When it comes time to open an IRA there can be a lot of confusion. There are so many choices available today that many people simply give up the search and put off investing for retirement.
It does not have to be that way. If you understand a couple of simple principles and choose a good company to handle your IRA, the process can be very simple.
Once you have your IRA set up you can simply have monthly deductions taken directly from your checking account and you will never miss the money while it slowly grows to help you reach your retirement goals.
The worst IRA companies
Let’s start off by talking about where you do not want to set up an IRA. A couple of the worst places you can open an IRA are with a bank or an insurance company.
Both of these institutions will have investment representatives who will try to get you to open an IRA with them.
If you ever walk into your bank’s lobby you will often see someone sitting at a desk near the front door who is extremely chipper and tries to engage you in conversation. After a few pleasantries, they will often turn the conversation towards setting up a retirement account with the bank.
It will often also happen with your insurance agent or someone else in their office who will turn routine conversations about insurance towards the great options they have for investing in an IRA.
The reason it is a bad idea to invest with these companies is because of the commissions.
These institutions are simply resellers for other financial institutions and the commissions they receive on the sale of these investment products are usually astronomical. This brings us to our next point.
How important are fees associated with IRA accounts?
When you’re looking for the best IRA company you will always want to go with the company that offers low fee investing.
There are a number of studies that show that the fees you pay associated with your investments will often have a bigger impact on your overall returns than the actual investments you are using.
Think of it this way. The average management fee associated with the mutual fund is about 1.5%. That means that your IRA needs to earn 1.5% before your investment is back to even.
Now throw a sales commission on top of that and you are really starting out in a hole. This is why it is important to know what are all the fees associated with your IRA account.
Stocks or Mutual Funds for your IRA?
Your choice of IRA companies should be based on whether you will be picking your own stock investments or utilizing mutual funds in your IRA.
There really is no great choice for an IRA company that offers both. If you are a complete investing novice your best bet is to use mutual funds.
Mutual funds will allow you to buy a basket of stocks or bonds that are managed by professional money managers.
There are also many different model portfolios available that will allow you to decide what type of stock and bond mix will help you meet your goals.
If that still sounds too complicated almost all mutual fund providers have some sort of target-date retirement funds for your IRA.
These funds will allow you to choose one fund which is managed with an approximate future retirement date in mind. The manager of the fund will automatically adjust the stock and bond blend as you get older and near retirement.
Best IRA companies for stock investing
If you choose to buy stock for your IRA then you will definitely want to go with a discount broker.
If you’re doing your own stock research there is no point in paying a full-service brokerage with high commissions.
Two of the best discount brokerages to work with are TD Ameritrade and Merrill Edge. Both of these discount brokers offer no minimum IRA accounts with very low costs per trade.
Best IRA mutual fund companies
When it comes to the best IRA companies for investing in mutual funds there are really only two clear front-runners, Vanguard and Fidelity.
These are the two low-cost best ira companies leaders when it comes to investing in mutual funds. Personally, I lean towards Vanguard since it is shareholder-owned.
Vanguard works much like a credit union in that the shareholders are the owners of the company.
Therefore, Vanguard’s primary responsibility is to keep shareholder costs low. They have done a remarkable job of delivering solid investment choices with extremely low costs for decades now.
So, my advice is if you are looking to open an account with an IRA company you should start and end your search at Vanguard.