I think everyone eligible for a Roth IRA should consider it. The long-term tax advantages usually make the Roth IRA a great way to invest for your retirement.
It allows investors to invest for long-term growth and not pay taxes on their qualified Roth IRA withdrawal at retirement age.
Opening a Roth IRA is also very easy. All you need to do is fill out a form or two and make a contribution. The most challenging part about opening a Roth IRA is deciding where to open your account and which investments to purchase.
I can’t tell you which stock, bond, or mutual fund to purchase, but I can show you a few of the best Roth IRA companies where you can get started.
Table of Contents
Best Places to Open a Roth IRA
If you want to invest in individual stocks, one of your primary concerns will be the cost per transaction. Platforms like those listed below offer low-cost stock trades to meet most investors’ needs.
The following discount brokerages, robo-advisors, mutual fund companies, and other investment platforms provide unique features that may make them a better option for your situation.
Ally Invest – Best Overall Roth IRA Brokerage
Several years ago, Ally Bank, one of the top-rated online banks, acquired TradeKing, one of the best overall discount brokerages. The merger resulted in Ally Invest, which is our top-rated IRA brokerage.
The merger of two award-winning financial services firms equals a big win for consumers. I was a TradeKing customer for almost ten years before the merger, and I now have a combined Ally Bank / Ally Invest account.
The merger went very smoothly and is a net benefit to customers.
Ally Invest offers commission-free stock trades, free trading tools, free access to Maxit Tax Manager, a learning center, and a community where investors can share tips and information. To top it off, Ally Invest offers an automated trading platform, Ally Invest Managed Portfolios.
Ally Invest Roth IRA account features:
- $0.00 stock trades – Commission Free!
- No custodial fees, no minimum balance for Roth IRA accounts.
- Read Ally Invest Review.
Betterment – Best Roth IRA for Beginning Investors
If you’re looking for a great place to open up a Roth IRA that you don’t have to worry about, Betterment is the best place to get a Roth IRA for beginners. While they are one of the newer investing sites, they are also one of the most interesting.
Betterment is the top robo-advisor brokerage in the country. With Betterment, you must set up an account, set your goals, and determine your risk preference.
After that, the robo-advisors will handle the rest.
Because Betterment uses an algorithm instead of actual financial advisors, it can keep its fees low while offering excellent services. If you don’t mind trusting your investments to a bunch of complex mathematical equations, Betterment is a perfect option for anyone looking to open up a Roth IRA.
With a Betterment account, you’ll enjoy plenty of features:
- Tiered fee system
- Variety of online tools
- Automatic investing
- Easy-to-use, even for beginning investors
- Read Betterment Review
E*TRADE – Best Roth IRA Account Tools
E*TRADE has won numerous awards, including the rating as the #1 Online Broker by Smart Money Magazine. In addition to a full-service brokerage, E*TRADE offers a full-scale bank, including top-rated checking and savings accounts.
That makes their Roth IRA option very attractive if you prefer to do more of your banking with one financial institution.
E*TRADE also recently launched an automated trading platform, E*TRADE Core Portfolios, making it another option for those who prefer a more hands-off experience.
Finally, E*TRADE recently eliminated commissions for US-based stock, Exchange Trade Funds, and options trades. That is a significant benefit for investors as it significantly reduces the cost of investing with E*TRADE.
E*TRADE Roth IRA account features:
- $0.00 trades for US Stocks & ETFs.
- Full feature bank.
- No custodial fees with electronic statements, no minimum account balance.
- Read our E*TRADE Review for More Information.
- Visit E*TRADE To learn more
Fundrise – Best App for Real Estate Diversification
Fundrise has made waves in recent years as an investing app that lowers the barriers to entry into the real estate market and reporting returns that outpaced the S&P 500.
Traditionally, real estate investing has been reserved for those with significant capital or who are okay with taking on substantial risks to achieve significant returns.
Fundrise mitigates these issues by allowing users to partner with other investors by pooling their money to invest in real estate developments.
Recently, Fundrise has partnered with Millenium Trust Company to offer these same real estate investing options within IRA accounts.
For those looking to diversify their IRA accounts with real estate investing, Fundrise is an option to consider.
TD Ameritrade – Reliable With Many Options
Like E*TRADE, TD Ameritrade also eliminated commissions for online stock, ETF, and option trades for all new and existing clients. Free stock trades are an attractive feature.
TD Ameritrade offers over 35 years of experience, more than 275 local branches, and multiple awards, including 4 ½ out of 5 stars for Long-term Investing from Barron’s and rated “best broker for your IRA” by Kiplinger’s.
You can easily link your account to TD Bank and access flat-rate commissions on all trades, independent research, and research from industry leaders like S&P, Morningstar Associates, and ResearchTeam™. You can download their trading platform to your desktop or laptop, use the web browser interface, or their mobile trading platform.
There are also no account minimums or maintenance fees.
- Flat-rate $0.00 commissions on every Internet equity trade.
- Over 2,300 commission-free ETFs selected by Morningstar Associates.
- Over 275 local branches.
- No minimum initial deposit is required to open an IRA.
- No IRA maintenance fees.
- Read our TD Ameritrade Review.
Open an IRA with TD Ameritrade
Lending Club – Alternative, Non-Stock Investments
A new one on the list is Lending Club, which is a peer-to-peer lender in the U.S. This type of investing is a bit different than others on this list because you invest in lending, not stocks or mutual funds.
You get to play the banker! But, understand the risks of this type of investing.
First, the account creation is a bit different because Lending Club doesn’t hold the investment vehicle for you. They create a new, self-directed Roth IRA account with another company, where they just charge an annual fee. You can then have more than just stocks in your Roth IRA.
Of course, you won’t have those trading commissions to worry about if you’re not trading stocks and mutual funds.
Here’s the quick breakdown:
- $100 account creation fee
- No trade fees
- No commission fees
- $100 annual fee
- Learn more or open an account at the Lending Club website
Schwab – Best for Active Traders
If you want to be an active trader with your investment portfolio, then Charles Schwab could be an excellent option for you. You must find a company that offers fewer trading fees and minimal fees.
Schwab has $0.00 stock trades and plenty of tools. They also have a lot of no-transaction-fee mutual funds and commission-free ETFs, which is an excellent option for anyone looking to make the most of their portfolio by minimizing fees.
- Low stock trade fees
- $1,000 account minimum
- $100 promotion for new clients
Wealthfront – Hands-off Investors
Maybe you don’t want to be as involved with your investing. Don’t worry, there are plenty of options for those who want to kick back and watch their money grow.
One of the best is Wealthfront.
Much like Betterment, Wealthfront has robo-advisors who will manage your account for you. If you don’t want to manage your account, the robo-advisor will invest your money based on your risk tolerance and financial goals.
To get started with Wealthfront, all you have to do is answer some questions about your finances and your goals. After that, the program will handle everything for you.
Now for the fees.
Wealthfront will charge you a 0.25% management fee, but it’s waived for the first $10,000 you invest. With their special promotion, you can get $15,000 worth of assets managed without fees.
It’s important to note you’ll need to have at least $500 in your account.
- Hands-off investing
- Fees waived for $10,000 worth of investing
- Affordable management fees
- Read our Wealthfront Review.
Merrill Edge – Casual Traders
If you’re looking for an all-around good brokerage with excellent customer service, look no further than Merrill Edge.
They are a part of the parent company, Bank of America, which means you can log into your Bank of America account, and your Merrill Edge account with one login. Not only this, but you can also get investment help at over 2,000 Bank of America locations across the United States.
- $0 Account Minimum
- Decent Trade Rates – $6.95
- Excellent Customer Service Reviews
Obviously, they don’t have the lowest rates on the market, but they have several other benefits which set them apart from the competition. One thing is their customer service.
They have 24/7 support you can access over the phone, chat, or email. You can also schedule appointments to meet with financial advisers at most Bank of America locations.
Another thing that sets Merrill Edge apart is the research tools they offer. They have the Bank of America Merrill Lynch Global Research and several third-party tools you can use to make the best decisions for your portfolio.
Vanguard – Lowest Expense Ratios
Vanguard is a nonprofit mutual fund company that passes savings on to the customer. They have a wide variety of top-rated mutual funds and some of the lowest expense ratios in the industry.
Vanguard also has a full-featured brokerage account in which you can invest in individual stocks, ETFs, and similar investments.
Their selection of index funds and ETFs is particularly competitive regarding low expense ratios. I have been with Vanguard for over a decade and have nothing but good things to say about their service and investment options.
- Minimum investment. $3,000 for most funds, $1,000 lowest.
- Commissions. Free for Vanguard funds, early redemption fees may apply. Commissions vary for outside funds.
- Account fees. None with electronic statements.
- Sign up for a Roth IRA with Vanguard.
Fidelity – Best Fee-Free Mutual Funds
Fidelity offers a wide variety of low-cost mutual and index fund options, and trading Fidelity-owned funds is free. However, early redemption fees may apply if you sell too quickly.
There is a minimum investment requirement of $2,500 to open an IRA, but they will waive that fee if you can commit to automatically investing $200 per month.
The downside to opening a Roth IRA with Fidelity is that their index funds require a minimum of $10,000 to open, making it more difficult to invest with index funds in your IRA.
However, you can open an IRA from their great selection of low-cost mutual funds and later transfer your assets into an index fund when you amass $10,000.
- Minimum investment. $2,500; can be waived with a monthly investment of $200.
- Commissions. No-load mutual funds, no sales charges, or commissions on Fidelity Funds; commissions vary for outside funds.
- Account fees. None for IRAs.
- Sign up for a Roth IRA with Fidelity.
T. Rowe Price – Best for Investors with $10,000
Most T. Rowe Price funds have expense ratios lower than their Lipper averages, which means more money works for you than your broker.
You can avoid annual fees for mutual fund accounts if you maintain a balance of at least $10,000 or if you are an individual with a balance of at least $50,000 or more invested with T. Rowe Price.
- Rowe Price requires a minimum of $1,000 to open an IRA and additional contributions are a minimum of $100.
- Minimum investment. $1,000.
- Commissions. No-load funds with no sales charges or commissions for T. Rowe Price funds; early redemption fees may apply.
- Account fees. $20 for IRA if under $10,000. Can be waived if the individual maintains $50k or more with T. Rowe Price.
- Who is this account for? This account is best for investors who already have at least $10,000 they can invest in an IRA with T. Rowe Price, so they can avoid the annual fee.
- Sign up for a Roth IRA with T. Rowe Price.
Index and mutual funds are often the best investment option for most investors, especially those new to investing.
Be sure to examine commissions and fund expense ratios, minimum required investment, variety and quality of investment options, accessibility to funds, annual IRA management fees, low balance fees, and other fees. You want to avoid these fees or pay as little as possible.
If you prefer a more hands-on approach to investing and want to trade individual stocks or ETFs, consider opening a Roth IRA with a discount brokerage firm, where individual stock trades cost much less than most mutual fund companies.
Where to Open a Roth IRA
Examine Your Investment Needs:
Many financial institutions can act as your IRA custodians. We can break them down into several main categories:
- Mutual Fund Companies and Brokerage Firms
- Robo Advisors
- Peer to Peer Lending
- Real Estate Crowdfunding
Banks usually only offer CDs, money market accounts, and similar investments. Some banks may offer other investment options, but they often have higher commissions and expense ratios than mutual fund companies or brokerage firms.
Unless your bank offers a full-service brokerage and reasonable costs, you can probably do better with a mutual fund company, discount brokerage, or other IRA provider.
Mutual Fund Companies vs. Brokerage Firms
For most people, mutual fund companies and large brokerage firms are the best options because they offer a wide variety of investments with low expense ratios and low commissions. These firms primarily offer low-cost index and mutual funds, though some also offer the ability to trade individual stocks or ETFs.
Some large brokerage firms may charge more for individual stock trades than discount brokerages, such as Ally Invest, E*TRADE, and others listed below.
A discount brokerage firm may be a better option for more experienced investors or those who wish to invest more frequently with individual stocks, ETFs, and other index funds. Commissions for individual stock and ETF trades are generally lowest at discount brokerage firms.
Robo Advisors are automated investment platforms. Examples include Betterment, Wealthfront, M1 Finance, and some others. Many large brokerage firms such as E*TRADE and Ally Invest also offer their own automated trading platforms.
Robo advisors automatically invest your funds based on your target risk tolerance and asset allocation. The benefits include a hands-off investing experience, less worry about how you “should be investing,” and some robo advisors also offer tax-loss harvesting, which may help your tax bill if you invest through a robo advisor in a taxable investment account.
Peer to Peer Lending
P2P lending allows individuals to loan money to other individuals through an online platform. Popular firms include Lending Club and Prosper. Some peer-to-peer lending firms specialize in small business loans.
When you participate in P2P lending, you make small loans to individuals that are paid off over time. That diversifies your risk by spreading out your investment over multiple small loans.
Real Estate Crowdfunding
Many people want to invest in real estate inside their IRAs. One way to do this is to set up a custodian to manage your Roth IRA.
Another way is to make real estate investments through crowdfunding sites such as Fundrise, Realty Mogul, and similar companies. These companies allow investors to make small real estate investments in multiple properties, making real estate investment an approachable goal for everyone.
2022 Roth IRA Rules
While I believe everyone could benefit from a Roth IRA, not everyone can open this account due to stringent maximum income requirements enacted by the federal government.
Here are the Roth IRA income requirements and phase-outs for 2022:
- For single filers, phase-outs begin at $129,000 and end at $144,000. You can contribute limited funds to your Roth IRA each year if your income falls between those amounts. Meanwhile, single filers who earn more than $144,000 cannot contribute directly to a Roth IRA, while those who earn less than $129,000 can contribute the full amount.
- For married couples filing jointly, phase-outs begin at $204,000 and end at $214,000. If your income falls between those two figures, your maximum contribution begins phasing out. If you earn less than $204,000, you can contribute the maximum amount to your Roth IRA. If you earn more than $214,000, you cannot contribute directly to a Roth IRA.
The following table shows the Roth IRA income limits in an easy-to-read format:
|Filing Status||Modified AGI||Allowable Contribution|
|Married filing jointly or qualifying widow(er)||$218,000 or less||Up to the annual contribution limit|
|More than $218,000 but less than $228,000||Partial amount|
|$228,000 or more||No contribution|
|Married filing separately and you lived with your spouse at any time during the year||Less than $10,000||Reduced amount|
|$10,000 or more||No contribution|
|Single, head of household or married filing separately and you did not live with your spouse at any time during the year||$138,000 or less||No contribution|
|More than $138,000 but less than $153,000||Partial contribution|
|$153,000 or more||No contribution|
Roth IRA Contribution Limits
The contribution level remains relatively constant for those who can contribute the maximum to a Roth IRA each year. In 2022, persons under age 50 can contribute up to $6,000 across all their IRA accounts.
Those ages 50 and over can contribute an additional $1,000 in what is known as a “catch-up contribution” for up to $7,000. See IRS Pub 590 for more info.
Backdoor Roth IRA
As we mentioned, there are several limits on how much you can contribute to your Roth IRA based on your income. There are a couple of ways you can get around those restrictions; that’s where a backdoor Roth IRA comes in.
A backdoor Roth converts a traditional IRA to a Roth IRA.
Anyone can convert their money from an IRA to a Roth IRA, regardless of how much they make. Even if your traditional IRA has more than the limit of a Roth IRA, you can still roll into a Roth IRA.
It’s important to note you’ll have to pay taxes on any money in your traditional IRA when you convert it.
There are two main ways you can utilize a backdoor Roth IRA.
- The first is to put money in a traditional IRA, sell shares, and then transition that into a Roth IRA account.
- The other way is to convert the whole account to a Roth IRA Account.
The brokerage can help you through this process and ensure everything is handled correctly.
Using this technique, you can get around the Roth IRA income and contribution limits. That is a great way to get the most out of your IRA accounts and ensure you reach your financial goals.
Why Everyone Should Get a Roth IRA
Now that you know how much you can contribute and whether or not your income allows you to qualify, it’s crucial to understand the many benefits you can get from opening a Roth IRA. While the advantages can differ for everyone, some benefits work for nearly any individual from each income level.
Here are six reasons everyone should at least consider a Roth IRA if they qualify:
1. Roth IRAs Help Diversify Your Future Tax Liability
Because Roth IRAs are funded with after-tax dollars, you won’t have to pay taxes on distributions when you begin withdrawing money for retirement. That makes a Roth IRA a smart way to diversify your future tax obligations since most traditional retirement accounts have the opposite tax rules – you save taxes when you contribute to the retirement account.
Still, you pay taxes upon withdrawal in retirement. Note: Some firms also offer Roth 401k plans, which can also help diversify your retirement income streams.
Of course, no one has a crystal ball or the insight to know what taxes might look like years, or even decades, from now. Still, diversifying is one way to limit your exposure to potentially higher taxes in the future. You can compare Roth and Traditional IRAs to understand how these plans differ.
2. You Can Invest More for Retirement
We all know you can contribute up to $120500 to an employer-sponsored 401(k) or 403(b) in 2022 and that several retirement accounts for self-employed individuals may let you contribute even more. However, many people don’t know that you can put money in a Roth IRA in addition to those accounts.
If you are angling for a financially fruitful retirement, it helps to save as much as you can. Having several different types of retirement accounts can help you reach that goal. Don’t limit yourself to your work-sponsored retirement plan and the limited options it may include.
By opening a Roth IRA with one of the firms listed above, you can take at least part of your retirement planning into your own hands.
3. Withdraw Contributions at Any Time – Without Penalty
A lot of people don’t know this, but you can withdraw your Roth IRA contributions at any time. Notice it says contributions because you cannot withdraw earnings before retirement age without paying a significant penalty and taxes.
If there is any chance you might need to access some of your retirement funds before retirement, having a Roth IRA that allows contribution withdrawals without penalty is a smart move. Perhaps you’ll want to start a business, wind up needing to pay down considerable debt, or experience a health scare or medical emergency.
You never know what might happen, but it’s nice to know you can access your funds if needed. Be sure to read up on Roth IRA withdrawal rules or consult with a tax professional before taking out any of your hard-earned money.
