Best IRA Account

Planning for retirement shouldn’t give you wrinkles.

Retirement might feel more like the carrot at the end of a very long and stressful stick (instead of the inevitable, satisfying conclusion to decades of work), but putting money away in an IRA account is a simple and tax-effective way to make sure you’re ready when you hit retirement age. After researching more than 20 online brokers, E*TRADE’s sophisticated dashboard, impressive investor resources, and 24/7 support made it a clear standout as the best overall.

While IRAs (short for “Individual Retirement Account”) might seem like ordinary accounts burdened with a bunch of rules and restrictions, they’re actually pretty simple and are stacked with tax breaks to reward you for saving for retirement. IRAs are easy to open, too. With some brokers, it took us less than five minutes to get started. Once an IRA is open, the money in the account can be invested in any number of ways — stocks, mutual funds, you name it — and can be traded as often as you’d like, though each of those trades will cost you.

In order to find the best IRA, we spent 45 hours researching and comparing the account requirements, fees, and financial offerings of 22 online brokers. We tested customer support over the phone, via chat, and on email — timing their responsiveness and measuring their helpfulness. Then we went through the signup process with the top four providers. There was a lot to like about each of the top contenders, but we focused our reviews on providers that offered the three most popular types of IRAs (Roth, Traditional, Rollover), had lower-than-average fees, and could effectively serve beginners and experienced traders alike.

Here are the 4 best IRA accounts:

  1. E*TRADE (Best Overall)
  2. Charles Schwab (Best In-House Research)
  3. TD Ameritrade (Best for Rollovers)
  4. Scottrade (Best Customer Service)

How We Found the Best IRA Accounts

To narrow down our results, we spent several days compiling research on more than 20 of the most popular IRA providers that all offer the three most popular types of IRAs: Roth, Traditional, and Rollover IRAs. (New to IRAs? Read more about the differences and pick the type that’s right for you.) Once we collected the data, we started making our first rounds of cuts.

We cut providers with a minimum deposit requirement of $2,000 or more.

Some of the top IRA providers have minimum deposit requirements that top $5,000. Depending on your financial situation, this initial upfront cash requirement may not be a big deal, but for new investors (or lower-income investors looking to take advantage of the Saver’s Tax Credit), stacking up that much cash isn’t only challenging, it stalls their retirement savings. Every day (and year) that money isn’t in an IRA is another year it’s not earning money.

Even if you do have the cash stacked up and ready, a $0 minimum deposit requirement means you can take the broker’s account for a spin without putting down any money. That’s the equivalent of getting a risk-free trial run.

With more than 20 options to choose from, IRA providers find themselves in a pretty competitive field. Fees definitely matter, but to really stand out from the pack, a broker also needs to be a viable option for all types of investors and they should be willing to give investors a peek under the hood, too. There are numerous IRA providers that grant full access to their slate of offerings without requiring a minimum deposit, and because we think the field is competitive enough to hold the top brokers to that bar, we excluded any that require a minimum deposit of $2,000 or more.

We cut providers that aren’t designed for the average consumer.

While not every investor has the same needs, some brokers seem to be designed for a pretty specific group of people. Some, like TradeKing, offered certain trades at a low cost, but countered that with penalties like inactivity and low-balance charges. Others had such professional interfaces, it took us way too long to understand what was going on. (You know the type: a black computer screen with quite a few charts, neon trend lines incomprehensible to the average person zigzagging everywhere.) In fact, we noticed a distinct correlation between super-low trading fees and a tendency to cater to investors with more “insider” knowledge, who want to put in the time to learn new software and use it to actively trade.

Our research also showed that the vast majority of accounts with high fees for active management actually lose money in the long term — and quite a bit of it, too. As outlined in this 2014 article in The Atlantic, over the lifetime of an account, a difference in annual fees of just a few tenths of a percentage can result in a six-figure loss in lifetime earnings. Remember, it’s not just the fees you’re paying out, but also the opportunity cost of not getting to reinvest that money back into your account. Sure, if your trades beat the market, you can outpace the fees you’ll be paying, but keeping those fees low could mean there’s a cool hundred thousand dollars going into your retirement fund, instead of straight to your broker.

Fees can mean you’ll lose out on another $100,000 in your retirement fund.

Over the lifetime of your IRA, the difference between annual fees of 0.11% and 0.77% can easily add up to more than $100,000, so watch your rates. Source:https://personal.vanguard.com/pdf/s296.pdf

The numbers across the board suggest that the money you pay for a managed account simply isn’t worth what you get back (and the money you save for super low-cost trades typically means they have more complicated software than you need to learn). After all, it’s no sure thing that your returns will beat the market, but you’ll definitely be saddled with those fees either way. That’s why we cut IRAs with especially high fees in favor of lower-cost, more passive options that still offer helpful planning and investing tools.

