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Many people use individual retirement accounts — more commonly known as IRAs — to save up money for their nonworking years.
Investing in an IRA is an effective way to make sure you're setting aside a retirement nest egg, especially if you don't already have a 401(k) plan offered by your employer.
IRAs also offer tax benefits, and they are set up to encourage you to leave your funds untouched by imposing early withdrawal penalty fees should you tap into your earnings before age 59 and a half.
To determine which IRAs are the best overall, Select reviewed and compared over 20 different accounts offered by national banks, investment firms, online brokers and robo-advisors. While there are several types of IRAs on the market, such as traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs, we chose to focus on only traditional IRAs for the purpose of this ranking.
To identify our top IRAs, we narrowed down the choices by selecting only those that require no minimum deposit, offer commission-free trading of stocks and ETFs, provide a variety of investment options and have educational resources or tools to help all sorts of investors.
We ranked the best IRAs by what type of investor you are, from beginner to experienced, as well as hands-on and hands-off investors. We included a best overall pick as well.
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Stocks, bonds, mutual funds, CDs and ETFs
Extensive retirement planning tools
$0 commission fees for stock and ETF trades; $0 transaction fees for over 3,400 mutual funds; $0.65 per options contract
500 free trades
Stocks, bonds, mutual funds, CDs and ETFs
Tools and calculators that show users their retirement goal progress; Fidelity Five Money Musts online game to teach you about managing money in the real world
$0, but you'll need $1,000 to invest in many of its retirement funds
$20 annual account service fee unless you sign up for electronic statements or meet minimum balance requirements; $0 commission fees for stock and ETF trades; $0 transaction fees for over 3,000 mutual funds
Stocks, bonds, mutual funds, CDs, ETFs and options
Retirement planning tools
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, $0 minimum balance; Premium Investing requires a $100,000 minimum balance
Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee
Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC
Stocks, bonds, ETFs and cash
Betterment RetireGuide™ helps users plan for retirement
No account fees; $0 commission fees for stock and ETF trades; $0 transaction fees for over 4,000 mutual funds
For a limited time only: Get up to $3,000 when you open and fund within 60 days of account opening a new E*TRADE brokerage or retirement account by June 30, 2021, using promo code: BONUS21 (deposit minimums start at $10,000)
Stocks, bonds, mutual funds, CDs, ETFs and options
Educational library includes in-depth articles and videos
IRAs are tax-advantaged investment accounts. They offer a range of investments for your money, such as individual stocks, bonds, mutual funds, CDs and cash.
You can open an IRA at most banks and credit unions, as well as through online brokers and investment companies.
If you already make automatic contributions into a 401(k) account through your employer, you may wonder if you also need an IRA. IRAs supplement these other retirement accounts and come with their own advantages. They are accessible and easy to set up, plus individuals can shop around for the right investments for their finances versus being limited to their employer's 401(k) plan. This gives you the flexibility to make your own investment selections, with the guidance of the brokerage firm or bank that manages your account.
You can also set up automatic contributions into your IRA from your checking or savings account. IRAs typically don't come with account setup fees, but you'll likely have to pay transaction and advisory fees when applicable, as well as fund expense ratio fees which cover operational costs.
Before funding an IRA, you need to understand the contribution limits and tax implications. How much you can contribute and deduct from your taxes depends on your age, income, tax filing status and whether or not you have a retirement plan through your employer.
Below are two handy resources from the IRS website that help guide you through how much you can contribute to an IRA and how much of it can be tax-deductible:
- IRA Contribution Limits: There is a maximum dollar amount you can contribute to your IRA each year, and it's determined by the federal government. In 2021, the limit is $6,000 if you're younger than 50 and $7,000 for those 50 and older.
- IRA Deduction Limits: There are also limits on how much of your IRA contribution you can deduct from your individual federal income tax return. This only applies to traditional IRAs as Roth IRA contributions are not tax-deductible. You cannot make a deduction if you (or your spouse, if married) have a retirement plan at work and your income is $76,000 or more as a single filer/head of household, $125,000 or more as married filing jointly/qualifying widow(er) or $10,000 or more as married filing separately. If you (and your spouse, if married) do not have a retirement plan at work, you can make a full deduction up to the amount of your contribution limit.
Though there are several different types of IRAs, you may not be eligible for all of them. Individual taxpayers can choose from traditional and Roth IRAs, while anyone who is self-employed (think freelancers) or a small business owner can choose from SEP (Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) IRAs.