4. You Can Keep Contributing Well Past Retirement Age
Where some retirement accounts don’t let you contribute after age 70½, the Roth IRA has no such requirement as long as you’re still earning an income. If you plan to keep working and want to keep beefing up your retirement funds, a Roth IRA can provide you with an avenue to do just that.
5. No Required Minimum Distributions (RMDs)
Unlike other retirement accounts that require you to take RMDs, or required minimum distributions, when you reach 70½, the Roth IRA takes a different approach. With this account, you can keep it open for a lifetime and never withdraw a single cent if you don’t want to.
Because of this, many experts believe the Roth IRA is one of the most versatile retirement accounts.
6. Leave a Tax-Free Inheritance to Your Heirs
Since Roth IRA accounts are funded with after-tax dollars, they can be passed on to your heirs in their post-tax form. In other words, your heirs can inherit your Roth IRA without paying income or other taxes.
If you’re worried about estate planning and leaving your children or other heirs with unmanageable taxes and red tape to wade through, this is an important consideration.
Questions to Ask Before Opening Your IRA
- Is there a minimum initial investment to open an IRA?
- Are there minimum contributions?
- What types of fees are charged, and how much are they?
- Can fees be avoided with minimum account balances or by receiving electronic statements?
- Does the company offer the option to make automatic contributions?
- Which investment options are available? Stocks, Bonds, Mutual funds, ETFs, CDs, other?.
You should be able to get the answers to most of these questions online unless you are opening an account with an independent financial planner, who may or may not have this information online.
If the information is not readily available online, call the financial institution and ask for an information packet before opening an IRA.
It’s a good idea to review the fees and other details before opening your IRA; that way, you have a good idea of what kind of fees and other expenses you can expect to pay.
All things being equal, go with the company or broker you feel most comfortable with. And if you later decide that you don’t prefer the financial institution where you opened your IRA, you can always transfer it to another financial institution.
The brokers there will be happy to help you fill out the paperwork.
How to Best Manage Your IRA
It can be difficult to manage your IRA if you have multiple retirement or investment accounts.
I use and recommend Personal Capital, a free online tool that helps you track your spending and investments and gives you an in-depth view of how your accounts are allocated.
That makes it easy to “see into” your portfolio and makes it easier to balance your investment portfolio.
Manage All your Investments in One Place, for FREE with Personal Capital. Learn more in our review or open a FREE Personal Capital account today.
Opening a Roth IRA account is almost a no-brainer if your income makes it possible to qualify and you have the extra funds to stash away.
With years until retirement – and the opportunity for your money to compound – a Roth IRA can move you much closer to retirement success.
However, it’s still crucial for you to conduct due diligence before you open an account. Make sure you read the fine print, understand all terms and conditions, and grasp the ongoing maintenance and account fees you’ll be charged along the way.
While investing in a Roth IRA is nearly always wise, you will be better off going with a firm that charges minimal fees and offers the level of customer service you deserve.
About the comments on this site:
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Blake Smith says
Thanks for the post Ryan. I have an account with TDAmeritrade. Can I add a Roth IRA to it?
Ryan Guina says
Blake, yes you should be able to as long as your TD Ameritrade account is brokerage account. You may not be able to if your TD Amertirade account is an employer sponsored account such as a 401k, or is otherwise attached to a different institution. But if the latter situation applies to you, you should be able to open a TD Ameritrade brokerage account and link them so you can view the information across both accounts. You would need to contact the TD Ameritrade customer service department to verify this.
This was my experience when I already had a TD Ameritrade brokerage account and wanted to invest the funds in my Health Savings Account at HSA Bank. You can invest HSA funds at HSA Bank in a linked TD Ameritrade account. But to do so, I first had to open a new TDA account through HSA Bank, then transfer funds. I could not use the TD Ameritrade brokerage account I already had.
There are massive numbers of trades in an IRA account I have with a broker. What’s going on here. Big mess and could be very expensive to untangle myself from it and move elsewhere.
I really like betterment, everything automatic, no headaches.
The main things I look for in a brokerage are the following:
1. Commission free investment choices (the larger the market index tracking ETF choices, the better)
2. Free Dividend Reinvesting
3. Support for fractional shares when re-investing Dividends
I know that the big brokerages support these – Charles Schwab, Fidelity, and Vanguard.
You need to ensure that you put every dime of yours to work.
We got sucked into Thrivent for our Roth IRA as well as our “emergency fund”, which has steadily lost money. We are moving the er fund into a money market account, but what of the IRA? Does that have front end load fees, too? I’d like to roll it over to Vanguard, but is it worth it? Would we lose far too much? Should we leave a small Roth IRA there and start over at Vanguard with the Star account? Thanks. Carie FYI – our Roth IRA is also a back up for our son’s college fund, so we need to be sure education expenses are a penalty-free occasion to withdraw money from it.
Ryan Guina says
Hi Carie, this is a two part question, so I’ll start with the easy one – the emergency fund. Your emergency fund should always be in a liquid account that is guaranteed not to lost value (liquid simply means cash or cash equivalent, and super fast and easy to access). It’s not a good idea to keep an emergency fund in a place where it can lose money. So yes, get your emergency fund into a money market account, or even an online bank that offers high interest rates.
As for the Roth IRA – there are too many variables to answer without knowing more. But I will say that most investments that are appropriate for a Roth IRA can lose money. This includes stocks, bonds, and similar investments. The general markets have been volatile lately, and many investors have lost money – regardless of whether or not their investments are with Thrivent, Vanguard, Fidelity, or other IRA custodians. So it may not be correct to blame losses on Thrivent.
That said, I can’t speak about whether your fund has front end fees, back end fees, or other associated fees (be sure to look at the ongoing management fees, or expense ratios). You will need to look at your fund prospectus or contact your financial advisor to get this information. Once you have this info, you will need to compare these fees with the fees for similar investments at other brokerage firms, and decide whether or not it makes sense to move your investments elsewhere. Keep in mind not all fees are bad, so long as you receive value in return. If you aren’t receiving value for the fees (financial advice, performance you might not receive elsewhere, access to different benefits, etc.), then I would look to invest that money elsewhere. You may lose any front loaded fees you have already paid, but that is a sunk cost, and not something you will recoup even if you leave the funds in place. Vanguard has excellent customer service and can help you with the rollover process if you decide to move your funds there.
Cheryl Gwinn says
Do you know if it is possible to rollover a TSP account prior to retirement and prior to leaving the government? Also what do you think about USB as a place to open a Roth IRA?
Ryan Guina says
Cheryl, so far as I am aware, it is not possible to roll your investments out of the Thrift Savings Plan prior to leaving federal service. In general, the TSP is an excellent place to invest, as it offers the lowest management fees you will find anywhere (even lower than those found at the investment brokerages commonly understood to be among the lowest in the industry, such as Vanguard and Fidelity). There is no penalty for leaving the funds in the TSP, so in general, my personal preference is to leave funds in the TSP unless you have a specific reason to move them into another retirement plan.
As for USB, I don’t have any personal experience with them. My recommendation would be to look at what they offer and compare it to your current investments (in terms of type of funds, expense ratios, overall service, and other factors). Then you can determine whether USB meets your needs, or if you would be better off staying with your current investments or moving somewhere else.
Just turned 25 ,just got green card,makin about 40k a year what would you recommend me to start with?
I want to open and max out a Roth IRA for 2015. After reading about different options I am still uncertain on how to pick the best option to get optimal return.
Is Vanguard’s minimum on the account as a whole or at each individual fund?
J Smith says
Last year, I had a remaining pension that was closing from a previous job, so i needed to move the money, about $36k. I moved it to an IRA at Ameriprise after talking with an Advisor. I noticed that the fund dropped over $2k the day it was opened, showing as an unrealized gain/loss. I haven’t talked to my “advisor” yet, looking to see if somehow it would correct itself, but no way. I’m concerned that they are taking that money from me and will have some lame, complicated reason as to why it’s ok. Is this typical when opening an IRA, what am I not understanding? Thanks.
Ryan Guina says
Hi J Smith, there are many reasons your portfolio could have decreased in value the day you moved it over. It’s possible there was a change in market value, which is unpredictable. A change in market value means you own the same number of shares, but each share is worth less than it was previously worth. There may have also been a fee involved with your investment. Some investments charge an up-front fee called a load, which is paid when you first invest with a fund. These aren’t as common as they used to be, but there are still loaded funds out there. In general, you can almost always find a comparable investment that doesn’t charge large upfront fees, or large fees when you sell. Another possibility is there may have been a fee to the investment manager. You should certainly contact your investment advisor and ask him or her to explain it to you in plain English, and show it to you in writing so you have a full understanding of where your money is going. This is your money, not theirs. But you need to be proactive with it. Best of luck!
Thanks so much for your informative articles. I have never invested before so novice is an understatement. I am a 27 yo single mom of 2 kids ( 4 yo and 1 yo). I have gone through Dave Ramsey’s class. I have about 30,000 saved in a chase savings account at .01% interest. I am thinking about moving my emergency fund 10,000 to a high yield savings like ally bank.99%, or mysavingsdirect 1.25%. MSD is a higher interest rate but i’ve heard ally bank is move user friendly. With the other 20,000 I have 3 distinct goals: I want to invest stocks bonds reits mutual funds etc; I want to start a retirement fund; Roth IRA. And lastly I want to start a college fund for my kids 529 vs. ESA. I’m not sure which one to pick but I’m leaning towards ESA. Note: Student loans are my only debt (30,000) and I am considering buying a house. So do you have any advice about which is more important or how to divide the money? Also do you have to make contributions to each one of these every month even if you start with a couple thousand dollars? Any advice would be greatly appreciated? Thanks
Ryan Guina says
Investing Mommy, you are doing the right thing by setting aside an emergency fund, and Ally Bank or a similar online bank that offers high interest is a great option. With this many goals, I think you should prioritize between investing for retirement, saving for a home, and college savings. Personally, I would put them in that order. I would start the Roth IRA with a low cost mutual fund provider (Vanguard, Fidelity, and similar brokerage firms are great for this). Then I would set aside the rest in a savings account for a home. How you break this up is a personal decision. But I would probably try to set aside at least half toward retirement (you can only put in $5,500 for an IRA this year, but you can save the rest in your savings account and add it to your IRA at the beginning of next year). I would actually not save for college right away. There are many reasons for this, but the primary reasons are that you have a long time before your children will need the money, and your other financial goals are more important. You should always prioritize your personal retirement over your children’s education (you can borrow your way through college, but you can’t borrow your way through retirement). And you will likely want to buy a home before your children are ready for college. So those two options should take precedence above college savings. If you want to help your children, then I would focus on putting a very small amount in college savings (maybe $500 each), then work on helping them become successful in their personal and scholastic lives – including academics, sports, and extracurricular activities. Hopefully they will be able to turn that into a scholarship of some sort.
I am 21 and have around $1000-$1500 to put into a Roth IRA, I heard they are the best to start because there is a tax break. What company should I invest in, which company is the best for a guy with minimal income monthly, due to school.
Franco C. says
I am 22 years of age, still currently attending a community college part-time while working a full-time job. I have recently been looking into a Roth IRA as a venue of investment for my future days to come. I am well aware of the rules that IRA’s have and their penalties, my biggest concern is I do not know where to open one at. My local credit union bank does offer it but their features are not as much as other online banks such as Ally’s..also I have been wanting to get into stock trading, ect I am not well educated just yet to jump in & start.
I have about 15K at the moment to invest with.
What would you recommend for a young savers like myself ?
Ryan Guina says
Franco, it sounds like you are doing well with your savings! You can only contribute up to $5,500 per year in an IRA, so you won’t be able to put the entire $15,000 into a Roth IRA right away. However, if you hurry, you can still contribute $5,500 toward the 2014 tax year, as long as you make the contribution before April 15th, which is the deadline to file 2014 taxes. Then you could still contribute the $5,500 for 2015. If speed is your main goal to beat the tax filing deadline, then just get the money into the IRA in either a Money Market account, a Target Date Fund, or a low-cost index fund. Once you have your account established, you can then go back and change your asset allocation.
Where to open an account? Honestly, an of the companies mentioned in this article would be a great place to start. They all have a wide variety of features and low-cost investments. Since you are starting out, I would lean toward something like Vanguard or Fidelity, and focus on building a portfolio that is primarily based on low-cost index funds, which capture a large section of the market. Your goal should be to match the market, and not try to get cute and take too many risks. As your portfolio and experience grow, you can learn where your risk tolerance is, and make appropriate investments from there. I recommend reading this article, which lists some tips for first-time investors. It explains a lot of general concepts and gives some good pointers for getting started – and that is the most important step! Congrats on taking the leap and best of luck with your investments!
If I want to open a roth or traditional IRA and invest in SPY or VHDYX and just leave it there, no moving things around, which of the big companies is best (mainly– lowest fees)? I can invest the max allowed for 2014.
Ryan Guina says
Jess, VHDYX is a Vanguard fund, so you can’t go wrong opening an account with Vanguard if that is the fund you are considering for your portfolio. Vanguard also has one of the best rated and least expensive SPY funds, and hundreds of other low cost funds. I’ve been a Vanguard member for over 10 years now and have never had any problems with them. And their customer service is quite good. That said, all of the companies mentioned in this article also offer quality investment products and services.
I’ll be turning 30 soon and looking to setup a retirement fund, as my current employer doesn’t offer anything. I plan on contributing anywhere from $100-$300 a month, but don’t have a large sum to start/open up with. What do you recommend I do? Also, I’m aware of the differences between traditional and ROTH IRA; does it make sense to have one of each, or just focus on one (which would be a ROTH due to tax savings at time of retirement)?
Ryan Guina says
Kevin, glad to hear you are starting your investments. This is one of the best financial decisions you will ever make (here are some tips to get you started)! There is nothing wrong with starting with $100-$300 a month. That might price you out of using a larger mutual fund firm such as Vanguard or Fidelity, but you an always start with one of the discount brokerages listed above. Many of them do not have minimum investment balance requirements. As for Roth or Traditional, I would go fully with the Roth IRA if your income levels allow it (you can’t contribute to a Roth if you exceed certain income limits). The long term tax advantages of a Roth IRA will almost certainly exceed the short term tax deduction you would receive from a Traditional IRA. Best of luck with your investments!
Am 67 yo. Retired. Have a TSP. No one told me what to do with it and now find I should have rolled it over to a Roth IRA 7 years ago. Can not find out any info on how to do this without losing money. Any information will help.
Ryan Guina says
Jomax, you don’t lose money if you roll a Thrift Savings Plan into a Roth IRA, but you would have to pay taxes on the amount you roll into a Roth IRA because TSP contributions are made before taxes were paid, and a Roth IRA is post-tax contributions. At this point, moving your TSP contributions into a Roth IRA may not be the best idea if you don’t have the money to pay the taxes required to convert from a Traditional Retirement plan to a Roth plan. This isn’t a function of the TSP – this would be the same if you were converting funds from a Traditional IRA, a Traditional 401k, or similar retirement plan. Overall, the Thrift Savings Plan is an excellent retirement program, and the management fees are among the lowest you will find anywhere. You may be better served by leaving your funds in the TSP and making sure your overall investment portfolio is optimized around your TSP investments. Here are some more tips for managing TSP accounts with the rest of your investments.
Thank you so much for all this info and advise ! It is very helpful for novices like me .
Me and my husband just switched jobs and so decided to roll over our IRAs from TIAA CREFF to Merrill Lynch . It is costing us a 1% fee for management .
We had great returns with TIAA creff and not sure whether we have made the right decision .
Any commnets on Merrill Lynch ?
I just invested in an app called acorns. I am a beginner in investing. would I be better off withdrawing my money from acorns and putting it in to a roth? Also have you heard anything about the app acorns and what is your personal opinion on the app.
Ryan Guina says
Nico, I have heard of the Acorn App, but I don’t know much about it. A Roth is for retirement investing, and is great for long-term planning. I’m not sure what your investment goal is with your investments in Acorn, or what your investment timeline is. So start with the basics – why are you investing, what is your risk tolerance, do you wan the tax advantages Roth IRAs give, etc. Then take the course of action that makes the most sense based on the questions you asked yourself, and your answers. (I know, I didn’t tell you what to do, but investing is such an individual choice, that it’s not really my place to do that). You might also find this article helpful – Beginner Investing Tips. Hope this helps!
I have two questions:
1) I am looking in the Vanguard LifeStrategy Growth Fund (VASGX) as a ROTH IRA. If I decide to invest in this now, but years down the road wanted to change to something with less risk like the Vanguard Wellington Fund would I be able to do this? Or would I only be able to move my contributions and have to leave my earnings in VASGX?
2) I see that VASGX has an inception date of 1994. Does this have much importance, if any? Is it better to choose one that has been around longer or is this even a concern?
I hope that these questions made sense. I am looking forward to your reply!
Ryan Guina says
Jaimee, you should be able to change your asset allocation at any time, provided you have enough in it to buy into the new fund (some funds at Vanguard have higher minimum contributions). But otherwise, you are not locked into that single investment. The inception date is only important for tracking historical returns. 20 years should be plenty of time to understand how the fund has performed. Keep in mind to compare the fund to the overall stock market performance, and don’t get scared if you see big gains or drops in any given year. Those big gains and drops may have happened to the entire stock market too.
I have all of my investments (IRA, Roth IRA, Kid’s Educational IRA, Brokerage Account) with Charles Schwab. I have recently left my job and now have to do a roll over of my 401k. So, I’m rethinking my investment / retirement strategy. Are there any additional risks (besides the usual investment risks) with keeping all of my eggs in one basket? Also, what do you think about Charles Schwab as a brokerage option?
Ryan Guina says
Steve, it’s actually easier to keep all of your investments in one location – this makes it easier to balance your investment portfolio, manage your assets, deal with fewer logins, etc. I think Charles Schwab is a very good brokerage option, and you should be able to get just about any kind of investment you need through their brokerage. Like all brokerages, just pay attention to your needs, your risk tolerance, and find something appropriate. Then double-check the associated management fees. Rolling your old 401k into an IRA at Schwab should simplify things for you. Best of luck with your investments!
