrise
If you’re looking for something unconventional in your IRA, Fundrise may be the right choice for you. Fundrise allows you to use your IRA to invest in real estate, which can be particularly suitable in an IRA as it generates cash that would otherwise be taxable. With Fundrise, you’ll invest in publicly traded real estate investment trusts (REITs), which are well-known structures that allow investors to access a diversified real estate portfolio and pass profits to investors. You may need to lock up your money for years, so it might not be suitable for everyone. But for investors seeking an alternative investment like real estate, Fundrise can be an attractive option.
Best suited for: investors who want to explore and invest in real estate.
E*TRADE
Like other major brokers, E*TRADE offers commission-free trading for stocks and ETFs, but it’s also a great option for mutual funds, providing over 6,000 funds with no transaction fees. E*TRADE is another full-service broker, making it suitable for active traders (volume discounts on options, Power E-Trade platform) as well as passive investors thinking long-term (third-party research).
Best suited for: investors who want to invest actively or passively.
Fidelity
Fidelity is popular among traders because of its commission-free trading for stocks, ETFs, and options, but the broker has a lot to offer those saving for retirement as well. Fidelity offers thousands of mutual funds with no transaction fees, and you’ll be able to open any type of IRA account you want, including SEP and SIMPLE IRAs, which not all brokers offer. There’s also a strong research offering that includes free access to Morningstar reports.
Best suited for: investors who want to invest actively or passively.
Fidelity Go
If you want a more relaxed approach to your portfolio, Fidelity Go is another robo-advisor option to consider. There are no fees for accounts with less than $25,000, and the fee is 0.35 percent after that. Portfolios are built using Fidelity funds that do not charge expense ratios, so you won’t have to worry about additional fees for mutual funds that are charged by most robo-advisors. You’ll also get all the benefits of being a Fidelity client, including premium educational resources and 24/7 customer service.
Best suited for: investors looking for a professionally managed portfolio at a low cost.
How to Open an IRA Account
You have multiple options for opening an IRA account, including a broker or a robo-advisor. These providers have streamlined the account opening process, and you can have your IRA in 15 minutes or less. Just follow the opening steps on the provider’s website.
Once you’ve chosen a broker or robo-advisor, you’ll need to provide some personal and financial details, including your legal name, address, Social Security number, employer, and some other details. Then you can link your bank account to the account and fund your IRA.
It’s
Really that simple. In fact, the hardest part may be choosing the broker or robo-advisor you will work with. So you will want to review the best robo-advisors and look into the best brokers.
Can I change my IRA?
Don’t like your IRA provider? Changing your IRA is easy, and you can do it for any reason at almost any time. It’s best to transfer your IRA directly from one broker to another.
Here are the simple steps to transfer your IRA:
- Open a new IRA account that will receive your current IRA transfer.
- Contact your new provider about the transfer. You may be able to transfer your IRA online without any human assistance, but a customer service representative can help you if needed.
- Complete the transfer forms, usually online or on paper. You will need to provide details such as the old provider and account number. If you have investments in your old IRA, the old provider is likely to charge you fees to move them to the new account.
- After a few days, the securities and cash from the old account will appear in the new account.
You should be cautious when transferring your IRA, as it can create additional taxes if you switch IRA types between a traditional IRA and a Roth IRA. Generally, you want to keep the same type of account. This means you would want to transfer funds from one traditional IRA to another or from one Roth IRA to another, rather than transferring funds from a traditional IRA to a Roth IRA or vice versa.
If you are changing account types, it may create significant tax liabilities, and you need to be fully informed about those liabilities before making any transfers.
What is the difference between a traditional IRA and a Roth IRA?
There are several differences between a traditional IRA (or regular IRA) and a Roth IRA, although both are tax-advantaged accounts that help you save for retirement. Some key differences revolve around specific tax benefits and which account works best under certain circumstances:
With a traditional IRA, you contribute pre-tax income to your account, allowing you to deduct contributions from your income (if it’s not too high). These contributions can grow tax-deferred within the account until you withdraw money during retirement, at which point they become taxable income.
With a Roth IRA, you contribute post-tax income to your account, and these contributions can grow tax-free within the account. They will still be tax-free when withdrawn in retirement. You can also withdraw contributions (not earnings) from your Roth IRA at any time without incurring a tax issue. The Roth IRA also offers other benefits and has income restrictions.
Retirement experts often recommend a Roth IRA, but it’s not always the best option, depending on your financial situation.
A traditional IRA may be a better option when you are older or earn more because you can avoid paying higher income taxes on current income. It’s a good choice when you believe that tax rates (or your rate) will decrease in the future, so you pay lower rates on future withdrawals. However, this
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