When choosing an IRA to start saving for retirement, you'll most likely be deciding between a traditional or Roth IRA. Key factors to think about are your financial goals, timeline to retirement and risk tolerance. If you're closer to retirement, you'll probably want to go with investments that are lower risk and have less potential to lose money as you near your nonworking years. The advantage of choosing an IRA from a well-known brokerage firm or bank is that they help you assess what would be the best investments depending on your other goals, how soon you want to retire and how conservative you want to be.
For the more active investors, look at IRAs offered by online brokers like E*TRADE. For the more passive investors, consider an IRA from a robo-advisor, such as those from Betterment. Robo-advisors rely on algorithms to manage your portfolio for you, taking into consideration your risk tolerance and goals.
For a more personal experience, consider IRAs offered by big brokerage firms like Charles Schwab, Fidelity Investments and Vanguard that provide access to human advisors.
The big difference between traditional and Roth IRAs is when you pay taxes.
With a traditional IRA, you contribute pre-tax dollars. While this is better for your immediate cash flow as you're taking out less from your disposable income now, your money grows tax-deferred and later in retirement you will have to pay income tax on any funds you choose to withdraw. This is a good option if you think you will be in the same or a lower tax bracket (have the same or less income) when you retire. If you withdraw either your pre-tax contributions or earnings from your traditional IRA before age 59 and a half, you'll be taxed in addition to incurring a 10% early withdrawal penalty fee.
With a Roth IRA, you pay taxes upfront by contributing after-tax dollars. While this is a bigger hit to your immediate cash flow since you are taking out more from your disposable income now, your money grows tax-free and so in retirement, withdrawals are generally not taxed as long as your account has been open for at least five years. This is a good option if you think you will be in a higher tax bracket (have more income) when you retire.
You can withdraw your after-tax contributions from your Roth IRA at any age tax- and penalty-free. If you withdraw any earnings you've made on your investments before age 59 and a half, you will incur a 10% early withdrawal penalty (though it won't be taxed like a traditional IRA). Some exceptions to this early withdrawal penalty on Roth IRAs include first-time home purchases, college expenses and birth or adoption expenses.
You can use calculators like this one from Charles Schwab to help you decide between choosing a traditional or Roth IRA.
There are strict contribution limits, so you can only deposit a certain amount of money into your IRA each year.
Both traditional and Roth IRAs have the same contribution limits: For 2021, those under age 50 can make a total contribution into their traditional and Roth IRAs of up to $6,000. Those 50 or older have a limit of $7,000.
With traditional IRAs, you can contribute regardless of how much money you earn, but with Roth IRAs there are income limits. High-earners may not be eligible to open or contribute to a Roth IRA. Here are the 2021 income thresholds for contributing to a Roth IRA:
- Married filing jointly or qualifying widow(er): Not eligible if your modified adjusted gross income is $208,000 or more
- Single, head of household or married filing separately (and you didn't live with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $140,000 or more
- Married filing separately (if you lived with your spouse at any time during the year): Not eligible if your modified adjusted gross income is $10,000 or more
In short, yes. Retirement accounts like IRAs invest your money in stocks and bonds, so your money fluctuates with the highs and lows of the market. You can also lose money if you take out cash before retirement and pay early-withdrawal penalties.
The good news is that retirement funds are long-term investments so market dips in the short term shouldn't affect you too much in the long haul. And while early-withdrawal penalties seem like punishment, they are there to encourage you not to withdraw from these accounts.
To determine which individual retirement accounts (IRAs) are the best for investors, Select analyzed and compared traditional IRAs offered by national banks, investment firms, online brokers and robo-advisors. We narrowed down our ranking by only considering those that offer commission-free trading of stocks and ETFs, as well as a variety of investment options so you can best maximize your retirement savings.
We also compared each IRA on the following features:
- $0 minimum deposit: All of the IRA on our ranking don't have minimum deposit requirements.
- Low fees: We considered each IRA's fees, commission trading fees and transaction fees.
- Bonus offered: Some IRA offer promotions for new account users.
- Variety of investment options: The more diversified your portfolio, the better. We made sure our top picks offer investments in stocks, bonds, mutual finds, CDs and ETFs. Most also offer options trading.
- A hub of educational resources: We opted for IRA with an online resource hub or advice center to help you educate yourself about retirement accounts and investing.
- Ease-of-use: Whether accessing your IRA via your laptop at home or on your smartphone while on the go, it's important to have an easy user experience. We noted when investment platform excelled in usability.
- Customer support: Every IRA on our list provides customer service available via telephone, email or secure online messaging.
After reviewing the above features, we sorted our recommendations by what type of investor is a best fit, from beginners and hands-off investors, to the more experienced and hands-on investors.
Your earnings in an IRA depend on any associated fees, the contributions you make to your account and the fluctuations of the market.
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