I graduated from college and have a degree in Finance. I am 22 years old. In class one day we discussed putting money away into a mutual fund or an IRA and the professor showed us that someone at the age of 20 years old who puts $100 away every month until around 40 years of age had three times the money as someone at the age of 40 who put the exact same amount of money in. Compounding interest. Basically I am just wondering if you have any advice for me on how I can start something like this. Where I can put away money monthly for the next twenty years and then I don’t have to anymore because the interest payments will continue paying it until I am 60 and wanting to retire.
Is there a specific fund or IRA I should look in to?
Ryan Guina says
Samantha, there are many companies that offer excellent funds and IRAs. The above companies are all excellent options. Here are some strategies for beginning investors. If you are still unsure where to start, then a good place is to begin investing through a target date fund, which automatically allocates your investment portfolio based on your target retirement date. This will help reduce your overall risk and ensure you have a variety of different investments. You can do only that, but I recommend starting there and then learning more about investing so you can begin making your own decisions on how you want to allocate your investments, or which funds you want to use. The most important thing is to just get started! The earlier you start investing, the more time your investment portfolio has to grow!
I have a Self-direct Roth Ira. If I want to move it to Roth Ira, does it create any problem? because it is in a LLC
Ryan Guina says
Christine, I’m not sure what you are asking. If you have a self-directed Roth IRA, you already have a Roth IRA. If you have more than one Roth IRA, you should be able to combine them under one account. This will make your bookkeeping and asset allocation easier to manage. If you have a Roth IRA in a self-employed retirement account, your situation may be a little different. In many cases you must leave retirement accounts with the company you are working for while you are working for them. You can only move them after you leave employment of that company (this is often the case with retirement accounts such as the TSP, 401k plans, and self-employment and small business retirement accounts). You may find it best to seek the counsel of a professional tax advisor or investment planner to help you better understand the IRS rules as they apply to your situation. Best of luck!
I am rolling my 401(k) to a Roth IRA with Vanguard. Although they have a high $3k minimum for their funds, I chose to go with their ETFs. You have to have the $3k minimum to start an account, but the minimum for an individual ETF is the cost of 1 share ($40-150). That way I can diversify my small retirement account between several ETFs while I would only be able to invest in two different $3k minimum mutual funds.
Plan to set up a Roth IRA account. Does this type of account ofter DEATH BENEFIT? And how it work?
Ryan Guina says
Tiffany, you can specify the beneficiary when you set up your Roth IRA, or in your will or estate plan. There is no “death benefit” that pays out an additional sum upon death. Some insurance policies have that, but that is a different type of financial product.
I have been investing in a roth ira by a broker through NFS at my local bank, First Tennessee. Can you give me your thoughts about this way of investing? Would I retain more of my investments through some place like Vanguard? I know there is a 4% charge on every deposit I make into the roth and he tells me the expense ratios are lower than average by a good bit. Please advise. Thank you.
Miriam V says
Thanks for this great info. I am looking to open a roth ira to grow my emergency savings. So before the april 15th deadline, I want to throw $5,500 into a roth. Thanks to Suze O, I’ve learned that I can remove my contributions tax free and penalty free. I otherwise quality (AGI and am not currently funding a traditional Ira).
So now I’m deciding where to open the roth ira and what type of fund to use. I would typically just go with Vanguard index, since it comes so highly recommended (with low fees), but I’ve already got a big chunk of my 401k going into it and feels like I should diversify.
Since this is funded with emergency money (in case I lose my job or other catastrophe), I need a low risk and low fee option.
Here is my question. If I put this money into an ETF or index fund, will I ever be paying fees or taxes if I need to pull out the contribution (I understand the rules regarding earnings), since I’ll be selling stock to cash out the contribution?
My wife and I have a Roth IRA with State Employees’ Credit Union in NC hat has about $5,000 in it. We also have a money market account with them with emergency funds in it. My question is this: should we switch to a mutual fund company like Vanguard or Schwab, or should we just leave the Roth with SECU for ease of use? It seems as though it gets a flat interest rate of 1.50% which seems low to me. Am I misreading this or do we need to switch ASAP? Thanks!
Ryan Guina says
Brandon, if your Roth IRA has a fixed interest rate, such as a Certificate of Deposit, or Money Market Account, then you will likely be better off investing in some form of equities, such as an index fund, or target date fund if you don’t have other investments. The reason is because leaving your investments in a fixed income account will likely not keep up with, let alone beat, inflation. Check with your financial institution to see if they have more appropriate investments for your situation. If not, then consider rolling it into a different account. Vanguard, Schwab, Fidelity, and others are all good options. They can also help you with the rollover IRA which will avoid any taxes or penalties from the IRS. (there may be other fees from your current financial institution, but in most cases it will be worth paying a small fee to move your funds to a more appropriate long-term investment. Here is a more in-depth look at using savings accounts and CDs inside an IRA.
Thank you for the great article! My husband and I are both in our early twenties and active duty military, doing okay for ourselves and looking to start investing once our debts are paid (we can see the light!). He’s deploying very soon, and I think I’m going to send this article his direction. It is a bit earlier than we were planning, but it looks like he could have a great tax-free start to his Roth IRA. Do you have any advice for what (and where) we should invest?? We both have USAA, and they offer a lot of “investment alternatives” (USAA mutual funds, brokerages, USAA Bank CD, USAA managed portfolios, annuity from USAA life insurance policies……..) It seems like it would be easier/more convenient to go through them, but this is all gibberish to me… Thanks for your help!
Ryan Guina says
Kay, USAA is a great company for your investments. I have been a USAA member for well over a decade now, and I also have some investments with them. They should be a great place to start your Roth IRA. Thank you (and your husband) for your service!
Free Money Minute says
I like Vanguard target retirement accounts as the fees are extremely low and the risk is low (as you are buying the market) so you should be able to maximize both your returns with the time spent.
Reading this article was very helpful. I’m starting very late in life (better late than never) and I’m curious about the ability to have more than investment account – for example if I open a Roth IRA with Vanguard can I also open one with Ameritrade without tax penalty? I do plan to max out this year by moving money from my savings to open this account.
Ryan Guina says
Shika, you can open more than one IRA, however, you can only contribute up to the maximum each year across all IRA accounts (the current maximum contribution is $5,500 per year, or $6,500 if over the age of 50). In most cases, it’s best to open only one IRA so you can manage fewer accounts. Bookkeeping gets more difficult when you have more open accounts. My recommendation is to open one IRA, and max it out. If you still have money to invest, try investing in a company sponsored 401k plan (or similar employer-sponsored retirement plan), or make contributions to a non-retirement investment account. Best of luck!
I have a Simple IRA through Northwestern Mutual from a previous job and it’s terrible. My money is stuck there for seven years from the last deposit or else there is a penalty for withdrawal. My money is in their standard money market fund and the balance is always going down so by the time my seven years is up I will probably have nothing left. Go with Fidelity or Vangard.
Jenny B says
I opened a roth IRA account with Northwestern Mutual about 2 years ago. Since then I’ve only deposited$2,000 into the account. What are your thoughts on Northwestern Mutual and their fees? My fiance is about to open an IRA account and is considering Fidelity or Vanguard and I was thinking of switching. Any help or advice would be appreciated! Thank you!
Ryan Guina says
Hi Jenny, I’m not familiar with Northwestern Mutual, so I can’t comment on their funds or fees. I can say that Fidelity and Vanguard are among the best in the business and have some of the lowest fees you will find anywhere. My recommendation is to look at your investment goals and needs, and make sure you are in the appropriate funds with your current IRA provider. Then compare the closest similar funds at Vanguard and Fidelity and see how they compare in terms of management fees, maintenance fees, etc. If the savings are decent, then it may be a good idea to move to a different provider. Best of luck!
Ryan, I will be retiring soon from the Govt and I’m looking to move my TSP into a traditional IRA. You seem to prefer Vanguard, T. Rowe Price and Scottrade but don’t mention USAA. I have used USAA for most of my financial and insurance needs and was planning on opening the account with them but I wanted to get your opinion?
Ryan Guina says
David, USAA is an excellent company and I have no reservations recommending them for financial products, including investing, banking, and insurance.
I took money from an investment account that had fees that I was unaware of. I now want to put it in a Roth IRA. The investment guy at the bank is wanting me to invest it through him. Is this necessary? Is he doing this out of the kindness of his heart or does he earn money somehow.
Ryan Guina says
Sherry, it’s impossible to say for certain whether or not the person at the bank makes a commission for signing up new IRA customers. But it’s his job to get more customers, which is why he is recommending their product. Many banks only offer a small variety of investment options, and it may or may not be the right tool for you. My recommendation is to speak with someone who is impartial and won’t try to sell you anything. (A fee only financial planner, for example, or a trusted friend or relative who is knowledgeable about financial topics).
I plan on opening my first Roth IRA. I don’t know much about IRA, so I need some advice. I was thinking about opening an account with Merrill Edge because it will be connected to my bank account with Bank of America. What do you think of Merrill Edge? and What Should I put in my Roth? Should I use a target fund.
Ryan Guina says
Elisabeth, Merrill Edge is another very good company. They should be on par with the individual brokerages listed above. The fact that you can link your brokerage account to your bank account makes it more convenient. If you don’t have experience investing, then I don’t think you can go wrong by starting with a target date fund. The key is to continue learning more about investing and not get complacent with your investments. Best of luck!
Not sure if this question belongs here but I have a Rollover 401k with Vanguard which consolidates prior employer-sponsored plans. I am about to leave my current employment and was thinking of rolling the current employer-sponsored 401k into the same account. But then someone was telling me how if the balances in a single account becomes too large it may exceed the FDIC insured limit. Is this true? Thanks so much in advance for your help.
Ryan Guina says
Ning, FDIC insurance only comes into play when you are keeping funds in your account that at FDIC insured, which usually includes things such as savings accounts and certificates of deposit (CDs). Investments in stocks, bonds, mutual funds, and ETFs generally aren’t covered by FDIC insurance.
I have a quick question about starting a Roth IRA. I understand that some discount brokerage firms requires a minimun deposit to open an account. While I don’t mind putting up the money to do so, I would rather use the money that I have sitting in a pension from a former employer. Is it possible to use (e.g. transfer or convert) the money from a pension to start a Roth IRA?
Thanks in advance!
Ryan Guina says
Ashleigh, yes, you can transfer money to start an IRA. You may be required to first open the IRA before you can do a transfer, but that is just a formality (the account has to be open before you can transfer anything in). Each company handles account openings differently, but usually there is a question when you are opening your account regarding how you will fund it. Just let them know you will be transferring funds into your account. Most of the big brokerage houses such as Vanguard or Fidelity will help you do the transfer. I’m not sure about he discount brokerage firms. My recommendation is to contact the company you want to open an account with and ask them about the process. Hope that helps!
Ryan, I have question about IRA investment. How about just buy the stock Warren Buffett owns? Since it’s going to be held for long time (>20 years in my case) and Buffett’s stocks are very likely outperform index, it would be make sense to copy Buffett’s stock?
Ryan Guina says
Kerry, Berkshire Hathaway has done very well since Warren Buffett has been running it, but I would hesitate to make that stock the entirety of my investment portfolio. In some ways, it is like a mutual fund, since Berkshire holds positions in many companies. But it may or may not meet your entire investment goals. Antother consideration is your time frame. You plan on holding it for more than 20 years, which is fine, but Warren Buffett is in his 80’s. He likely won’t be running the company in the next few years and while he has stated he has a succession plan in place, to my knowledge, it hasn’t yet been released.
At the end of the day, you should consider your investment goals and risk tolerance, and try to find investments that help you meet your goals while falling in your risk range. If Berkshire does that, then go for it. If that will get you part of the way, then use that for a portion of your portfolio, and balance it out with other investments.
As matter of fact, I read your comment and others and I just recently completed my IRA consolidation in Vanguard with Index found mainly. But the question I asked you above has been sticking in my head for long time and no one has given me a satisfactory answer.
I understood John Bogle’s principal and Pros of Vanguard: passive, conservative, low fee and “fire and forget it”, which historically, statistically beats most of MM’s portfolios in Well Street. Notice, “historically” means using historical data to analysis and project, although we can’t predict future index. However, why can’t I do the same way to work on Buffett’s portfolios? Which outperforms index found historically.
You and many others mentioned that Buffett is not going to run his firm forever. Don’t you think the confidence on Berkshire’s keeping performing is likely going? Because some of stocks Buffett’s pick such as KO, WFC, PG, AXP, WMT… are going to be held for long time, even after Buffett’s successor taking over. Then, why do I just pick those a few stocks into my IRA?
I know my currently IRA portfolio in Vanguard is about 8-9% annually next two decades. It would be likely about two digit range (low teen) projected from historical data if just picked stocks above, is that right? Of course, higher reward, higher risk. But one thing I’m not clear totally is the “Risk” and “Tolerant” you mentioned in this case compared to Index found.
I have a 401K with John Hancock and since I left my company want to rollover to an IRA, but not sure which company to rollover to. Checked with John Hancock but it is impossible to see their fees for the service they provide – why not the Government insist on these firms provide fees clearly laid out. Also the performance they provide is before fees – what you actually get maybe 40 to 50 % less over your lifetime because of their fees and fees upon fees. It seems like a scam to me, but there are not much consumer protection at the moment. Dealing with the devil you know, which of the firms have best performance after their fees. So I can see if $100,000 made $3000 over the year it is not 3% because their fees were $2500 so you actually only made 0.5%.
Ryan Guina says
Kamal, fees play a major role in overall performance, so you are right to be concerned there. My recommendation is to go with a company that focuses on providing value. Vanguard and Fidelity both offer many index funds with extremely low expense ratios, which will help you keep more of your money invested in the funds and help promote better long term results.
Ryan, what is your opinion of Waddell & Reed? I’m looking to open up up a Roth IRA, and Waddell & Reed is an Endorsed Local Provider (ELP) of Dave Ramsey.
Ryan Guina says
Ric, I don’t have any first hand knowledge of their company. The companies I am referencing in this article are primarily for the do-it-yourself crowd. It seems like the company you are referencing is a financial planning company. You would need to interview them to determine if they are a good fit for you. We have an article here on How to Interview a Financial Planner. I hope that article gives you some more insight into the right questions to ask.
Hi. I have heard that most/all mutual fund companies do not insure our monies. (No FDIC) Is this true and if it is are there certain banks that offer incentives for investing with them? Which ones? What kind of deals do they have? Thanks.
Ryan Guina says
Jeff, most mutual funds are not FDIC insured, because the FDIC only insures deposits such as savings, checking, and CDs. However, those instruments won’t do much for you when it comes to growth. In fact, they probably won’t even keep up with inflation, which won’t do you any good for your retirement savings. There is risk in some investments, such as stocks, bonds, etc., but they also tend to outpace inflation over time. I recommend buying or borrowing a beginner book on investing to get a good idea of how the principles of investing work so you have a good idea of how and where to get started. This resource may also be helpful: Investment Strategies For Beginners. This will give you a decent starting place to begin investing, or look for more information.
I am a 30 year old single female. I am working two jobs now and recently paid off all student loans, CC debt, etc (in January). I have about 7k in a savings account now with Capitol One 360 (formerly ING) and want to start investing. With my current income to expense ratio, I can save $500-1000 a month. I am not sure where to start….from my reading of the above, it looks like a Vanguard account? One of them mentioned a $200 monthly deposit to wave some fees, which I can commit to. I wouldn’t mind taking some risk and doing some stock investing also, but have NO CLUE how to do that. HELP!
Great advice. How about Merrill Lynch? What is the pros and cons with this company for a Roth IRA?
Ryan Guina says
Merrill Lynch is a top notch company. My recommendation is to first examine the type of investing you do, then see which of these companies is the best match. For example, compare the cost of individual stock trades, see how many funds they offer and their expense ratios, compare ETFs, etc.
Hi. I am 46. I have $96,000 in a self funded IRA at Fidelity. I have $72,000 in an old 401k managed by Wells Fargo. My old employer was recently acquired and I have to decide what to do with $456,000 balance in my 401k held at ING. I also have a $20,000 IRA at Etrade. My children have 529 funds at Utah529 and Vanguard. I have to decide to roll into my new employer who uses Schwab. Or roll it into an ira. Can I split my rollover between a brokerge firm and mutual fund company? I am looking for some stability within mutual funds and flexibility to buy individual stocks. Also, which do you prefer, Fidelity or Vanguard. Would you also say I am working with too many companies? Thanks.
Ryan Guina says
Steve, I wrote a fairly detailed response here: How to Manage a Large Investment Portfolio. Please be sure to do your own research before taking any actions mentioned in the article. I don’t have full insight into your situation, so this was a “hypothetical” exercise. In all cases, please do you own research and consult with a financial or tax professional to make sure you are taking the best action for your situation.
The one thing I didn’t address was whether Fidelity was better than Vanguard. I personally use Vanguard, but I would have no problem using or recommending Fidelity. Since you already have an account there, you may decide it’s best to consolidate your accounts to that one. Either way, I don’t think you will go wrong; they are both great options.
I currently have a Vanguard 401k. I just wish to make 5 to 6% keeping it safe. I have spoke to both Wells Fargo and Edward Jones advisors. I am 58 and retired and wish to move to an IRA. I was thinking of just staying with Vanguard and starting up an IRA and manage myself. Do you feel this is a good way to go? If so is it easy to set up and what type of investments would be safer than others? Thank you.
Ryan Guina says
Hugo, I can’t answer for you, because everyone has a different level of investing expertise, risk tolerance, etc. Keep in mind most financial planners Do Not have a fiduciary duty to their clients (meaning they do not have to give advice that is the best for their client). Because of this, I recommend visiting a financial planner that offers advice an an hourly basis, not based on commissions. That way you are getting recommendations that are tailored to your needs, not to the needs of the advisor. Here are some tips for interviewing financial planners. This should give you a better idea of what to look for.
If you are well versed in investing, you may decide to manage your own portfolio and have a regular checkup with a financial planner to make sure you are on the right path.
Ryan, My 17 year marriage just ended leaving me with nothing. I have been able to save up some money on my own since then. Would like to open a Roth IRA but don’t know where to begin, started with Vanguard online, it got too confusing so I quit. Please advise.
Thank you Ryan for your prompt and insightful advice.
Ryan, what is your opinion of Royce Funds?