We cut providers that don’t have a great reputation for investor satisfaction.

We called in some backup to help us with this stage of cuts. First, we compared and augmented our research with ratings from J.D. Power’s 2015 Self-Directed Investor Satisfaction Rankings. Those rankings were based on many of the same factors we accounted for in our own study including, but not limited to:

  • Investors’ interaction with their firm
  • Trading charges and fees
  • Information resources
  • Problem resolution

For a firm to make our cut, it had to rank “Better Than Most” on J.D. Power’s list and perform highly according to our own research. This narrowed our list down to four contenders.

IRA Reviews and Testing

Our final four picks — E*TRADE, Charles Schwab, TD Ameritrade, and Scottrade — all appear to be great options on paper. Just to make sure that “on paper” translates to real life, we did some extra research focusing on customer service and user experience.

This meant we had to go through the initial steps of opening an account with each broker. While doing so, we completed a customer-service evaluation that accounted for various aspects of the user experience. We used their interactive education centers to make sure they had free research and data to help us pick investments for our funds. We downloaded their mobile apps to check for intuitive design and navigability. Then we called, emailed, and chatted with their customer support, ranking them by how rapidly they responded and how helpful they were with their answers. Our first-hand research led us to a clear overall winner.

Our Picks for the Best IRA Accounts

Best Overall

E*TRADE is one of the most popular online brokers, and our results show that it’s plenty deserving. The broker’s website offers a bevy of resources for ambitious investors, but it’s also ideal for beginners — the mobile app is easy-to-follow; the dashboard is a customizable drag-and-drop affair; and phone support is at the ready 24 hours a day. The interface and trading tools are so simple and sophisticated anyone can research and make a trade in just a few clicks.

It also has a remarkably high number of investment options that includes more than 1,300 transaction-fee-free mutual funds and more than 100 commission-free ETFs. Many of the brokers we looked at were limited in terms of investment choices, but E*TRADE offers investors more options — and more free data and research — than any other competitor geared toward a wide range of investors. Whether you want to focus on stocks and ETFs or invest for the long term in mutual funds, the tools are here and easy to use. A member of our research team even liked E*TRADE so much during testing that he rolled his IRA over into an E*TRADE account. The process was simple and seamless, just as we’d expected.

The company even offers some nice incentives to attract more active investors, including stock commissions that decrease from $9.99 to $6.99 the more you trade. And, though there’s no minimum for opening an account, initial deposits of $10,000 or more come with 60 days of free trades. While this added bonus probably won’t apply to first-time investors, it speaks to the company’s overall appeal and willingness to cater to a broad consumer base. No matter how much money you have to start off with, we’re confident recommending E*TRADE as the cream of the IRA crop.

Who Is It Best For?

E*TRADE is great for investors at every level. We especially recommend it if you’re opening your first account.

Best In-House Research

It’s hard to find much fault with Charles Schwab, a respected broker that boasts name-brand recognition and one of the highest scores in our customer-service evaluation. The $1,000 account minimum is annoying, but it can be avoided if you set up an automatic monthly transfer of $100 through direct deposit or Schwab MoneyLink. The broker’s balanced offerings and incredible 24/7 live-chat support make it worth at least considering.

Charles Schwab also offers some of the best in-house research available, which more seasoned investors will especially find appealing. The company claims that its advanced trading platform, StreetSmart Edge has an “intuitive, approachable design,” but it took us a little while to wrap our heads around all of its features. The platform can be downloaded as standalone software or accessed on the web; it’s definitely useful, but the learning curve is a little difficult.

Who Is It Best For?

Charles Schwab is suited for investors at every level, but it’s even better for more seasoned traders.

Best for Rollovers

TD Ameritrade didn’t score quite as highly in customer service; it doesn’t have a live-chat option, which brought it down a peg. The broker also has some of the highest trading fees among our top contenders, but this is offset by refreshingly transparent pricing and smooth, intuitive web and mobile apps. TD Ameritrade also offers one of the better promotions if you’re looking to rollover a 401(k), so it’s definitely an option to consider if that applies to you.

Who Is It Best For?

TD Ameritrade should appeal to investors at every level, with special promotions that apply to anyone looking to rollover an existing 401(k).

