An 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 to do so, courtesy of the U.S. government. If you’re looking to get off to a fast start on your retirement finances, an IRA is a great place to begin and you can complete the whole setup online in just a few minutes.
One of the best opportunities for rolling up a nest egg is by investing in the financial markets, and to do that you’ll need a brokerage account. Whether you want to do it yourself or have someone do it for you (or somewhere in between), here are some of the top IRA accounts to open.
Best IRA accounts to open in January 2021
- Charles Schwab
- Fidelity Investments
- Interactive Brokers
- Merrill Edge
The IRA: What you need to know
With a traditional IRA, you can receive a tax break this year while saving for retirement. You’ll also enjoy tax-deferred growth on your investments until you withdraw the money from the account at retirement, defined as age 59 1/2 or older. You’ll generally be able to avoid taxes on any contribution you put into the account, meaning it’s a good way to reduce your current taxes.
It’s useful to think of the IRA as a “shield” or “wrapper” on a normal account that protects it from the tax man. Many financial companies offer an IRA, including banks, brokerages, insurance companies and robo-advisers, and each may allow you to make various kinds of investments.
These kinds of investments determine what you’ll ultimately earn in your IRA. If you’re invested in historically strong assets such as stocks, you may do better over time than in CDs and bonds. However, there’s a trade-off to keep in mind – higher-performing investments require you to take on more risk, while safer assets generally fluctuate much less, or in some cases (such as CDs) are risk-free.
You’ll want to read the full details on the IRA so that you’re taking maximum advantage of the plan and avoiding the pitfalls. You may quickly see why it’s such a popular retirement vehicle.
Overview: Top IRA accounts in January 2021
Here are some of the best brokers or robo-advisers to use when you’re setting up your IRA.
Charles Schwab does all the core brokerage functions well, and its long-time reputation for investor-friendliness precedes it. If you want stocks, bonds, funds or even CDs in your IRA, Schwab will be able to get the job done. In fact, Schwab offers thousands of mutual funds with no transaction fees. Plus, with commission-free trades and quick customer service, the broker regularly rates among the top in the industry. Of course, if you want to go more active, you can access Schwab’s flagship trading platform, StreetSmart Edge and get your trade on.
A great fit for: Investors who want to actively or passively manage their IRA.
Fidelity is one of the best overall brokers, and you can see it across everything they do: friendly and helpful customer service, strong trading platforms for active traders, a policy of not hitting you for every possible nickel and dime for services and a wide selection of investments (including thousands of mutual funds available without a transaction fee). It also doesn’t hurt that the broker offers four mutual funds that charge no management fee, making them great picks for IRA investors. Fidelity does it all at a high level, and you’re not likely to be disappointed.
A great fit for: Investors who want to be active traders or invest passively.
Vanguard is a great choice for its low-cost mutual funds, even if you could buy its funds at another broker. Still, Vanguard makes a great fit if you’re a passive investor, even if, like most major brokers, it has also reduced online trading commissions for stocks and ETFs to zero. Vanguard also offers more than 3,000 mutual funds without a transaction fee. So if those are more your style, you’ll have no problem finding a few funds you’re looking for.
A great fit for: Investors who want to manage their IRA passively, especially with Vanguard’s funds.
If you’re content to let someone else manage your IRA, then Betterment will likely be a good fit. For one low flat fee, this robo-adviser will manage your portfolio from start to finish, and all you’ll need to do is add money. You’ll get valuable features such as tax-loss harvesting and automatic rebalancing for no extra charge. Plus, you can pay a bit higher fee and bring $100,000 or more to the account, and you’ll be able to access human advisers for all your detailed questions.
A great fit for: Investors who want a robo-adviser to manage their IRA for them, or who may want access to a human planner from time to time.
Interactive Brokers is a brokerage that gives you ample access to the world’s markets, so if you want a “go anywhere” outfit, this is for you. And Interactive Brokers has long been known as a broker for serious active traders, though of course you needn’t be one to open your IRA here. Opt for the brokerage’s Pro platform, known for its top execution, or go for the Lite platform, where your trades are free. Either way, you’ll be investing with one of the world’s most secure institutions.
A great fit for: Investors who trade actively and want access to all kinds of markets.
As a Merrill Edge customer, you’ll benefit from the brokerage’s robust offerings and access to stock research, as well as strong customer service. Plus, Merrill is a great choice if you’re likely to need in-person assistance, because parent company Bank of America offers a Merrill rep at more than 2,000 branches, a true competitive edge. Another edge: if you’re already one of the bank’s customers, it’s just easier to have your financial business all in one place.
A great fit for: Investors who want to trade actively or passively, or may need the help of a human planner.
If you’re looking to do something off the beaten path with your IRA, then Fundrise might be for you. Fundrise lets you use your IRA to invest in real estate, which might fit perfectly in an IRA since it tends to crank out cash that would otherwise be taxable. With Fundrise you’ll be investing in a REIT, a well-known structure that passes dividends on to investors, and you may have to lock in your money for years, so it may not be for everyone. But for those investors looking for an alternative investment such as real estate, Fundrise could be an attractive option.
A great fit for: Investors who want to scope out and invest in real estate.
Like other major brokers, E-Trade offers commission-free trading of stocks and ETFs, but it’s also a great choice for mutual funds, offering more than 4,000 without a transaction fee. E-Trade is another do-it-all broker, great for the active trader (volume discounts on options, the Power E-Trade platform) as well as the passive investor thinking long term (third-party research).
A great fit for: Investors who want to actively or passively invest.