Ryan Guina says
Carol, I have not invested with Royce Funds, but in general, the reviews I have read were fairly positive. It’s a good idea to make sure their investing strategies are in line with your investing goals. I also recommend researching their individual funds and comparing them to certain benchmarks (such as an index in that sector) and see how their performance compares in the long run. Just be aware that past performance doesn’t equal future returns!
Ryan, I just turned 52 today and still lost. I have a 401k at work, retired military and a 403b I cannot rollover or touch until 591/2. I have been wanting to rollover my 401k to a IRA. My wife and I have great jobs make great money. but I still worry that I’am not putting enough away. My wife’s work matches her 401k, mine does not. I will say her’s is 6 figures, mine not so great. I started putting $100.00 extra a month in my 401, we talked and now I would like to open a IRA, but through who? I can afford $100.00 a month to start and I do think that when I get older I’ll pat myself on the back for this move. Thanks for your time.
Ryan Guina says
Thanks for your service, Danny. Your military pension will go a long way toward funding your retirement, since it is a guaranteed monthly income. The TRICARE benefits will also be a huge blessing in your retirement years. That said, it’s still a great idea to invest more for retirement if you think your current savings won’t be enough to reach your retirement needs. Many of the large mutual fund houses such as Vanguard and Fidelity have a minimum requirement to invest with them. Vanguard, for example, requires a minimum investment of $1,000. If you have a lump sum, then some thing like Vanguard may be a good solution. If you can afford $100 per month, but don’t have a larger amount to start with, then I recommend looking into a brokerage account that offers low cost or no cost ETFs (Exchange Traded Funds). You can find these at all the discount brokerages listed above. All of them should more than meet your needs.
I’m 24. I got my permanent resident visa in June, after waiting in my country for 12 years. As soon as I move to the U.S. I started reading about personal finances. I came across with “IRA’s” and decided to open a Roth IRA with Vanguard, based on the reviews I found online – yours included. The sooner, the better, right?. Now, all of these terms are new to me! I invested $3000 in Prime Money Mkt Fund and NOW I don’t know what to do, I login every day to see if something has changed, but nothing yet. I plan to maximize my contribution for this year, but I’d like to know where can I educate myself in this field.
Also, should I open a brokerage account with Vanguard to start trading stock? Was Prime Money Mkt fund a good decision? If not, can I move my investment to another fund/stock/etf? I’ve read that for my age it’s better to have a portfolio of 70% stock / 30% bonds, but right now all my money is invested in short term reserves.
I opened the account, what’s next?
Gus from Venezuela.
Ryan Guina says
Gus, a Money Market account is usually considered a “safe” investment, as it is designed to preserve your capital, but not earn a lot of money. You can change your investment at Vanguard to a different fund, as long as you have the minimum to buy into the fund (Vanguard has funds which require different minimum contributions, ranging from $1,000 in their target date funds, and other opening ranges at $3,000, $5,000 and $10,000).
Right now I wouldn’t recommend opening a brokerage account to trade stocks. At this point, you should focus on building your retirement fund, and waiting to invest in individual stocks until you know more about the stock market and investing. There are several brokerage firms which let you open an account and trade on an account that doesn’t use real money to help you learn about the stock market.
For now, I would recommend researching a target date fund which is a good investment to start with until you can learn more about the stock markets and investing. A target date fund will automatically balance your portfolio without any additional action on your part. Basically it is an easy way to ensure your investment portfolio is always balanced between stocks, bonds, and other appropriate investments. That doesn’t mean you should open it and never look at it again. But these funds are a great place to start. Then begin learning more about investing and learn to make bigger investment decisions as you go.
Ryan I love all of your useful posts. I have 2 401(k) – one that needs to be rolled over and one with my current employer. After reading a little bit of David Bach and Dave Ramsey, one of my main concern is where to put my 15%. I am simplifying a little bit, but Roth says to max out your 401(k) while Ramsey says to max out your IRA and only put what your company will match into your 401(k). My current 401(k) is with Fidelity and I am looking into an IRA with Sharebuilder, but is there really any truth into the “split percentages” within the investment of 15%? Or rather are there any benefits to opening an IRA in addition to a 401(k) that I am missing. The only thing I see is go with an IRA if you like options at another investment service better than your employers choice, but my thinking right now is the more money I have in one account the more interest I can make. Is there any logit to my madness. Thanks A LOT!
Ryan Guina says
Jordan, the first thing I would do is contribute enough in your 401k to get any employer match – that way you are taking advantage of free money. Next, I would contribute to a Roth IRA so you have the long term tax advantage of the Roth. Once you maximize your Roth IRA, I would contribute the rest to your 401k. I explain it in more detail in this article.
AS for where to concentrate your investments – it is often better to put more in your IRA if you can, that way you can better control your investment choices and costs. Your company 401k is with Fidelity though, so you probably have some very good investment options already available to you. If your investment choices and costs are reasonable, then you might find it easier to roll your old 401k into your current one, which will make it easier to manage your assets (fewer accounts makes management easier).
I have around $4k in an American Funds Roth, a Fidelity Simple IRA and a Northwestern Mutual Simple IRA. I would like to consolidate them all into one Roth, if possible. Most likely with Vangard. With their $3k minimum can I only choose one fund? What is a good starter fund for a Roth for someone in their early 30’s?
Ryan Guina says
Most funds at Vanguard have a $3,000 minimum to open, so you would have to put virtually everything in one fund. Another option would be to open one of their target date funds, which only have a $1,000 minimum requirement. If your Roth IRAs are currently your only retirement investment, then you can consider opening target date fund with Vanguard until you have more money to invest in other funds.
I also have a 401k at work. I have heard not so great things about Target Date Funds, is that my best bet? Once I have more money is it easy to transfer out of the Target Date Funds and into something else?
Ryan Guina says
I suggested a target date fund, because they are a good one-size-fits-all investment for investors who are just starting out. There are some disadvantages to investing with Target Date Funds, but some of them are actually good investments. For example, actually has some of the best target date funds in terms of holdings and management fees.
My recommendation is to consider your 401k holdings when you open your rollover IRA. That way you are creating a balanced portfolio. The minimum to open a fund at Vanguard is $3,000 for most funds, but the target date funds and the Star Fund all have a $1,000 minimum. So you should have multiple investment options if you choose to open a rollover IRA at Vanguard.
Thank you so much for all the information you posted! It’s so great, educated me a lot and helped me of what to do next.
I have been interested in Fidelity 500 Fund for an IRA because that they have a lower expense ratio even than Vanguard. I thought I’m ready to open one with the minimum $2.5K according to the information you posted. Today, I checked the Fidelity website to get the most recent information and found $10K minimum requirement to open an IRA. It disappointed me a lot. I might have to look into Vanguard instead of Fidelity since they ask a minimum $3K to open an IRA. Is it right?
Ryan Guina says
Hi Sunny, Fidelity requires a minimum investment of $2,500 to open an IRA for most funds, but requires $10,000 for most of their index funds (this is stated in the article). You can always open an IRA with a different investment, such as another mutual fund or an ETF, then transfer it into an index fund, such as the Fidelity 500, once you have the minimum $10,000 requirement. Alternatively, you can look into one of the other options available. I currently have a Vanguard account, which I have nothing but good things to say about.
Great stuff, Ryan. I would like to know your thoughts on Transamerica, if you are familiar?
I’m considering trying to move to Vanguard. I find it hard to find meaningful comparisons.
Ryan Guina says
I am not familiar with Transamerica. I’ve been a Vanguard customer for over 10 years now, and I’ve never had any problems with them. Their funds are among the most cost effective in the industry, and their customer service is top notch. Then again, Transamerica could be solid as well. I recommend looking into them more if you are interested in working with them.
I’m so glad I found this informative site – thank you!
I have an employer 401k that I actively contribute the max to. I also have an IRA that is a compilation of various 401ks that I’ve rolled over during the years. The IRA is currently managed by someone at a brokerage firm. Basically, he hasn’t touched it since I transferred it to him in 2007. Some of the money is invested in two mutual funds that I detest, and has managed to lose $12k so far. The advisor doesn’t return my inquiries or e-mails, and has yet to move my money to better performing mutual funds. I realize that since the IRA is small, less than $100k, and since I’m not actively investing new money in it, that he’s not particularly interested. However, I am very interested in the fact that I’ve lost $12k. I think I could do better than that myself. So, based on what I’ve read online, I’m seriously thinking of transferring the IRA to Scottrade, selecting my own mutual funds, and seeing how things go. At least I could make changes in a timely manner if needed. I’m unsure what type of fees or penalties I might incur by having an IRA that is not being actively contributed to. Your advice would be MOST APPRECIATED!
Christine Sakariasen says
Thank you for all of the information and for responding to the questions asked.
I am 39 yrs old and am investing in 401K through Vanguard. I would like to know if I can invest in both Traditional or Roth IRA or both. If yes how much can I invest. I am married but my spouse doesn’t have SSN, she only has ITIN.
My 401k is in vanguard, I was trying to open Tradtional IRA, through Vanguard, it says I can invest 5000 for 2011 & $5000 for 2012.
I am little confused, can I invest for a previous year as well? If yes what will be the tax implications?
Ryan Guina says
Bala, you can contribute to IRAs for the previous tax year up until the tax filing deadline, so yes, you can still contribute to a 2011 IRA. Your income will determine which type of IRA you can contribute to. I am unsure about the ability for your spouse to contribute to an IRA, or for you to contribute to a spousal IRA on her behalf. I recommend speaking with a tax professional in this issue.
Here is a Roth IRA guide to help you better understand Roth IRAs and some of the limitations, contribution limits, and other facts you need to know.
I’m 33 and among several of my retirement accounts is a Roth IRA with Lord Abbet. I have been contributing the max since 2003 and I feel like I’m getting nowhere. I have a current balance of about 38k. I haven’t yet made my 2011 contribution, kinda waiting for a downturn in the market but it’s been doing real well lately. If you had to speculate would you think the fees are a big reason for the accounts poor performance, do you think I should transfer this account to a fidelity, Vanguard, TRowe Price? Thanks!
Robert DeNisi says
I currently have a traditional fixed Roth IRA with TIAA-CREF. Was wondering, since they are not FDIC insured, is my money safe in the event the company goes out of business?
Robert, the FDIC doesn’t cover investments held in brokerage accounts. However, there is a program called the SIPC which plays a somewhat similar role. I recommend reading this article for more info: Are Investment Losses Covered by the SIPC?
I am a recent college graduated 24 years old and have work at Wal-Mart as a part time associate for about 5 years now. I just receive a scholarship offer to go and teach in South Korea for 1 year. Since taken that offer, i decided to quite Wal-Mart. My questions is what is the best advice i should do with my 401K with Wal-Mart? I am thinking about putting it into a Vanguard Roth IRA account. however, my situation is that since my job oversea allowed me to be Tax exempt for the first two years while working in South Korea, I am technically wont be paying U.S or Korea tax during that time. And the money that I makes will probably be enough to cover my living and travel expense at the moment. So my other question is, can I rollover my 401K from Wal-Mart into a Roth IRA account with Vanguard and have about $4,000 dollars be put into it and just leave it there until i came back to the U.S and start working again? Will there be any minimum contribution that Vanguard required me to put in every month? and are there and fees or penalty if I don’t contribute money while I an oversea? Thanks
Jack, I rolled an old 401k into an IRA at Vanguard, which you can read about here: 401k Rollover into a Vanguard IRA. The process was easy, and the Vanguard customer account representative helped me get the process started with my old 401k provider. Vanguard’s customer service is excellent, and I highly recommend contacting them if you plan on rolling your 401k into an IRA. They can also help you understand which fees, if any, there might be.
As a head’s up: You typically must pay taxes if you are converting a traditional 401k into a Roth IRA, since 401k contributions are made with money that hasn’t yet been taxed, and Roth IRAs are funded with money that has already been taxed. Since you will be moving overseas and will not have taxable income, you may be able to avoid paying taxes on the conversion. Here is another article which may be helpful: Roth IRA Conversion.
That said, your situation is unique, and I’m not 100% certain how your non-taxable income will work while you are overseas. I strongly recommend speaking with a tax advisor or a financial planner before deciding exactly how to move your 401k plan. Best of luck!
Is the T. Rowe Price information you mentioned up to date? I was looking to open a Roth IRA with them and spoke with a customer service rep who said that since August they no longer waive the minimum $1,000 with automatic contributions. Are there any other companies who offer a $0 minimum with less than $100/month automatic deposit?
I’m looking solely for target date retirement funds. Do the discount brokerages you mention (Scottrade, Etrade, etc.) offer them, or are those only offered by the mutual fund companies listed? How about ShareBuilder?
Ryan Guina says
David, thanks for pointing out the changes at T. Rowe Price. Most major mutual fund houses require a larger minimum investment to open an account. If you don’t have much to start with, then I recommend opening an IRA at a discount broker, then making contributions until you reach the minimum to open an account at one of the larger firms, if you desire to change at that point. Many discount brokers offer low cost mutual funds or ETFs, and some of them even have a small selection of funds or ETFs which don’t have a commission for purchases. So you may be able to save a lot of money this way. Some of the best IRA brokers are listed in this article. As always, do the research to determine which is best for your situation.
I am a 26 year old mother of 2 young children, I just purchased my first home. I have a little bit to invest (1200) I wanted to start a Roth IRA. My question is I really do not want to do any trading and really would just check in on it maybe twice a year. Is there a specific company or plan? I read a little about the Star Fund from Vanguard and was wondering if this would be a good choice for me. I would not be able to fully find my Roth until I finished up with my schooling (another 2 years). I would make little contributions no more than 50 a month though, until I graduated.
I have a Roth IRA with Fidelity and a traditional one with Vanguard and was thinking of transferring the Roth to Vanguard as well so I only need to deal with 1 institution. Are there limitations or rules for transferring my account from brokerage to brokerage?
You should be able to transfer your IRA without any problems – these major brokerage firms do it every day and in many cases will even help you fill out the paperwork. The thing to look out for is to make sure that you are classifying transfers the right way (notify your new brokerage that the IRA is in fact a transfer so they don’t count it against your current year contributions). If you have more specific questions I recommend contacting your brokerage firm as they would be able to help you regarding your specific case.
What happens if you invest in a roth ira and make more than 167,000.
Do they fine you or what?
Billy, please read this article for more information about what happens when you contribute too much to a Roth IRA.
Thanks for Great Information!
I’m a 45 yrs old and just learning this stuff now. i’m planning to setup a roth ira for me and
my wife & 2 kids and i’m confused because my wife is the only one who file her income tax. i am a free lancer guy with constant income as a professional investor in casino table game. No taxes for a table game winning money.
My question is, how can we maximize our contribution since my wife has only 60K of tax filling? i have enough liquid assets to contribute but not coming to my wife income.
Jack, gambling winnings and losses are both supposed to be reported to the IRS, and are taxable events. So if you win, the income is taxable, and if you are a professional gambler, losses can be written off (I highly recommend reading more in depth about claiming taxes on gambling winnings and losses as they can get complicated).
That said, you can still contribute to an IRA through your wife. The IRS allows spouses to both contribute to IRAs, even if only one spouse is the primary bread winner. However, this rule only covers spouses. Your children will not be able to contribute to an IRA unless they have earned income in their own name.
Eddy Santoso says
I am 42 years old. I am planning to open an IRA (or ROTH) account with Scottrade that will include stock and bond (diversified). From what I have read, after opening I will need to maintain the acount by doing “rebalance”. My question is what part of transactions that require me to pay some fees ? And actually how many kind of fees involved in IRA account with Scottrade? Can all the transactions be done online without calling their customer service / broker? I know I should just call Scottrade to ask this questions, unfortunately I speak broken English so having telephone conversation regarding this matters would be difficult for me (and maybe for them too).
Thank you for your kind attention.
Since so many 401k plans have only limited investment choices, having an account with a company that offers the widest investment choices is especially important. Lowest fees alone may not accomodate this, but if you can go with a company offering wide investment selection and low fees, that’s the place to be.
My wife and I file our taxes jointly and currently our modified AGI is lower than $169K. I have a Roth IRA. In the foreseeable future, this could very well go over the $169K mark. If the limit remains the same (http://www.irs.gov/retirement/participant/article/0,,id=202518,00.html), I know we would not be able to contribute to the Roth IRA any more.
But my question is: what then happens to the money that is already in the account?
Thanks in advance!
Krishnau, the money already in your Roth IRA can remain there – the income limits only affect your ability to make new contributions to a Roth IRA. There is a way around this, however. You can contribute to a non-deductible traditional IRA with after tax money, then immediately roll it into a Roth IRA by doing a Roth IRA Conversion. You IRA provider should be able to help you with the paperwork if you don’t feel confident on your own.
I am a 52 year old Single Mother. My kids are 12 and 8. I earn $142K a year and assume that I will retire at 67 or so. Here are my retirement fund details
1. My employer contributes 11% of my salary to a TIAA-CREF Academic Annuity Plan (GSA) . I contribute and additional $1200 a month a TIAA-CREF 403b. Combined these accounts have around 365K.
2. I also contribute a minimal amount each month ($75 ) to a 529 plans for each child – currently the 529s have 23K and 12K (since I will be 60 (i/.e over 59 1/2) when the oldest goes to college, I plan to save primarily for retirement and withdraw from those accounts if necessary, to pay for college).
3. I have 5500 in a Roth IRA that I opened years ago when I was under the income limit. I have approximately 40-50 K in savings, invested in money market accounts, available for emergencies etc.
Now – for my question – I am trying to decide if I should switch some of my retirement contributions to a Roth TSA (Vanguard) offered by my employer, or continue to contribute only pre-tax money? I would appreciate you thoughts on pre-tax or post-tax contributions.
Hope you can help me.
My Mom passed and I need to rollover her 401k into a “Beneficiary Ira”.
I have no knowledge of this or where to open an account.
Vanguard, Scottrade, or local bank???
I am at the ripe old age of 57 and in a month or two I will be retiring due to medical reasons. I won’t be investing, just transferring the money over as not to be taxed on it.
Not sure about Roth or Traditional as well.
All I know is I want a firm than doesn’t charge fees, if so, little as possible.
Any advise you can provide will be greatly appreciated.
Thank you in advance.
