Best Places to Open a Roth IRA

Do you know what your income tax rate will be in the future?

The answer to that question is key to your retirement planning. If you think your tax rate will be lower in the future then it makes sense to avoid paying tax now through a tax-deferred investment vehicle like a Traditional IRA.

The Roth IRA Movement

The Roth IRA Movement

But with a mounting national debt, many people believe personal income tax rates will eventually be forced to increase.

Even if the national debt somehow gets taken care of, the government doesn’t tend to lower a tax once it is set.

If tax rates are going to go up the best retirement account for you to open if you qualify is a Roth IRA.

You will pay income tax today and never pay income tax on your nest egg again.


Where to Open a Roth IRA

Once you’ve made the decision to open a Roth IRA there are a number of companies that are happy to accept your contributions. The number of options you have can be overwhelming: do you go with a discount broker, a full-service broker, or direct to a mutual fund company?

We’re here to help you cut through the confusion to find the best company to open a Roth IRA with. (Just getting started investing? Check out our Best Online Brokers for Beginners.)

Best Brokers for Roth IRAs:

There is no lack of discount brokerage firms that will let you open a Roth IRA with them. For most investors the number of mutual funds or crazy ETFs you have access to really doesn’t matter. A basic portfolio can be constructed with any of the discount brokerage firms. This makes the main point of emphasis fees and transaction costs.

Scottrade

Scottrade is an online and brick-and-mortar discount brokerage firm, which is one of the reasons why I like it so much.

Not only do you get inexpensive trading costs, but if you ever want to sit down with a live human being you can at one of Scottrade’s 500+ branches around the country.

The firm has kept their trade costs steady at $7 per stock and ETF trade for years. Mutual fund trades vary based on the type of fund with a maximum trade commission of $17.

I like Scottrade so much I even created an account there myself with a video that takes you step-by-step through the account opening process with Scottrade: Opening a No Fee Roth IRA with Scottrade.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $500
  • Commissions on Stocks, ETFs, and Mutual Funds: $7 per stock or ETF trade, maximum of $17 per mutual fund trade

Open an account with Scottrade and enjoy low trading costs on stocks, ETFs, and mutual funds.


E*TRADE

E*TRADE is one of the bellwethers of the online discount brokerage industry.

The company has been around since 1992 and has constantly been pushing the industry to better technologies and other trading innovations for customers.

Technically E*TRADE does have brick-and-mortar locations for you to go to, but there are only 30 in the entire country. E*TRADE is primarily an online discount brokerage firm, and they are one of the leaders in the industry. Their trade fees are just slightly higher than Scottrade, but there is no minimum deposit required to get started.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $0
  • Commissions on Stocks, ETFs, and Mutual Funds: $9.99 per stock or ETF trade, maximum of $19.99 per mutual fund trade

Open an account with E*TRADE and trade free for 60 days, plus get up to $600 in bonuses for opening an account.


TD Ameritrade

Another brokerage firm that mixes online discount trades with brick-and-mortar locations, TD Ameritrade is a great choice.

They have over 125 locations around the country that you can walk into whenever you have a question you want answered in person.

Trade costs are competitive on the stock and ETF side, but look out for the mutual fund charge of $49.99 per trade. (I love everything else about TD Ameritrade except the $49.99 no-load mutual fund commission. That is simply too high.)

If you are going to build an ETF portfolio I can still recommend the company as a solid option thanks to the competitive commissions on ETF and stock trades as well as the option for in-person help.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $0
  • Commissions on Stocks, ETFs, and Mutual Funds: $9.99 per stock or ETF trade, maximum of $49.99  per mutual fund trade

Open an account with TD Ameritrade and trade free for 60 days, plus get up to $600 in bonuses for opening an account.


ShareBuilder

ING Direct has been purchased by Capital One, and that includes ShareBuilder. The company has a different spin on investing in that it wants to help beginning investors build up the habit of investing. Experienced investors can open accounts, too, because the costs are very competitive.

Trades range from $7.99 (if you pay a $12/month subscription) to $9.99 (for ShareBuilder Basic accounts) and mutual fund transactions are either $19.95 per trade or $4 per automatic investment. The $4 automatic investing charge also applies to stock and ETF trades, too, as long as you set up a consistent schedule of automatically investing in that specific investment.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $0
  • Commissions on Stocks, ETFs, and Mutual Funds: $4 per stock/ETF/mutual fund trade if using automatic investment; $7.99 per stock or ETF trade with $12 monthly subscription to ShareBuilder Advantage; $9.99 per stock or ETF trade for ShareBuilder Basic accounts, and $19.95 per mutual fund trade

Open an account with Sharebuilder and enjoy some of the lowest trading commissions available if you sign up for automatic investment.