Best Customer Service

Of all the customer-service reps we dealt with, Scottrade’s stood out as the most helpful and willing to answer our questions. The company’s live-chat service may not be available 24/7, but it still ranks among the best in the business overall. The website and mobile apps are also well-designed, if not quite as remarkable as some of the other options out there. More active traders will probably be a bit frustrated by the lack of advanced tools, but that obviously shouldn’t scare off new investors, who will really appreciate the online and in-person help Scottrade is known for.

Who Is It Best For?

First-time investors with lots of questions should consider Scottrade, as the firm provides exceptional customer service online and at more than 500 branch locations.

Other IRAs Worth Considering

Best IRA for Active Traders

All of our research suggests that unless you’re day trading as a full-time job, it’s incredibly hard to beat the market. If you’re taking on that challenge, though, these top picks have low fees and pro software.

  • Interactive Brokers has some of the lowest trading fees we found ($0.0005 per share), but the trading software is so pro that day traders use it as their primary software. The difficult learning curve, combined with a $5,000 account minimum and $7.50 quarterly charge for an IRA, essentially shuts out casual investors.
  • OptionsHouse, too, has impressively low fees: $4.95 flat fee for a stock trade, as compared to $9.99 at some of the other brokerages. But they don’t have an education center and the trading platform is a lot more complex than the average investor needs (or needs to spend time figuring out).
  • TradeKing offers some trades at that relatively low cost of $4.95, but this perk comes with a few downsides, including an annual “inactivity charge” that penalizes you $50 for keeping an account value below $2,500 and not executing any trades, which means it’s not a good option for passive investors or newcomers.

Best Robo Advisors

Automated investment services, also known as “robo advisors,” are pretty much exactly what they sound like: robots that make all of your investment decisions for you. These services are a low-cost, hands-off solution designed for passive investors who aren’t interested in trading their own stocks. They’re attractive because they don’t charge big fees for performing a lot of the same functions that traditional brokers do (and they make daily micro adjustments that they claim will land bigger returns and tax breaks), but they also don’t come with as many investment options (which is why we cut them from our contenders for Best Overall IRA).

  • Betterment has a tiered fee structure, so only accounts with more than $100,000 get the very best rate: 0.15 percent. (Accounts under $10,000 have an annual fee of 0.35 percent.) Every dollar in a Betterment fund is automatically invested based on the account owner’s age, goals, and risk profile. Betterment can also buy fractions of a stock, so all of your funds will always be put to work. The company got a perfect score on our customer service test and even returned our email faster than our moms do: in just 45 minutes.
  • Wealthfront will manage the first $10,000 in any account for free. This is the absolute lowest rate we saw anywhere. For each friend an account owner refers, Wealthfront adds another $5,000 to the free management cap. After that, it’s a flat fee of 0.25 percent no matter how much is in the account. They do require $500 to get started though.

Our Research

22 brokers considered
100+ fees and account limits tallied
60+ calls, chats, and emails to customer service
45 hours of research
11 types of IRAs investigated

What You Need to Know About IRAs

There are 11 types of IRAs — pick the one that’s right for you.

The world of retirement saving is a crazy one, with lots of options to sift through, so if you’re feeling lost, don’t worry. There are 11 (!) types of IRAs, but the two most common are the Traditional IRA and the Roth IRA. A third popular type, the Rollover IRA, allows you to transfer retirement funds from a previous job into a Traditional or Roth IRA.

Traditional and Roth IRAs actually have a lot in common:

  • A variety of investment opportunities: Both IRAs allow investments in the form of stocks, bonds, mutual funds, and ETFs.
  • Contribution limits: For 2015 and 2016, if you’re 49 years old or younger, you can put up to $5,500 per year in your IRA. If you’re between 50 and 70½, you can contribute up to $6,500 (although Roth IRAs let you regularly contribute beyond age 70½). These cumulative limits apply even if you have multiple IRAs.
  • Withdrawal restrictions: If you pull money out of your IRA account (no matter which type it is) before you reach the full retirement age, you’ll have to fork over a 10 percent penalty in addition to any income tax earned on your investment. For this reason, it’s important to make sure you never have to withdraw money early. Roth IRAs are a little more flexible — there are options for taking out money for a first-time home buyer’s down payment, for example — but the general rule applies either way: Once it’s in there, it should stay in there until you’re retired.

The key differences between a Traditional and Roth IRA are when your tax breaks occur and when you’re required to withdraw money:

  • With a Traditional IRA, contributions are tax-deductible each year and you only pay taxes on the money when you take it out later in life. Once you hit 70½, though, you’re required to start taking distributions.
  • With a Roth IRA, you pay taxes up front and won’t have to pay any taxes when you withdraw money upon retirement. You’re not required to start disbursing your account at any point, either — though you can take out $10,000 tax-free for the down payment on your first house. There’s an income limit for contributing the full amount to a Roth IRA (in 2016, you have to make less than $117,000 annually or $184,000 for married couples filing jointly), which makes it a more popular option for younger people.