I’m sorry to hear about your loss, Chris. I would consult with a financial planner or accountant to make sure all the associated paperwork is handled correctly so as to minimize your taxes and expenses when transferring your mother’s estate into your name. As for recommending a financial institution, I think you would do well with Vanguard or a similar company where you can minimize your expenses. Again, it is probably a good idea to speak with a financial planner to make sure you have your investment portfolio allocated in a way that will help you be prepared for retirement. It will be well worth a consultation fee to meet with a planner to help you get your financial situation organized and better understand your options as you near retirement.
I want to open a Roth IRA for both me and my husband and I want to invest in some index funds. Would it be wise to open my Roth IRA’s through Scott Trade and then invest in the Index funds through Vanguard? Also, should I continue to keep my 401K if I open a Roth IRA? My husbands’ company does not contribute anything to his 401K.
Ellee, Scottrade is a great brokerage and offers a variety of investment services, including the ability to meet with a broker at one of their many branches. I have no problem recommending it to anyone, so long as it meets their needs (which it would appear to do for you). That said, if all you are planning on doing is investing with Vanguard funds, you can open an IRA directly through Vanguard. They are a top notch service as well.
Regarding your 401ks — I would not recommend closing them, since doing so may require you to transfer funds. The decision should come down to which investment you should focus on first – the IRA or the 401k. We covered several scenarios about this topic in this article: Where Should You Invest First – 401(k) or IRA. And we covered the absence of an employer match in this article: Should You Invest in a 401k Without an Employer Match.
Hopefully one or both of those articles will be applicable to your situation and help you make the best decision for your needs. Feel free to leave a question or comment on those articles, or consult with a financial advisor.
Regarding investment Roth IRAs, any opinions on Sharebuilder the ING Direct affiliate? How does this service differ from an investment Roth IRA with Vanguard?
Matt, ShareBuilder offers a wide variety of investments and is a good option for many people. It is even more attractive to those who use ING Direct as one of their primary banks, since the accounts are linked, which makes money transfers quick and easy.
The primary reason ShareBuilder wasn’t included in this list is because ShareBuilder is more of a discount broker than a large mutual fund house, and I believe the discount brokerages listed offer better investing tools for frequent stock traders than ShareBuilder. That said, ShareBuilder is a solid option for someone who wants to buy mutual funds or doesn’t do a lot of technical analysis when trading individual stocks.
If you wish to compare ShareBuilder and Vanguard more closely, then I recommend listing the ways you intend to invest (types of investments, how much you will invest to begin with, ongoing investments, etc.), then compare the availability of investments at the two companies, then see how much it will cost to make those investments. You will probably find it helpful to use a spreadsheet. Best of luck!
I am 25 and I want to open a ROTH IRA. I don’t have a lot of money that I can contribute up front. I will be able to contribute about $100 per month. Is there a company that will work with me since I can’t do a lump sum first?
Debbie H says
If you can contribute $200 a month Fidelity will be able to help you, normally they need $2500 to start but with $200 a month you can get a no fee freedom fidelity 2045
Not to just jump in…
I saw where earlier you inquired about Fidelity vs. your bank. Looks like you went with Fidelity as Ryan suggested. I also see you are advising Danielle to go with Fidelity… Your scenario is just like mine (being able to pay $200/month) and you asked the same question I had. Tell me the pros and cons. I would like to make a decision SOON, while I am blessed to have a job and can make the right decisions.
Thank you in advance!
p.s. Ryan, thank you for this wonderful outlet!
Can I transfer part of my Vanguard 401k to an Etrade account without penalty? I am having a hard time finding a way on their site to transfer without canceling my employers 401k plan.
Mickey, in my experience, calling the Vanguard customer service department for transfers in or out is often easier than trying to do everything online. I recommend calling them and asking them to walk you through the process. Their customer service department is very helpful.
Debbie H says
I would like to open a ROTH IRA, I was looking into my bank , which is Bank of America or should I try fidelity? I do not have much to invest but I can commit to $200 a month to waive Fidelity’s fee. What is the best option for me?
Debbie, Fidelity will most likely have more investment options and lower associated costs. The best thing to do is determine which investments you wish to use in your portfolio and compare the costs between the two financial companies and determine which is best for you in the long run.
gina sparks says
I would like to find a non-fiducary stock market advisor. If you know of any, please let me know.
I am over 50 and 2 years ago finally opened a Roth IRA account invested in a diverse mutual fund. The fund is doing well while my (modest) bank savings are not. My understanding is that if I invest my allowed $6000 more this year I can take it back out (though not the earnings) without penalty – is this true? Thanks for your help!
Jan, I recommend reading more about Roth IRA Withdrawal Rules to get a better understanding of when you can take a penalty free withdrawal of your Roth IRA contributions.
I have picked up a lot of great info from here! THANKS A LOT! However, I’m curious about a few things still. I am 28, single and want to invest as much as I can now while currently with the company overseas. I make over $150k by myself – Does this knock me out of qualification for a Roth IRA? I was reading that being single making that much might make me only eligible for a traditional IRA?? The Roth looks a little more enticing, however would it make more sense to do a traditional IRA making my contribution tax deductible? Currently my income below $91,500 is tax free anyway (Foreign Earned Income Exclusion) – making the final $58,500 taxed at a higher rate anyhow…so this would be another tax benefit…correct or am I way off here??
The Roth IRA/Traditional IRA from Vanguard looks like the path I would take. I like the idea of a “target date investment fund.”
Thanks in advance for the help and advice!
David, I’m not sure how the Foreign Earned Income Exclusion affects your ability to contribute to retirement accounts. I recommend speaking with a financial professional for information specific to your situation.
I recently got laid off and need to make a decision about my 401K. I am also leaving the US within the next few weeks and likely will not return. What are my best options. I’m hesitant to cash out due to the tax hit however I will only have been employed for 4 months in 2011 and lost a large amount in company shares (not sure if that helps with the tax). The company incidently is in liquidation so I don’t know if leaving it in the current pension is even an option. If I do a rollover is there a way to do a transfer so that I can avoid my plan being cashed out and losing the 20% cash, having to make up the 20% and reclaiming from my taxes. Finally for my situation would a traditional IRA or a Roth IRA be my best option. I’m assuming I can’t make any contributions since I will no longer be employed in US. Thanks so much for your help.
Hillary, your situation is probably more complicated than most situations, and it might be a good idea to seek counsel from a financial planner, who will be able to give you a better idea of the big picture as it applies to your situation. Regarding rollovers – yes, you can rollover your 401k plan and avoid paying immediate taxes, so long as you apply it toward a qualified retirement plan such as another 401k, a Traditional IRA, or an annuity. These only offer tax breaks in the US, so it will still be in your best interest to speak with a professional financial planner. I wish you the best.
Robin M says
I am 33 and I am thinking about opening an IRA account. In 2009 we (I & my wife) had abouy $ 160K income and in 2010 about $ 140K.
I want to open a roth IRA account. If our income increases in the next few years would that stop me from contributing to my roth IRA account?
Also is there any limit on the initial deposit (max or min) when I open the roth IRA account?
Robin, an IRA is a great way to go for your retirement planning. You can contribute to a Roth IRA each year your income is within the limits, so if you believe you will be within in the income limits this year, then go for it. Some brokerage firms have minimum requirements for opening a new account, and these minimums range from around $25, up to a few thousand dollars. The maximum for a new IRA would be your annual contribution limit, which based on your current age and income would be $5,000 in each account. My recommendation is to narrow down your investment choices then contact the customer service at these brokerage firms for more information. In my experience they are generally helpful in these situations.
Im 21 and have been thinking about starting a Roth IRA. Ive postponed college because of family issuse but now I would really like to start college. Is starting a Roth IRA a smart idea considering I need to go to college and have no college fund. I have a few saving bonds (ee) worth about $2000 and im not sure if I should use them for college, IRA or save them as is. Thank you for your help, your insight has been very helpful considering a month ago I had no idea what IRA’s, Mutual Funds, or Investing in general really meant.
Marquise, it’s awesome that you want to start investing now, and I think it is something that most young people should consider. However, I don’t think it is a good idea if it leads you into further debt. Right now I recommend focusing primarily on paying for your college expenses. If you have enough to cover tuition and related living expenses, then by all means use this money to open an IRA and begin in vesting for your future.
Im 21 and have been thinking about starting a Roth IRA. Ive postponed college because of family issuse but now I would really like to start college. Is starting a Roth IRA a smart idea considering I need to go to college and have no college fund. I have a few saving bonds (ee) worth about $2000 and im not sure if I should use them for college, IRA or save them as is. Thank you for your help, your insight has been very helpful considering a month ago I had no idea what IRA’s, Mutual Funds, or Investing in general really meant.
I currently have an active TD Ameritrade….Can there be any complications with opening a 401(k) rollover account with TD?
I would just go with TD Ameritrade then, since you will have everything in one place and it will be easier to manage all your investments in one account. There shouldn’t be an complications with doing the 401k rollover in that account, and they will probably help you with the paperwork (I’ve done a rollover with Vanguard and they were very helpful with guiding me on the paperwork; most brokerages are). Best of luck.
Thank you, Ryan! Appreciate your help!
I just left my job and want to know which is the best option for me. Here is the break down:
My current 401(k) company is Prudential. I am decades away for retiring. I am interested in stocks mainly. (don’t really care for ETF or mutual funds at the moment). I have less then $20,000 in my current 401(k) account.
My question is…What company should I rollover my 401(k) with? TD Ameritrade, Vanguard, Etrade, Scotttrade, Fidelity?
Peter, if you are primarily interested in investing in individual stocks, then I would go with a discount brokerage firm because they have cheaper stock trades. I don’t think you can go wrong with either Scottrade or E*TRADE.
I am thirty and planning to open an roth. from reading all the posts, Vanguard is a good company to with since i my intial investment is $5000. I really wants to diversify my portfolio. I wants to have stock, bond, fund, index, etc. So what brokage firm is good to go with? Isnt Vanguard is good with only mutual funds and not with the other stuff. Thanks
Devin, you can diversify your investment portfolio in many different ways, and you should be able to do everything you want with Vanguard. They primarily offer index and mutual funds, but you can get other investments there as well. Since you are just starting out and will have a relatively small investment portfolio, it will be easiest to get a solid diversification with an index or mutual fund, then consider other investments as your portfolio and investing experience grow. Here are some more investment strategies for beginners to help you get started. Congrats on taking the first step and best of luck!
I am 47 and I had a 401k in my old company. The company switched 401k providers so I kept my 401k in the provider and rolled it into an IRA.
I now have a new job and a new 401k.
What I want to know is can I transfer my IRA to another provider such as t.rowe price or fidelity and if I do, are there any penalties or fees that I must pay?
I currently have $12,000.00 in my IRA and it is in Alerus Financial.
I had never heard of this company before, does it pay to transfer it to a more high profile company?
I am currently enrolled in a target date fund for 2035.
Please let me know your thoughts.
medtech2, you should be able to transfer your IRA to virtually any company or financial planner who is an approved custodian. There shouldn’t be any penalties or IRA fees related to transferring your IRA, but your current brokerage may charge a small fee to transfer your funds out. However, there are some brokerages out there which will refund some transfer fees (but not all of them do this). My recommendation is to find a new custodian for your IRA (a brokerage, bank, or financial planner), and inquire about the process. Most of them will fill out the paperwork for you, or at least guide you through the process. It only takes a few minutes and can help you better manage your money in the long term. It’s well worth doing.
I almost opened a Roth IRA today with my mom & dad’s Edward Jones Financial Advisor. Well, I actually did give him my social and driver’s license, but I have not yet cut him a check. He is a respected guy in my community, but something about the meeting didn’t feel right. I noticed his hands were shaking, as if he was very nervous. I, on the other hand, felt comfortable because of his reputation. I hardly asked him any questions about fees, etc. because, like i said before, I trust him based on his reputation.
Anyway, I come home and put the check in my mailbox to pay him the initial fee & give access to automatic withdrawals from my checking account. But as I began to do some research online I had to think this one over. I ran out to my mailbox and pulled out the check until I can better inform myself.
Could you give me some advice or a good website to read for my investment goals? I would like to set myself up for long-term investing & I’m not afraid of risk right off the bat. I also don’t mind spending minimal time researching and managing my own money through a service other than Edward Jones if it will mean bigger savings in the longrun.
I’m 26 and I know I need to start right now because I’m already behind. After some research, I think maybe I should go with Vanguard.
All your advice is much appreciated.
Ryan, I can’t advise you on this particular broker, but I can tell you that sometimes you have to trust your gut. I recommend reading the following two articles, as you may find them applicable to your situation: Brokers Don’t Always Have Your Interests In Mind, and Should Your Financial Advisor Have a Fiduciary Duty to You?.
In these I relate some bad experiences I had with some investment advisors, and in the second one, I share how investment advisors aren’t always required to act in your best interest 9in other words, they can recommend funds that make them more money, regardless of whether or not there are better funds available).
As for his shaking hands or nervousness in his voice, it could be caused by a variety of reasons (such as health issues, or on the flip side, he could have been nervous about landing a new customer). I wouldn’t read into that so much as I would be concerned about making the right financial decision for your future. But the bottom line is that if you aren’t comfortable with him, look somewhere else.
I have a 401k and an investment account with Schwab (stocks) and annuities with two fraternal life insurance companies. I have prepaid college educations for my girls but I want to save more money. I recently got a winfall of money and a freind is suggesting the Wells Fargo FundSource. I am willing to take risk since I am in my fourties, is this a good place to invest?
I am an engineer that just started working last year. I have already saved up a decent amount of money and was wondering how I should properly invest it. My company currently allows me to put 5% of my income into a 401k, but I was still planning on opening a Roth IRA.
Am I still eligible to put the full $5,000 per year into my Roth IRA even with a 401k?
Also, would you recommend putting additional money into a separate mutual fund and what vehicle should I use?
Sam, you may be eligible to put more money into your 401k. The usual contribution limit is a total of $16,500 per person, per year, but most companies will only match up to a certain percent – this is probably where the 5% number you reference comes into play.
You can also have a Roth IRA in addition to a 401k – your IRA contribution limits will be based upon your income level.
Can I open a Roth IRA for my 14-year-old son, or does he need to have “earned income” in order to qualify for a Roth IRA
Ren, he needs earned income in order to qualify for a Roth IRA.
I am a 19 year old college student. I attended a seminar on investment basics provided by Thrivent Financial at my college and spoke with a senior financial consultant afterward. He gave me a couple handouts and some info about their mutual funds. I have a Roth IRA at Wells Fargo with $1,00o in it that isn’t doing anything, just sitting in a savings account. The Thrivent consultant showed me their Aggressive Allocation Fund in a magazine and also showed me a Wall Street Journal article where they were rated pretty high in 2 types of money market funds.
But now that I’m back in my apartment and going through the info I see a table with the headings “SHAREHOLDER FEES” and “ANNUAL FUND OPERATING EXPENSES” both with several subheadings and each with a percentage next to it. What are these percentages? I do not want to be throwing that money away?
Do you have any idea how Thrivent stacks up to Vangaurd STAR fund? As a young investor I love the idea of the Thrivent aggressive fund for my long term retirement savings plan but it sounds like Vangaurd has some crazy low fees/expenses. Please give me your opinion on which one you would go for in my situation. I know each probably has pros and cons and it really depends on the situation. But what will leave me with more money when I’m 70 and ready to retire? Or if you think a different option would serve me better, please include that.
Alex, the fees you are referring to are most likely fees associated with the management of the funds, which covers the fund manager’s compensation and related expenses, such as overhead, paying for the paper to print the prospectuses, running the website, etc. I also believe that Thrivent Financial planners are compensated by commission, though I am not 100% certain. Vanguard has a different investing philosophy in which they primarily choose investments which are based on low cost index funds, which mirror a segment of the stock market. This takes much of the guesswork out of choosing which stocks, bonds, or other equities to invest in, and results in much lower expense rations – meaning more of your money works for you instead of paying for commissions or other overhead expenses. That said, I don’t want to say Thrivent Financial isn’t a good decision – they have many fine investments and wonderful people working for their company.
My recommendation is to begin learning more about types of investments and not zero in on one particular aspect of the investment. For example, most brokerage houses or investment firms will have an “aggressive fund” and some funds with high expenses can outperform funds with lower expenses even after taking expense ratios into consideration. You will also want to consider whether or not you want to have a financial advisor help you with your investments or whether you want to do it on your own. Thrivent is an example of the former option (though there are many others), and with Vanguard you would pretty much be on your own. Here are some additional tips which you may find helpful: investment strategies for beginners.
I work for the federal government, so I am enrolled in their TSP retirement fund and have money there. My wife and I both have about $5 grand additionally ($10 grand total) in two Roth IRAs with CGM Focus Funds. They are starting to rebound, but not been great last couple years. Trying to figure out if I want to keep contributing to CGM Focus Fund, or try out something different, but still a Roth IRA. I am 34 years old.
First, I must thank you for the wonderful information and dedicated responses to all of the comments. I think in this article or some of your responses you’ve mentioned about tax-diversification, in terms of traditional vs Roth. I’m 36 and my husband and I are in a higher tax bracket, and I’m thinking to forget about Roth and just put all my money in the 401k and traditional, so I can reap the tax benefits now! I wanted to know your specific thoughts on this. Thanks for what you do!
Ruth, thanks for your comment. Taking the tax break now gives you an immediate benefit, which is always nice. However, this may or may not be the best option for you in the long run. I recommend speaking with a financial planner who can look at your total financial picture and help you better understand your retirement planning options to give you an idea of the best way to plan your taxes for now and in the future.
Patty S says
Awesome website and comments. I am 50 years, I have $100K + in TSP. I have extra money floating around each month so I was seriously thinking about investing in a ROTH (Suzi O’s preference :-). For the record, I do NOT plan to rollover my TSP, but may decrease my contributions and place those in the ROTH.
I probably will not retire until I am 62 (or older). Because of my age, is the Roth still a good way to go? I am usually quite conservative with my money, but I want to be able to retire in the style in which I am currently accustomed (travel, travel, travel).
Patty, a Roth is still a great option at your age. The main difference between the TSP and a Roth IRA boils down to this: when the money is taxed and your investment options. Thrift Savings Plan contributions are tax exempt and are taxed when you make withdrawals in retirement age. Roth IRA contributions are made with money that has already been taxed, but withdrawals made during retirement will be tax exempt. The TSP has a limited number of investment options, and a Roth IRA can be invested in many different ways. this article may help you better understand some of the pros and cons to both retirement accounts: Should you invest in the TSP or an IRA?.
There is more good news – you can make contributions to both retirement plans. So you can enjoy the benefits of both options. One way to do this is to contribute the maximum amount to your Roth IRA and then contribute your remaining investment allocation to the TSP. That way you are consistently making investments into both plans.
Best of luck!
Ryan, I’m 29 and I feel pretty uneducated about investing though I have about $29,000 in a roth 401k which my company is about to close. I’m thinking the best thing to do is roll it over to a roth IRA with a mutual fund like vanguard. Considering that I don’t have to worry about minimum investments or minimum balances, any ideas on what I should do?
I have question for you Mr.Ryan
Im 31 years old looking to invest 3000 dollars for a long term profit with out losing much or any at all. im thinking 5-10 years. This will be my 1st investment what do you recommend?
James EB says
Hi Ryan, I have been looking into opening a Roth IRA for months now but cant decide whats best for me out of the big three companys ( T. Rowe, Fidelity, Vangaurd). I am 26 and have about 3,000 dollars to invest with a monthly contributation of about 200 dollars but with bad economy I want to be able to go lower if need be. I am trying to find the company to best meet my needs and was hoping for some direction from you if possible.
James, any of these will work well. My recommendation is to look at the minimum required balances and see if the brokerage firms offer funds that you can afford. For example, Vanguard has higher minimum requirements than several other companies. You can buy in at $3,000, but your selections are more limited at the buy in with Vanguard. Some companies are also willing to waive a minimum buy in if you contribute on a regular basis. I recommend spending some time looking at the various offerings that meet your current budget, and then go from there. That should help you eliminate a lot of the confusion. Best of luck!
I have no clue what to do with a roth ira. Do I have to trade and move money around? I am 47 and plan to retire in 9 years and want to open a roth ira. I have a TSA and a very nice retirement program, but I’m looking for something to add. I read the roth ira is an excellent choice, but I’m afraid that I won’t know how to manage the funds. I am interested in a no load fund with no minimum deposit. What do you suggest for me?
I just saw your blog, and is very very full of good information on investing!!!. I’m 22 year old, I’m very interested on investing on IRA. I’m currently in the Navy, would there be a better benefit since I’m in the military? I heard USAA is one of the current best choices for military people who wants to invest, but I really don’t know anything much about investing. If you could give me some tips and guidance that would really be a big help from you. Thank You
Great info Ryan, here’s my situation;
I’m 35, married and make $80k a year with a household income of $125k. Our employers do not offer a 401k plan and I want to open an IRA for the both of us. Through my research and discussion with other people, I’m kind of leaning towards a traditional for the immediate tax benefits. What do you think…Traditional or ROTH? And would you still recommend the Vanguard 500 fund for the long term? If not, are there any other long term Vanguard funds you would recommend? I have the $10,00o to invest right now.
Moses, since your employers don’t offer a 401k or other retirement plan, then you should be able to deduct the full $5,000 each, regardless of your income level (eligibility rules for deductions change if you are eligible to participate in an employer or government sponsored retirement plan). So if you need the tax break right now, then a Traditional IRA will certainly help out. For my personal investing, I prefer a Roth IRA, but that is based on my situation. You can compare Roth and Traditional IRAs and make the best decision for your investing needs.
Regarding Vanguard – I can say they offer a great selection of investment products, but I can’t offer specific recommendations for which fund you should purchase because everyone has different investment needs and risk tolerances. That said, you will want to grow a diversified portfolio over time. The Vanguard 500 can be an important part of your portfolio, but you may wish to diversify your holdings over time so you will spread out your risk. Best of luck!
I am 28 years old and have a Fidelity Roth IRA account ,which I have already maxed out for this year. Currently I have my IRA account invested in a Target Date Retirement Fund which I figured was the best bet seeing as I am a passive investor. I noticed in the comments that you and several other people have spoken against having investments in TDRFs over the long haul. Why is that? Are there other avenues for passive investors besides TDRFs?
And lastly I have been considering opening up a separate investment account from my IRA where I would use the earnings from this account towards the purchase of a house. Is this a wise decision? And what are the tax implications from this?
Nicole, a Target Date Retirement Fund is a fine investment for someone who doesn’t doesn’t have the time or interest to learn more in depth about investing. It is a better default option than many alternatives. Some people don’t like Target Date Funds because they tend to have slightly higher fees than you would experience if you created your own version with various low cost funds, and they are not as flexible as other investment products. Another disadvantage is that they don’t mix well with other investments. For example, your asset allocation will be thrown off if you have a portion of your investment portfolio in a target date fund, and a large portion in other funds. That said, I recommend people start with Target Date Funds if they don’t know where else to start because it will give you a balanced portfolio.
Regarding investing for a house – you definitely want to keep your retirement investing separate from saving for a house so you don’t run into any IRS penalties. It’s also usually best to invest in a low risk investment so you don’t lose your principal. You would have to pay taxes on any earnings you make from your investment.
Thanks for all the helpful info.
I am 28 yrs old and have had my roth IRA at Edward Jones for 6 years and I contribute the maximum. I also recently opened a joint account with my wife at Edward Jones that I invested a lump sum in mutual funds. Now my rep is wanting me to open a roth for my wife . I was wondering your thoughts on Edward Jones firm? I am increasingly hearing more great things about Vanguard and Fidelity year after year. I am wondering if I am missing out. Should I test the waters with Vanguard with my wife’s account. Although I will not be maxing it out, so it might be hard to guage. What are your thoughts about ed jones and would I have an individual that I deal with at a place such as vanguard or fidelity? I have an initial investment of abount 3000 to 5000.
Tony, Both Fidelity and Vanguard are great places for your investments, but they may or may not be the right place for your investments depending on your investment style. Basically, the difference boils down to how much you want to manage your money. Fidelity and Vanguard are both more of a DIY investment brokerage. You make all the decisions regarding how your money is to be invested. The funds typically cost less than many other places, but everything is up to you. You will probably pay a little more with Edward Jones, but you are paying for their funds as well as for someone to help advise you with your investment plan and decisions. In the end it boils down to how comfortable you are making your own investment decisions.
I feel my rep is a little bit of a salesman at times. He calls me frequently to invest more and in certain mutual funds. Now I know this is his job but wonder if he is motivated by his commissions and not necessarily in my best interest. Obviously you can’t comment on my rep but how much can I lose in the long run with all these fees? Lets say in 25 years with the average amount of investing.
Great website! Really helpful.
I am 29 years old and looking to open my first Roth IRA. I was thinking of going with Vanguard (although, I do have an ING account- which would make it easier to go with Sharebuilder). I was wondering if you would recommend ETFs or mutual funds? I will be investing once a year and don’t want to move my money around.
Also, I don’t want to have major anxiety over my investments. Should I consider putting some of the money into bonds or a more secure option?
Rachel, I recommend looking into which type of funds you will be using, then determining the availability and cost of investing with those types of funds at the different brokerages. and how much they will cost. For example, you can get many Vanguard mutual funds through Vanguard without paying any transaction fees, which can help you reduce long term costs. Many other large brokerage firms also have in house mutual funds which don’t incur transaction fees. So this is definitely something to keep in mind. ETFs and mutual funds are both good options, but if you aren’t paying any transaction fees, then it won’t matter too much. In addition, you could set up an automatic allotment or investing program to send in a contribution once a month, or with every check, instead of waiting to invest once a year. This has several advantages, namely making sure the investment is made (emergencies pop up, and yo don’t want to have to use your investing money if you can help it). The other factor is Dollar Cost Averaging, which can help smooth the purchase price of the equities or other investments your purchase. Regarding investing in bonds – depending on your age, investing 100% in bonds might not offer you enough return on your investment to sufficiently grow your retirement funds. I recommend doing some research first, or speaking with a financial professional before making your long term investment decisions. You can also consider a lifecycle fund to get you started, which will automatically balance your portfolio. That may not be the best long term option, but it is hands off and a good way to get started with investing.
correction – the 401k is still with Vanguard.
Hello Ryan –
I stumbled across your site and appreciate your info and replies.
I am looking to rollover my employer 401K (after being laid off) and was looking into my credit union or bank. Now it looks like maybe I shouldn’t.
I believe my employer was with Vanguard (and I liked the mix of investing I had) then changed to Mercer. I am wary of keeping the 401K where it is in case my employer goes belly up, since it’s not doing well (hence the lay-offs).
I am assuming I just open an account with Vanguard, correct?
Also, it sounds like I should do a Roth IRA. I have approx. 25K in the 401k at present.
I also have a Roth IRA Lifepath Fund at State Farm that I started last summer. It’s a little over 2K right now. What are your thoughts about SF and their mutual fund options?
Should I considering adding the 401k rollover to SF?
I have about 25 days to get this done.
Thank you for any input.
Kristy, even if your former company were to go bankrupt, they wouldn’t be able to touch your 401k funds – those are yours and should be in a protected account. You have a couple choices regarding your old 401k: you can leave it with your former employer, or you can do a 401k Plan Rollover into an IRA. Here are instructions for doing a 401k Rollover into an IRA at Vanguard . The benefit of rolling it into an IRA is that you will have more control over your investments, and if you want to, you can eventually decide to do a Roth IRA Conversion. Note that you may be required to pay taxes on your conversion if you had a traditional 401k plan and not a Roth 401k.
Regrading your current Roth IRA: I have never invested with them, but I’m sure State Farm has some nice mutual funds. I find, however, that it is usually easier to manage all your investments if you have the majority of them in one place. So find which company offers you the best investing options with the most reasonable costs and go with that company. Best of luck!
I love the article!! Question my wife rolled her 401k from her employer to vanguard into a traditional IRA but we are wanting to go into a ROTH. The agent at vanguard told us once we do that we have to choose where we want to put our money. Our problem is that neither one of us knows anything about investing so we wont know what funds to choose. I would like to stay at vanguard because of all of the great news about them but we cant manage our own account.
Akio, you can convert your rollover IRA into a Roth IRA by doing a Roth IRA conversion – I did the same thing at Vanguard – rolled an old 401k into a traditional IRA, then later into a Roth IRA. I’ve been very happy with Vanguard and they have a good mix of funds and other investment options to meet most investors needs.
Unfortunately, I can’t tell you which funds to invest in, since that is such a personal decision and relies on too many variables. But you have several options to help you decide. One option is to start with a Target Date Retirement Fund until you can learn more about investing. This will give you a diversified portfolio to get you going. then as you learn more about investing you can fine tune your assets to be more in line with your risk tolerance. Here are some more Best Investment Strategies For Beginners. Best of luck!
Thanks for all the great information you’ve provided in this post and in the comments.
I’m 31, and have a small Roth IRA with Franklin Templeton that I haven’t touched since opening it several years ago.
I’d now like to take a more active roll in this IRA, and I’m planning on transferring it to Vanguard.
Can you give me some pointers as to how a person like me, who doesn’t have any investing experience, can choose funds?
Peter, I wrote this article awhile ago to help people just starting with their investments: Best Investment Strategies For Beginners. Feel free to use this as a resource to get started, and be sure to read other resources for additional information specific to your situation. Best of luck!
I’ve enjoyed reading the posts and your responses to all the investment questions. I’ve been dragging my feet on transferring my $90K – IRA out of Ameriprise, after not being happy about their exorbiant fees and after rolling over a 401k last year and getting charged 4.5%. My new job uses Fidelity for our 401k (wish I had waited to roll the other over to that). I’ve also been seriously considering moving the whole IRA to Vanguard – heard many great things about them for a few years now. I’ve always invested everything in mutual funds anyway. I also still have a $25K 401k from another company I have yet to roll over. I’ve had my money at Ameriprise for way too many years and not at all happy with the results and fees. Any thoughts when considering which to move to or should I split things up some? Thanks much!
Barbi, I rolled all of my 401ks into IRAs at Vanguard, and I’ve been happy with the funds they offer, their fees, and their customer service. If they have the investments that you wish to purchase, then you can’t go wrong with them. I haven’t used Fidelity, but I know quite a few people who use them and I’ve heard great things about them as well, so you probably can’t go wrong there – again, provided they offer the types of investments you need.
Regarding splitting up investments between locations – there is really no reason to do that unless you can’t each type of investment you are looking for in one place, or if the fees are substantially higher or lower elsewhere. Otherwise, it is generally much easier to monitor and balance assets when you have them spread among fewer locations.
Thanks for your answer to my other question, it was very helpful. I have another question for you. I don’t have enough for the minimum initial investment for Vanguard, but I have roughly $500 dollars that’s sitting around that I would like to invest. I was thinking of putting it into a Scottrade IRA account and trade stocks until I have enough, and then transfer it into a Vanguard Roth IRA. Is this something you would recommend? How easy is it to transfer the money between the two IRA’s? Will I be able to transfer everything including gains without incurring fees?
Thanks a lot,
Scottrade is a great brokerage and would most likely fit your needs well. Scottrade has an initial deposit requirement of $500 to open an account, and opening a Roth IRA online only takes about 10 minutes. The other benefits include no account maintenance fees or minimum balance requirements, and a wide variety of investment options, including stocks, bonds, CDs, options, ETFs, mutual funds… they even have 226 Vanguard funds available. Scottrade doesn’t charge any transfer fees if you decide to later move your funds.
You should easily be able to transfer an IRA between brokerage firms fairly easily and your IRA will maintain it’s tax advantages and you will not incur or lose any money that is in your IRA.
I have transferred multiple investments into Vanguard. They have AWESOME customer service and can help you with the transfer. Here is an article I wrote about doing a 401k Rollover into an IRA at Vanguard. Transferring an IRA would be similar. (to be fair, Scottrade also has very good customer service – so you will likely be happy with them as well).
Awesome article you have writen here. Thank you so much.
My yearly income is high. I have already max out my 401 k, and was recently suggested to create a non deductable IRA account first and, subsequently, convert it to a Roth IRA. I like this idea, and my question to you is if any of the companies described in your text would be able to do this for me, the two steps of creating the non deductable IRA account and convert it to Roth immediately after?
On another note, I read in some messages that people like more one or another investment option because they have savings or checking accounts. I might be missing the point but, what are the advanges of having these accounts available if the account would be max out and the IRA money is not suposed to be withdrawn from the account until an older age?
And another question, may I contribute this year, before April 15 with funds from 2010 and after April 15 with funds from 2011, to the IRA account, to increase the total contribution amount?
Thank you in advance for your answer
Thanks, Dan. To answer your questions: Yes, you can open a Traditional (non-deductible) IRA at any of these brokers and then immediately convert it to a Roth IRA (note that it may take a day or two to make the initial money transfer, but converting the non-deductible to a Roth should be a same day event if done before close of business).
I keep my savings/checking accounts separate from my investments, but either way is fine. just make sure that you get a bank account that covers all of your banking needs and a brokerage account that covers all of your investing needs. Some financial institutions specialize in only one of these areas, so you may find it better for your needs to use more than one service.
Regarding 2010/2011 contributions: It doesn’t matter which funds you use, provided you have earned income in both years and make the contributions by the cut off dates. You could even, for example, fully fund a 2011 IRA in January, then fully fund a 2010 IRA in March. The only requirement is that you meet earned income requirements.
I’m new to investing so i don’t really understand everything about IRA’s, but I’m thinking about opening a Roth IRA with Vanguard and I have a few questions. If i have an IRA with Vanguard, am I only limited to buying Vanguard brand mutual funds? or could i buy funds such as FAIRX or SLASX or even funds from T.Rowe Price or Fidelity?
Matt, You can buy other funds, but you may or may not be able to do so through Vanguard – it depends on whether or not the other brokers make those funds available to outside mutual fund houses or other brokerages. You can, however, open more than one Roth IRA, provided you don’t go over your contribution limit. For example, if the max you can contribute of $5,000, you can open a Roth IRA at Vanguard and contribute $3,000 to it, then open a Roth IRA at fidelity and T. Rowe Price and contribute $1,000 to each of those (or any other combination that reaches the max contribution limit).
Are there certain requirements to be eligible to open an IRA? You gave a good list, well done for sure.
I use several of these brokerages for investments. I started using Scottrade at age 16 because it is very user friendly. Etrade has some great charting capabilities and commissions don’t get much cheaper than TradeKing. There are several others that I like but my point here is to not pick just one. Each one has its own pros and cons and using more than one online brokerage can give you several advantages as opposed to just sticking with one for all your investments. If you prefer using just one to keep things simple, consider opening a couple other accounts with just the minimum needed so you are able to use their research tools.
my name is Deyan. I am originally from Bulgaria, and it is easy for me to say that i don’t know anything about retirement here in USA. However i spent some time reading i figured out that for me and my wife a Roth IRA would work fine. Starting with Around $10k and then putting around $4k-$5k every year till we hit our 60’s. Now my question is: Where should i go to open an IRA so i can have a broker or advisor to help me with ALL of my trades? I need someone basically to take care of my future portfolio because i wont be able to do it instead i will loose my money?
Deyan, there are a couple ways you can go, but it sounds to me like you are looking for an independent financial advisor (read tips on how to hire a financial advisor for more information). Be sure to do a background check on the financial advisor and understand how all fees are assessed before handing over any money. You want to make sure any financial recommendations are made because they are in your best interest, not because they give the financial planner the highest commission.
You can also go to a company such as Scottrade, which offers an online brokerage and individual storefronts where you can find a broker to help you make trades. This gives you a little more freedom if you wish to have a more hands-on approach.
I worked for a few years and now I am back to school to take my graduate study. I rolled over my 401k from my previous employer into a Vanguard traditional IRA account recently. I am thinking to convert my traditional IRA account to a Roth IRA account, both of which are within Vanguard. I was told that if I pay the tax withheld using funds other than the IRA fund, I should be able to save some money, as using the IRA fund to pay tax is considered as early distributions. However, I couldn’t get the answer about how to pay the tax withheld. Is there any form that I need to fill out and explain what kind of fund source I will use to pay the tax withheld? Should I mail a check to Vanguard? Or, can I estimate a 0% tax withhold rate since my overall income for this year will be low (I’ll have about $20k of straight income and about $23k of IRA fund)?