Traditional IRA vs. Roth IRA

Traditional IRARoth IRA
Who can contribute?Anyone younger than 70½ years of age.Age doesn’t matter, but single filers in 2016 must make less than $117,000 annually ($184,000 for married couples filing jointly) to fully contribute.
When do you pay taxes?When you withdraw your money at retirement. Until then, you’re allowed to deduct your yearly contribution each year.Contributions aren’t deductible, but you won’t pay any taxes on money you withdraw at retirement.
When do you have to take money out?When you hit 70½, you’ll need to start taking distributions.You don’t! Even better: First-time homebuyers are allowed to take out up to $10,000 in tax-free earnings before retirement.
Who is it best for?Adults with higher income who want to pay less in taxes each year.Young people just starting to save, and people who might need to take money out to buy a first home.

Though Traditional and Roth are the most common types of IRAs, you should also know about two other types that help businesses contribute to their employees’ retirement:

  • SEP IRA: The Simplified Employee Pension (SEP) plan is a Traditional IRA that follows all the same rules for investment, distribution, and rollover. The big difference is that it’s set up by your employer, usually in place of a pension fund. It’s meant to be an easy way for your employer to contribute to your retirement.
  • SIMPLE IRA: The Savings Incentive Match Plan for Employees (SIMPLE) IRA is also set up by employers to contribute to their employees’ Traditional IRAs. It works like a 401(k) and is meant as a start-up retirement savings plan for small businesses.
  • Solo 401(k): Also known as the “one-participant” 401(k), the Solo 401(k) is a traditional 401(k) plan that covers a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as other 401(k) plans, and they also closely resemble SEP IRAs.
  • 403(b): If you work as an educator or in a hospital or nonprofit, you might be eligible to contribute to a 403(b) plan, which closely resembles a 401(k) plan, but is designed specifically for employees in the public sector.

Tax time is an ideal time to open an IRA.

If you’re thinking about starting an IRA and want to build it up fast, timing is everything. The IRS allows you to contribute up to the max dollar limit ($5,500 for ages 49 and under in 2016) to an IRA through April 15 of a given tax year. When you’re making a contribution to your IRA, you’ll be able to select whether you want the previous year or the current year as the tax year of record. As long as you make any contributions for the previous year before April 15, you’ll be able to contribute the full limit allowed for the current year as well. This is a great way to beef up your IRA in a hurry; just remember to specify which year each contribution is for. Plus, all of the best online tax software make it easy to take advantage of these tax benefits.

If you make less than $30,500 ($61,000 for joint filers), opening an IRA could save you $2,000 on your tax bill. The IRS also offers a “Saver’s Credit” for low-to-moderate-income workers contributing to an IRA or other retirement plan. This credit helps offset part of the first $2,000 you voluntarily save for your retirement, including any amounts you contribute to IRAs. It’s a great way to increase your refund or reduce the tax you owe, but you’ll have to fill out IRS Form 8880 to qualify.

Actively managed accounts don’t necessarily make more money.

Don’t get tempted by the prospect of big money. In our research, we found there’s no advantage to being an active investor. In fact, there’s a disadvantage: The majority of actively managed accounts actually lose money in the long term. Vanguard, a broker that specializes in passive investing, loves to point out how actively managed funds typically underperform benchmarks. Betterment, an automated service that also focuses on passive investing, has similarly conducted studies showing that passive index-fund portfolios outperform active portfolios in the vast majority of cases. All of our top picks tend to have lower fees than other managed accounts, but automated investment services like Betterment and Wealthfront do offer an even lower-fee, hands-off approach to investing that’s worth considering.

These passive brokers aren’t without their own drawbacks. Vanguard, for instance, has been accused of dodging taxes and could be forced to raise fees soon. And automated investment services don’t have all the options of more typical brokers, which is why we couldn’t put them at the top of our overall ranking.

Take Action

  • Decide which type of IRA you want to open. If you’re a younger, lower-income investor or you might buy your first home soon, consider a Roth IRA instead of a Traditional IRA.
  • Then, go for a broker who can meet your needs. If you’re the type of person who needs to have questions answered in person, for example, look for a broker with plenty of physical branches. Scottrade has more than 500 physical branches; Charles Schwab has more than 325 locations; and Betterment has none.
  • Contribute before April 15. You can make contributions for last year as late as your tax deadline. To max out your account, you’ll want to add what you can each year. But remember: It’s best to add only what you’re sure you won’t need to take back out until you hit retirement age.