Also, I know that for the year of 2010, I can treat the $ amount that rolled over to Roth IRA as income of either 2010, or split between 2011 and 2012. My question is, when should I make the choice formally, by the time that I do my 2010 tax return, or as soon as I convert my traditional IRA to a Roth IRA?
Thanks in advance for your time and help! Any suggestions will be greatly appreciated!
BW, I recommend speaking with a financial professional regarding your situation, as there are many variables to consider.
Ryan, thank you for all your help.
I have a question about minimum investments. And I’m actually interested in opening up a Roth IRA for myself, a Roth for my husband, and a general investment account that invests in mutual funds (I won’t be actively trading).
For Vanguard, the minimum of $3000 is per fund, correct? So if I’m interested in 2 funds, then I need at least $6000 to get started? (Not talking about STAR fund at this point).
As for Fidelity, if I enroll in the $200/month automation, then I can distribute my funds across several choices of Fidelity funds?
Does any of these allow me to rebalance my portfolio? For Vanguard, does this mean every time I move money around, at least $3000 must be invested in each of the fund?
Thanks for your help!
NoviceInvestor, You are correct about opening a Vanguard account – you need a minimum of $3,000 for most funds. Regarding rebalancing, I’m not sure how that works. But Vanguard has a great customer service department and can answer that question in a matter of moments. Same thing with Fidelity, I’m not sure the details of opening and account and rebalancing with smaller amounts of funds. I would try calling. Sorry I couldn’t be of more assistance!
Hi Ryan, I am 55 and had invested all my money over the years in growing my business now worth conservatively if sold, about $3million. I hav no savings of any kind. I collect $120.000 a year in salary. My spouse is on $60,000 annually. Kids out of college. Now I want to start savings towards retirement and we can put away $5,000 a month. My original plan is to continue collecting salary from company after retirement till I die but though solid, business can fold up due to economy in future and then no fund to rely on. I want to do the financial planning without advisor and will not need any fund being saved for at least 13 years. Can I do Roth IRA, and what other investments will you advise.
GettingOld, I recommend speaking with a financial advisor because you have several options at hand. You don’t necessarily need to use a financial advisor for all of your investing choices in terms of asset allocation, but speaking with a financial advisor can help you determine your needs regarding how much money you will need in retirement, how much you need to save to achieve that level of savings/investments, and whether or not it would be a good idea to sell your business. You have a lot of options right now, and you need someone who can look at your entire financial picture to give you a good idea of which options are available to you, and the associated risks involved with each of them. Best of luck.
thank you for clearing that up. I have a few more questions for you. (1) If I understand the Roth IRA rules correctly, no mater how many Roth IRAs I have, I can only contribute a max of $5K a year to include all of them in a total. Is this correct?
(2) When I sign up through Vanguard, do I need to sign myself and my wife up separately, or can I sign us up as joint? If joint, then I should be able to put $10K a year in there. Right?
Thank you for your time and knowledge.
Cookie, (1) yes, a max of $5,000 across all IRAs, and (2) IRA stands for “Individual” account; joint IRA accounts don’t exist. But you can open a joint investment account and have IRAs for each of you. You would be able to contribute the max of $5,000 for each of your IRAs, for a total of $10,000. From my experience, Vanguard has a great customer service center and should be able to walk you through the entire account opening process.
im 25 and is interested in opening a Roth IRA. is it possible to open 2 accounts? one from Vanguard and the other from Scottrade, all at the same time? i would like to do mutual funds and individual stock trades at the same time. and if that is so, can i contribute 5K on both accounts? or should it just be only equal to 5K for both accounts per year? —i have no prior knowledge about investing but this seems like one of the best decisions i could ever make. of course more reading for me on that, but i just graduated, got a job right away and have been with my employer for a year. investing seems like a grand idea. — Thanks
Gigi, you can open an account at both locations, but you can only contribute the maximum across all accounts. For example, the minimum to open an account with Vanguard is $3,000, so you could invest $3,000 at Vanguard, and $2,000 at Scottrade. Then you would need to wait until the next calendar year begins before you could contribute more to a Roth IRA account.
That said, you can make stock trades at Vanguard (though they are more expensive than stock trades at Scottrade), and you can buy stocks, mutual funds, ETFs, bonds, and other investments at Scottrade. Scottrade may be a little more versatile in regard to purchasing stocks and other equities, but you can’t go wrong with either company. You can contact Scottrade by filling out this Scottrade information request form and requesting information, or call Vanguard’s customer service team.
My question pertains to Roth IRA mutual funds. If I understand it correctly, you can only put $5000 in a yr. What happens if you put more than that in there? If you are married, does that mean you can double that $5K to $10 if you have a joint Roth IRA mutual fund account?
Cookie, here is more information about contribution limits: Traditional and Roth IRA Contribution Limits. Basically, you can contribute up to $5,000 if you are under age 50, and if you are married, you can both contribute $5,000 in each name, up to a total of $10,000.
Contributing too much can lead to fines and/or penalties.
M. Madison says
A little note to add to my previous post. I do have the initial funds amount to start the IRA account. Another question, should I look into investing in only EFT’s?
M. Madison says
Hello, I am a teacher in my early 30’s with two children and I have my STRS pension which I contibute to and my school matches that 100%. I have accounts with both a credit union and another bank; however, I was researching the pros and cons of credit union IRA’s vs. broker firms IRA’s. What is your professional opinion? I want to supplement my retirement with a Roth IRA but I am having difficulty with determining what my next step will be.
M. Madison, I personally prefer the large mutual fund firms or discount brokers over most banks because they typically have a larger selection of investments, and usually offer lower commissions or expense ratios – both of which have the potential to eat a large portion of your profits if they get out of hand. The companies listed in this article are all great options, but that does not mean they are the only options. It pays to shop around and find a company you are comfortable with and which will meet your needs.
Regarding your other question about investing only in ETFs… You can, or you can choose to invest with some ETFs, some mutual funds, or any mixture of investments. The best place to start is with a little research on the pros and cons of different investment types, then try to match your investment goals with the investments that will help you reach your desired ending point.
I am 42. I want to start a Roth IRA for my husband and myself. I know absolutely nothing about investing. I would like to invest the intial amount ($3,000-$5000), and then make contribututions periodically. (I am not sure it would benefit me at all to be able to choose my own mutual funds since I am challenged when it comes to investing. 🙂 I would like the money earned to be automatically re-invested. Minimum maintenance. Could you recommend the best company for me? Of course I want high yields, and minimum fees. Thank you so much!
Ronda, all of the above companies are great companies, but based on your needs, I recommend going with one of the major mutual fund houses listed. They will offer a wide variety of low cost mutual funds that should meet your needs. As for which fund to recommend, that is something I can’t do. Everyone has different needs and risk tolerance levels, and I would hate to steer you in a direction you don’t want to go. I recommend reading about asset allocation and how stocks, bonds, and mutual funds work, then making a decision based on your newly found knowledge. If you are looking to get started in the mean time, then it may not be a bad idea to start with a Target Date Retirement Fund, which is automatically allocated based on a target retirement date. The benefit is less overall maintenance, but there may also be higher fees and a little less control. Target date funds are a great place to start, but they may not be for everyone, so I recommend continuing to learn and research as you go, and adjusting your investments accordingly.
What do you think about funding a Roth IRA with my emergency savings?
I’m in my late twenties, and neither my wife or I have an IRA yet, but we do have several grand in a savings account for emergencies. We have no unsecured debt. I’ve read that it might be a good idea to start taking advantage of a roth IRA asap, especially for people like me who can’t afford to fund my emergency savings and a roth at the same time. What do you think?
Drew, everyone has a different definition or comfort level regarding how much they need for an emergency savings account. Some people say “a couple grand” and others say 3-6 months living expenses. If you and your wife feel comfortable with a couple grand in emergency savings (and are well insured for home, auto, health, etc.), then you may be able to get by with a smaller emergency fund and might be able to get away with funding your Roth IRA with some of your emergency savings.
Just make sure you have a decent amount of money to cover any insurance deductibles that may arise, or any other large expenses that could pop up. If you choose to use your emergency savings to fund your IRA, then I recommend making it a point to repay yourself by making monthly contributions to your emergency savings so you can build it to a larger amount.
I am a 20 year old college student and i am interested in opening a roth IRA and i am pretty inexperienced with investing so i was considering using Vangaurd, T.Rowe Price or Fidelity and was wondering which one was best or if i should consider something completely diffrent
Tom, each of these companies are good options for low cost mutual funds and index funds, which are probably the best option for beginning investors (see Best Investment Strategies For Beginners for more information about getting started). My recommendation is to come up with a rough game plan for opening an account, including how much money you will be able to invest with to start (some of these companies have higher minimums than others), will you be able to make continuing contributions, and which types of investments you are most likely to invest with. Then compare the companies to see which best meets your needs.
Vanguard is one of the worst, they charge a yearly maintenance fee on an Roth IRA. Also their funds are horrible, bought the small equity fund when it first opened and I’m still down 30% what a joke! They also charge too much for individual stock purchases. Fidelity isn’t much better, their customer service is about equal and individual stock purchases slightly cheaper but like most large companies you never get personal touch. Looking into rolling over my Roth IRA to Scott’s trade since they have local offices across the USA in most large cities and offer a personal touch. Still no one out there is perfect they seem to offer the best prices across the board. Also, I don’t recommend mutual funds and once I recoup my 30% current loss on my vanguard fund it will be sold and proceeds will be placed in one of my current dividend paying stocks. Only high quality dividend paying funds are a good buy period.
Harold, Vanguard does not charge a yearly IRA maintenance fee for customers who elect to receive paperless statements via e-mail. You can easily set this up online with just a few clicks, or call their customer service – I have always gotten through to the CS reps within a couple minutes wait (even on weekends) and their customer service has always been very helpful.
Vanguard also has a wide selection of mutual funds that have received high ratings from numerous third party sources, and index funds that are among the lowest priced and most competitive on the market. You bring up a great point about individual stock trades, so if you are an active trader, Vanguard may not be the best brokerage firm for your needs. Scottrade, and some of the other brokers mentioned in this article may be a better fit for active traders or those with a different investment style.
Just wanted to say thanks for all the time you’ve spent helping people out, your site is definitely one of the most useful that I’ve found. I appreciate it, thanks again, have a good life.
Just a follow up on my previous inquiry about opening an IRA with a credit union, what is the rate of earnings between the credit union and the others such as Vanguard, Fidelity and the rest? I do not have money other than my paycheck so I wanted to be a bit certain where there would be more gains. Thank you. Regards.
Hi City, in general, I prefer opening an IRA or other investment account in a non-bank setting because many banks have fewer investment options and higher investment fees than you can find in a traditional brokerage or mutual fund firm.
Regarding returns on investment, there are very few investments that offer guaranteed returns. For example, a CD at a bank offers a guaranteed return, but the returns are often very low. Stocks and mutual funds tend to have higher returns, but carry more risk. You can read more about the concept here: What Are the Best Roth IRA Rates ?.
Finally, if you are having doubts about investment risk, consider opening a Target Date Retirement Fund, which will automatically diversify your investments across several investment types, reducing your overall risk level. You can find these types of investments at almost all brokerage firms and mutual fund firms, such as Vanguard, Fidelity, etc.
I recently opened up a checking/savings account through a credit union. I was made aware that they also offer IRA accounts and other investment accounts like any other banks such CDs, money market, etc. Would it make sense for me to open up an IRA account with this credit union for reasons other than convenience? Or, should I just check out the other outfits mentioned here? The only investing strategy I know is our company 401(k) which I have for the past 5 years now. Please advise. Thank you.
Ilemis Severiche says
I am interested in investing in a roth IRA but am so confused with the options: stock, bond, or mutual funds to purchase. Which do you personally invest in? I am 27 years old and I was wondering if I could really have at least a million dollars by the time that I retire just using a roth ira or do I have to invest in other areas to have this amount at retirement age?
Ilemis, see the comment above regarding starting with a target date fund. I don’t think they are a one-size-fits-all approach, but they are a great way to get into the market with a portfolio that is in good asset allocation based on your age and approximate retirement date. Once you know more about investing, you can spread out your approach.
To answer your other question – sure, you could have a million dollars by the time you retire if you invest only in IRAs, but it is highly unlikely. You will more than likely need to invest with other types of investments as well. I recommend using an employer sponsored retirement plan such as a 401k if you have the opportunity. They have great tax benefits and some employers offer to match part of the contribution.
I’m a mother of 5 kids & 1 grandkid, I don’t have anything invested at all no retirement, 403b, pension, bonds, CD nothing at all, I’m in my late 30’s I been in my job for 12yrs. which there letting people go & what I bring home it’s not enough its very sad, HOW could I start saving & investing so I could have something for the next couple of years for my kids & myself. I wasn’t told or advice when I was growning up so when I started working I was clueless in what to do. I don’t want to keep leaving paycheck to paycheck anymore I would like to invest and be able to take vacation buy a house a car and more important teach my kids to start now that they are starting to work. WHAT IT YOUR BEST ADVICE! I need all the help my income is very sad and poor.
Shari, the most important step you have right now is to understand your cash flow – how much you are earning, where it is going, how much debt you have, etc. It will be easier to understand where you are financially once you have that knowledge.
After you take stock of your financial situation, I recommend starting Dave Ramsey’s Baby Steps. This is a guide that can help you change the way you think and act about money and hopefully will help you get on the path toward financial freedom. Bookmark that page and start living it, and good things will happen! 🙂
RYAN HELP PLEASE. I AM A FULL TIME HOUSEWIFE WITH $2000 IN SAVINGS ACCOUNT. I GET NO REGULAR INCOME BUT I CAN “STEAL” $50 FROM MY HUSBAND MONTHLY. HE CRINGES AT MY $150/MONTH GROCERY EXPENSES. WE HAVE TWO TODDLERS. ANY SUGGESTION ON WHERE TO INVEST MY $2000? ONE WHERE I WONT LOSE A PENNY OR MY HUSBAND WILL GET MAD AT ME. THIS IS HOW LITTLE I HAVE BUT I AM SERIOUS ON INVESTING. I HOPE TO HEAR FROM YOU. THANKS A LOT!
VESTOR73, there are very few places where you have a guaranteed return on your investment. If you want a guarantee not to lose money, then I recommend opening a Certificate of Deposit at your bank. This can also be done online if you have an online bank account. The downside to CDs is that they don’t offer a very good return on investment and won’t earn much money.
An alternative is a balanced fund such as a Target Date Retirement Fund, which is automatically diversified based on a future date. The advantage to these funds is the diversification (meaning your assets are spread among various investment, which equates to less risk), and they are easy to set up and maintain. However, there is a possibility of losing money with these investments.
Before jumping into investing, I recommend taking a look at Dave Ramsey’s Baby Steps. This is a step by step guide to getting on the path to financial freedom. You may find that the $2,000 you have right now will be better served as an emergency fund or for paying down high interest debt.
thanks! i’ll consider CDs since i have no debts.
Ryan, I am a novice but I would like to start investing due to the fact that my job has recently allowed me to do so. What would you recommend if I could use that word for a person like me?
If you don’t know where to start, I recommend opening a Target Date Retirement Fund, which will automatically diversify your investments across several investment types, reducing your overall risk level. You can find these types of investments at almost all brokerage firms and mutual fund firms, such as Vanguard, Fidelity, etc.
Then, begin reading as much as you can about investing and once you feel more comfortable with the concept of investing and asset allocation, then you can branch out into other types of investments.
What is you thought on Edward Jones Investment company?
Debra, I had a very poor experience with an Edward Jones advisor and because of that experience and how they base their commission/payment structure, I won’t use them any time soon, if ever. That said, each financial advisor is different and I am sure there are many good individuals who working for Edward Jones. I wouldn’t let the poor experience I had steer you away from using them if you believe they are right for you. In general, the Edward Jones investment firm has a strong reputation.
I recommend meeting with an advisor and interviewing them. Ask questions about how they receive payment, ask what kinds of commissions apply to the investments they recommend, and ask about their licenses and background and any other questions you feel are important. Best of luck!
I’m going on 30, just finished college, don’t have much saved and I have a ING orange account. Should I go with ING? I’m looking to start saving for retirement, but they are a lot of options. Plus I’m looking for an option that doesn’t require a lot of money (I have 3 kids and loans to worry about). I’ve read a lot, but still stuck on who I should start with.
Tim, I have a ShareBuilder account (the investment firm owned by ING), and it is a great, low-cost brokerage firm and would probably fit your needs very well. ShareBuilder is a good option because you can 1.) link your investment account with your savings and checking account, making money transfers instantaneous), 2.) they offer a wide variety of low-cost investment option, including a host of ING mutual funds that don’t have a transaction fee (most brokerages charge a fee per trade), 3.) allow you to purchase partial shares of stocks or mutual funds, making it easy to invest with a small amount each month.
If you are happy with ShareBuilder’s investment options, then go for it. Best of luck to you and your family! 🙂
I always thought I didn’t make enough to start an IRA. I’m in my mid 40’s is it too late I have a good job in a good field that pays good I think for the economy right now. And which one should I check into?
GG, it’s never too late to start – and I’m glad you have the opportunity to start now!
As for which company you should look into, all of these options are quality options that offer slightly different services. That said, the main goal right now should be trying to determine how much money you will need for retirement and working on building a plan to reach that goal. You may find it better to enlist the help of a financial planner to assist you. If you don’t think you can afford a financial planner or are more of a do it yourself kinda guy, then I recommend starting with a Target Date Retirement Fund, then learning as much as you can about investing – then change your asset allocation according to how you see fit. The reason I recommend starting with a target date fund is because it will automatically diversify your assets and reduce your overall risk. However, they are not always a one-size-fits-all investment, so it’s important to learn more about your investment needs and risk tolerance, and go from there.
Best of luck!
Ndiawa Wycliffe Omundi says
I wish to know more about this investment firm. I am Kenyan and live in Nairobi, Kenya. Can I do this while in Kenya. I have been meaning to start my own investment firm here in Nairobi. I am a marketer by skill and I can partner with you here in Africa. Kindly give me more information on how i can do this form of investments.
Ndiawa, a Roth IRA is not an investment firm or a specific investment, it is part of the US tax code, and is specific to US tax payers. I imagine you would have to have earned income in the US to qualify for a Roth IRA.
Dear Ryan, Please can this Roth or IRA be operated from Nigeria, as I only have a co-op pension scheme running, but I’m really interested in this Roth thing
Flo-Jo, a Roth IRA is part of the US tax code, and is specific to US tax payers. I imagine you would have to have earned income in the US to qualify for a Roth IRA.
Mohd Najmuddin says
I’m outsite from US, I’m from Malaysia…is it possible for me to invest to this investment?
Mohd, a Roth IRA is part of the US tax code, and is specific to US tax payers. I imagine you would have to have earned income in the US to qualify for a Roth IRA.
Ryan, i had a quesiton for you. i am a college student and i want to make some investment from my savings over a couple of years….. i am confused as to where to make investment so if you can guide me that would be great. i read the comments on this page but i am still confused as to opening a roth IRA account or not and other accounts…. its my first time doing this and i want to make the right decision…. thanks
Mohammed, I recommend opening a Roth IRA if you qualify – they are a great long term option. Any of the companies listed on this page will be a good long term option as well – it just depends on your needs. As for which type of investment, I recommend starting with a target date fund, then adjusting your investment portfolio once you learn more about investing. This will give you a well-rounded portfolio to start with. Just remember that there is no one-size-fits-all investment approach and you need to go out and learn more about investing – no one cares about your money as much as you do!
I have several grandchildren. Is there any advantage to get each of them a Roth
IRA now? And Id want to start them out with only a few dollars, like about $5 each. Does this make any sense? – – – and how would I do this?
Paul, one has to have earned income in order to open a Roth IRA, so your grandchildren likely wouldn’t be eligible to have one. A better idea would probably be to open a 529 College Savings Plan, which is a college savings plan that offers great tax benefits. There is currently a Free Money bonus when you open an account through the Ohio plan (people from all states are eligible). This is what I have for my daughter, and it would work well in your situation as well.
I am 63 and retired on Widows SS…I have $5,000 in a credit union savings account that is earning zilch I want to invest this money for my 19 year old grandson …. I dont want to do anything like trade or be bothered with details….where would be the best place to put this so my grandson will see rewards down the road thanks!!
Sandy, I understand and admire your desire to give your grandson an investment gift, but I recommend speaking with a financial advisor to make sure you have your needs taken care of first. The first question I would ask is if you are financially prepared if you live another 30 years? If not, then that $5,000 may be best used for an investment for yourself.
I am 52 years old, and admit that I started my savings late. (I was never taught about investing by my parents, who pretty much spent everything they made – that’s basically what I was taught.) I have a Fidelity IRA, but am finding that, at present, it’s difficult to put away $200 per month. I am currently working with a company that is a government contractor. Can you give me some advice regarding whether to change it to a Roth, how much I should safely be investing, etc.? I’ve always worked, but never had much to save. Can you help me?
Robin, since you are nearing the point in life where you will soon be making retirement plans, I recommend taking an afternoon and meeting with a financial planner who can better assist you with your questions. A financial planner can give you more specific information for your questions based on your financial position, which will give a better idea of which actions you need to take.
Regarding making the monthly contributions, I suggest taking a hard look at your budget – you may be able top find some places where you can scale back in order to stash away more money for retirement. Best of luck!
I am a grandmother, and would like to leave something to my 4 grandchildren. What (which) can i invest every month, leave it there and let it grow? My grandchildren are 9, 8, 8, and 4. Thank you
Janice, I would consider opening a 529 College Savings Plans, which is a tax advantaged savings account that can be used for educational costs. There are quite a few advantages to these programs, which are listed in the article I linked to. Note: Most children aren’t eligible for an IRA because they don’t have earned income. If they do have earned income, then an IRA would be a great way to help save for their retirement. However, a college savings plan will serve a more immediate need.
What about Wells Fargo? My company just switched the 401k to Wells Fargo and was wondering to consolidate and start the IRA with Wells Fargo. I am new to this IRA as well and would you recommend Wells Fargo over Fidelity or Vanguard. I am looking at the mutual funds avail from my company and I see that I am contributing to Vanguard Target Retirement Fund 2040 in my 401k.
nish, If you prefer using Wells Fargo because you are familiar with their company, then it might not be a bad idea. However, I recommend first looking at the investment options and associated costs. Wells Fargo might have fewer investment options in their IRA plans than can be found within their 401k plans.
Mr Epa says
I have gone through your aticle over and over many times. I keep asking my self, how do I get to invest in the USA when I work but In China. Though I am not a Chinese and not an American.
Will love to here what you can say
Mr EPA, IRAs are a section of the tax code that offers a tax benefit under certain circumstances. I believe one of the requirements is having a US Tax ID and earned income in the US.
As for other American investments, I believe you should be able to invest in American stocks, bonds, or funds, but I am not sure of the process or where you can open accounts. I recommend contacting some of the firms listed in this article and asking if they accept investments from investors located outside the US.
Best of luck!
I have my employer 401K with Fidelity, should I choose a different firm simply to avoid having all my retirement managed by one company?
Mary, there is no problem having the same firm manage your 401k and IRA. You may find it easier to use one company so you can view all accounts at one place and you don’t have to familiarize yourself with multiple interfaces and business procedures. If you are happy with Fidelity, then it makes sense to open an IRA with them as well.
I been reading Suze Orman book so, it really got me thinking on life. I’m 23 and want to get my first IRA. Orman talked about T. Rowe because of no load fund (or something like that). I don’t know much about investment, but I plan to learn more. In fact I love to learn. I plan to put $50 every month. What should I ask and know to invest wisely, and can recommend two books that I can read on investment (something that not to basic or difficult)
Elisabeth, congrats on getting started so young – you have the opportunity to create a vast amount of wealth over your lifetime. You are already looking in the right direction. You want to get a no load fund to start with, and you want to keep your fees low so you have more of your money working for you.
As for recommending two investing books, that is difficult for me to do. I think I’ve read dozens of books, hundreds of articles, websites, and magazines, and I’ve tried to piece it all together from there. I would recommend reading a great personal finance book that covers multiple topics and gives you the basics of investing, then points you in the right direction from there. One of the best I have read recently is Your Money: The Missing Manual, by J.D. Roth. You will find a lot of great personal finance topics in his book. There is a section on investing, and it points out other great references as well.
The important thing right now is to do exactly what you are doing – get started, keep your expenses low, and set it on autopilot. If you maintain that formula, you are halfway there. 🙂
Cynthia Mahlin says
Thank you for all the valuable information. It is so helpful in trying to sort out where to transfer the funds in my husband’s retirement account. Hindsight can be very expensive in these decisions.
Is there a reason (fees, etc) that you didn’t include Charles Schwab in your list of discount brokerages? I don’t want fees but don’t mind saving up for a minimum since I’m going to be doing that with Vanguard anyways.
The reason I ask is that I’m a big fan of their checking accounts which provide free ATM fee reimbursals which will come in handy when I travel. I was hoping that it would make transferring funds easier, somewhat like ING has with Sharebuilder. As a side note, do you know how long it would take otherwise to transfer funds?
Michelle, There was no huge reason not to include Charles Scwab. They have some great products, and low fees. As you mentioned, they also have a variety of banking and investment products. They recently lowered the price of their individual stock trades as well, which makes them an even more attractive brokerage house for many investors.
You should be able to transfer funds very quickly within the Scwab family (savings/checking to investment account). I’m not familiar with the details, but most firms allow instantaneous, or nearly instantaneous, money transfers. You may wish to call them for more details before opening your account: 1-866-232-9890.
For other money transfers, it depends on who you use and how you do the trade. In most cases you have to actually have cash in hand before you can make a trade, which can take 2-3 business days for electronic transfers (in rare cases one or two days longer). Sending in a paper check can take even longer than that because it has to clear.
@Michelle. I’m loving my Schwab accounts. Yes, you can make same day transfers between checking and brokerage/IRA. I have the high yield checking linked to a regular brokerage account and a Roth IRA account, all with one login. Schwab is a great place to get started since they recently lowered their commissions and, most importantly, added a group a ETF’s that can be bought commission free. This is a really great deal! (Fidelity added access to some commision free ETFs a few weeks later.) These ETFs have lower expense ratios than even some of the highly acclaimed Vanguard funds. And since they are ETFs you can literally buy them one share at a time. It’s a pretty easy way to develop a well-diversified portfolio at very low costs. As an added bonus I just added the Schwab 2% Visa rebate card which deposits rebates monthly into my brokerage account. I love the consolidation.
I will be quitting my job in June to go back to Graduate School. I have around 30 k in my 401k that my company has with John Hancock.
I am planning to roll over to a Roth IRA, benefiting from the 2010 rollover.
My questions are the following
1. If I roll in 2010, will my tax bracket will be the one of 2011 ( when I have no income) or of 2010?
2. What would you say about John Hancock? I do not have any particular feeling about them, but know they will charge a fee if I leave. As I do not have much financial knowledge, I am not sure whether I should stay or switch to Vanguard or Fidelity.
Thanks for your help, and thank you for this very helpful blog !
Vero, good luck with your decision to go to grad school – I wish you the best!
1. Regarding the Roth IRA conversion: you can convert your 401k directly into a Roth IRA and pay the taxes based on 2010 income, or you can spread it out evenly and pay the taxes in 2011 and 2012 income. You would pay 50% of the tax in each year, and it will be based on that year’s income. Since you will be a grad student your income will probably be relatively low, potentially decreasing your tax bill if you were to pay it today. So it’s probably a good idea to spread out your tax bill over the next couple years.
2. The fees that John Hancock would charge would be the maintenance fees for your 401k plan because your company would no longer be sponsoring it. They probably have a provision that would allow you to convert your 401k into an IRA and you would then pay any associated fees for managing your IRA, if there are any fees. Most major brokerage houses don’t have any fees if you have a minimum amount of money with them, so you would probably be OK. That said, you can’t go wrong with either Vanguard or Fidelity, so look into those places and determine which firm has the best investment options for your needs.
Best of luck!
I am a 22 year old college student currently on a 6 month co-op. I pushed back my graduation due to the lagging economy, and thus, I will be graduating in spring of 2011. After reading your EXCELLENT information along with the informative comments from others, I want to consider opening a STAR Fund with Vanguard. I wish I had opened one sooner in my teens. My question to you is: Should I do this? I’m earning money at my co-op right now that I could be putting into a Roth IRA, but I don’t know if I should do this since I will need to pay off student loans once I am out of school. Also, I may try to go straight to Graduate school depending on whether the economy turns around in the next year or two, so that would be even more student loans. What are your thoughts on this? Should I go ahead and open a Roth IRA, or should I wait and make sure I am debt free (no student loans to pay off, etc.) first and then proceed? Thanks!
Evan, there is no right or wrong answer here, and there are pros and cons to both decisions. From an investing point of view, you will have almost 40 years of compound interest and gains working in your favor, so the potential growth of an investment made now, no matter how small the investment, is enormous. On the other hand, there is no quicker way to get into financial difficulties than by taking out too much debt.
But, there are middle grounds to the extremes listed above. For example, if you have reasonable fixed rate student loans, then you may find the payments to be fairly easy to handle. And if the interest rate is low enough, you may be able to make greater returns on your investments than you could if you were repaying fixed rate loans. For example, I have a friend with a fixed rate student loan at 2% interest. He is making the minimum payments on his loans and investing his extra cash flow (he has had these loans going on 10 years now). You might not get a 2% interest rate, but you may be able to defer your loans or get a low enough interest rate that investing will pay off in your favor.
You can also consider contributing to the Roth IRA and making withdrawals of the contributions (not gains on contributions) at a later date if you absolutely need the money. However, be sure you understand the Roth IRA Withdrawal Rules so you don’t get hit with taxes and penalties.
Balancing debt and investing can be a tricky endeavor and there is no one-size-fits-all approach. A lot of this will come down to your risk tolerance and willingness to stash away some cash for your future. I wish you the best of luck with your decision!
I’m a big fan of just depositing my yearly amount into the Vanguard 500 and forgetting about it for the next 40 years. Probably the most passive investing ever!
Just signed up directly on their website, took about 15 minutes.
Hello there. I am truly a beginner in investing and am 39 yrs old. Hopefully it’s not to late. But the biggest questions I have about investing in a Roth IRA, or Traditional IRA are this. Once you open up the account do you have to decide where the money goes like to certain stocks, or mutual funds? Does the company I opened it up with do the investing for me? Who decides and if it is me that has to decide how do I know where? Is there any of the investment companies that do all the investing for you as long as you make your contributions? I hope my questions were clear and I thank you for your time and look forward to your reply.
I actually have the same questions! Did you get the response to your questions?
My choice was E*TRADE. I care less about trade cost and more about automation, and E*TRADE made that really easy.
I ended up going with Vanguard a long time ago – but my contributions are usually for index funds. I wouldn’t have gone with Vanguard for ETFs or individual stocks. Thanks for sharing. 🙂
I was planning to diversify my ira accounts and open an ira with Charles Schwab. Does anyone here have any opinions with Charles? Thanks.
I have a tiny Fidelity rollover IRA which I am planning to convert to a Roth IRA which they’ll let me do without making extra contributions. I would like to switch to Vanguard at some point when I have the extra cash to make the minimum deposit, but I’ve heard that Fidelity charges fairly large redemption fees. How can I find out what these are?
Bostoniangirl, Just call Fidelity and ask. Their customer service is very helpful and they will be able to tell you about any associated fees, and help you locate the documents where they are listed so you have a reference for later.
Nick D. says
Wow, after looking at tons of older links (07′ and 08′ stuff) I finally found a currnet one! Anyways, I’m 23 and looking to open and fully fund Roth IRA’s ($5,000 a year x2) for both my wife and I. I plan on opening the accounts with my income tax check so figure about $3000 in each account. My problem is I don’t know which company to go with. I’m in it for the long haul, I figure about 40 years till retirement, and I’m looking to average about 9% or so over the course of that span. I dont know much of anything about investing, but I would like to start off with a provider or fund that I can tailor as my knowlege grows. Any advice would be much appreciated.
Nick, if you want to learn as you go and have access to a wide range of mutual funds with low expense ratios, then your best bet will probably be to go with one of the mutual fund houses such as Vanguard, Fidelity, or T. Rowe Price. If you don’t mind paying a little more, then you should consider a full service broker or financial planner who can give you advice based on your situation. Just be sure to go with a fee only planner, otherwise you might find that the financial advisor is recommending you purchase investments based on the commission he earns, not what is in your best interest.
Can I transfer my traditional and Roth IRA into a brokerage account
Yes you can, and most brokerages will be happy to help you with the paperwork.
Robert Ford says
Hey folks, thanks for all the info re: Vanguard’s Star Fund. I’d really like to open a Vanguard, but the $3K minimum is hard given my liquidity. What exactly is the Star Fund, and what are its advantages/disadvantages?
Robert Ford says
Ryan, thank you so much!!! This article was incredibly informative!
I opened a Roth IRA account (American Funds) this month and when I received my confirmation letter I see a sales charge of 5.74%. That seems a little much. Am I being charged too much as I also have a deferred comp account with my employer through the same advisor that set up the IRA for me.
Bill, one of the biggest things to look out for when opening any financial account is the fees – how much, what type, one time or recurring, etc.
5.74% sounds high, but I don’t know the full situation, so I can’t say for certain. I recommend contacting your broker and asking him exactly what the fees cover and any other information regarding fees. Transparency is one sign of a good broker.
If it is just 5.74% to open a mutual fund and is something you could do on your own, then you are likely better off opening an IRA at a mutual fund house such as Vanguard or Fidelity. You won’t pay any up front fees for purchasing funds they run and they feature some of the lowest expense ratios of any mutual funds.
Miss M says
I just opened a Roth at Vanguard yesterday, but I’m a big fan of T Rowe Price as well. I prefer T Rowe P’s no initial investment options, that is how I started my taxable investing years ago. Vanguard’s high minimums really put off even a dedicated saver. I had to go with the Star fund since I don’t have $3000 set aside yet for the Roth. My plan is to start the automatic investing right away and build up to that $3k threshold so I can get into one of the index funds.
Miss M, The $3,000 minimum is one of the biggest downfalls that many people experience with Vanguard. But you found the easiest solution (and that is probably why Vanguard sets the minimum to $1,000 for the Star Fund).
I love Vanguard- just moved my stuff there from USAA.
Also, if you want to start with the lowest option, invest with their STAR Fund. It’s the only one that allows $1,000
Where I bank at I am able to start a Roth IRA. I think that I am young enough that I can get a great return especially as the market begins to turn around.
Britt (Your Roth IRA) says
I use Firstrade.com, and I’ve been very happy. Trades are relatively cheap, and there’s no minimum balance requirement or Roth IRA fee. Also, I can reinvest dividends free-of-charge, which is a real selling point for me personally.
I’ve also heard great things about TradeKing and Sharebuilder.
I went with Vanguard because of a lot of praise from others. It was very easy to set up and for someone young like me with limited knowledge went with a simple lifestyle fund to take care of everything for me. It’s a mutual fund but like you mention commissions are free since it’s through Vanguard, so you don’t need to feel like you have to search for an index fund for the lower ratio, they are the same with Vanguard.
Craig, I’m a big fan of Vanguard as well. I have been with them for years. But I also don’t hesitate to recommend the other firms mentioned in this article. THey all have a very solid reputation and a wide variety of quality funds.
My first Roth IRA was opened with the help of my insurance agent, who had just completed his securities training. It is a low-fee account, but still a managed account. Now I’m all about the Fidelity account (putting in a monthly sum instead of having the account opening). My younger brothers started before I did, when they were teens (smart boys) and did the T. Rowe Price thing.
T. Rowe Price is a great option for those who only have a small amount to put away each month. But Fidelity offers some great plans too! 🙂
Writer's Coin says
I started at Scottrade and then shifted most of my positions to Vanguard for the index funds. But I kept my stocks over at Scottrade because trading individual stocks at Vanguard would’ve cost me way too much.
WC, you just pointed out the main difference between the two types of brokerages. The mutual fund firms usually offer great mutual funds with little to no commission, but often charge substantially more for individual stock trades. The discount brokerages are the opposite. I use both types of accounts for different types of investing.