OptionsHouse

Options House is another great broker in the Roth IRA space. Don’t let the name deceive you: OptionsHouse does give you the ability to trade options, but it isn’t an options-only broker.

They have incredibly inexpensive trades at $3.95 per stock or ETF trade. Mutual funds are priced well in comparison to the market at $9.95 per trade.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $1,000
  • Commissions on Stocks, ETFs, and Mutual Funds: $3.95 per stock or ETF trade, $9.95 per mutual fund trade

Open an account with OptionsHouse and enjoy rock bottom trade costs plus up to $125 reimbursed for transfer fees from your old broker.


Trade King

TradeKing has absolutely the lowest stock trade commissions around at just $4.95. If you are looking to trade a lot within your Roth IRA, look no further. Mutual fund commissions are extremely low as well at just $9.95 per no load mutual fund trade.

TradeKing recently merged with Zecco, another low cost online discount brokerage firm. The combined power of the two smaller firms helps it compete with some of the bigger firms listed here, and their pricing is extremely attractive.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: $50 for accounts with no activity within 12 months that also have a balance of less than $2,500, otherwise $0
  • Minimum Deposit to Open Account: $0
  • Commissions on Stocks, ETFs, and Mutual Funds: $4.95 per stock or ETF trade, maximum of $9.95 per mutual fund trade

Open an account with TradeKing and enjoy rock bottom trade costs plus up to $150 reimbursed for transfer fees from your old broker.


Charles Schwab

Charles Schwab is an interesting company that is really a full-service brokerage that is trying to play in the discount brokerage space. For stock and ETF trades, it does this well with an $8.95 commission on those trades.

But if you though TD Ameritrade’s $49.99 mutual fund commission was high… Schwab charges $76. That is unbelievable. Only open a Roth IRA with Schwab if you plan to build a portfolio of ETFs, not mutual funds.

  • Account Set Up Fees for Roth IRA: None
  • Account Maintenance Fees for Roth IRA: None
  • Minimum Deposit to Open Account: $1,000
  • Commissions on Stocks, ETFs, and Mutual Funds: $8.95 per stock or ETF trade, maximum of $76 per mutual fund trade

CompanyStock/ETF Transaction Cost for Average Investor (Online)Mutual Fund Transaction Cost (Online)Minimum to Open
Scottrade$7.00$17.00$500.00
E*TRADE$9.99$19.99$0.00
TD Ameritrade$9.95$49.99$0.00
ShareBuilder$4 (automatic investment) or $9.95 per trade$4 (automatic investment) or $19.95 per trade$0.00
OptionsHouse$3.95$9.95$1,000
TradeKing$4.95$9.95$0.00
Schwab$8.95$76.00$1,000

The discount brokerage industry is highly competitive. This leads to lower transaction costs, competitive account fees, and account bonuses for signing up with a certain broker. Here are some of the best perks you can get right now:

We prefer: Looking at the above data, Scottrade simply stands out above the crowd with no fee to close your account, the lowest mutual fund fee of the bunch, and no account maintenance fee. If you would like free trades or a sign up bonus, then E*TRADE, TD Ameritrade, and ShareBuilder are solid options as well.

Building the Roth IRA Habit:

Having trouble getting into the habit of sending money in to your Roth IRA? You’re not alone. All of the above companies provide some sort of automatic investment option. You simply tell the firm how much you want to invest, on what schedule, and in what investment, and the rest happens automatically.

Automatic investing is one of the best ways to build your Roth IRA without having to think about building your Roth IRA.

A different kind of broker:


There is one other broker that doesn’t really fit into the discount brokerage mold. Betterment is an online broker that charges a percentage based fee on the total amount you have invested with the firm.

Instead of charging $20 for every mutual fund transaction the company charges you 0.15% to 0.35% of the money you have invested on an annual basis. It’s a different kind of brokerage firm aimed at those who don’t want to have to make decisions on specific mutual funds or ETFs.

In fact, Betterment only offers two investment choices: a basket of stock ETFs and a basket of Treasury bonds ETFs.

Betterment’s fee structure is very unique. You don’t have individual transaction or trade commissions, and there is no fee for closing your account. Regardless of how long you have an account or how much money you invest, you will only be charged 0.15% to 0.35% per year (prorated) on assets.

Plus you can now get a $25 bonus for opening an account at Betterment to try it out.


Invest your Roth IRA directly with a top mutual fund company

Discount brokers and full-service brokers charge fees on every trade into a stock, ETF, bond, or mutual fund. These brokers will tout no-fee mutual funds (also called no-transaction fee mutual funds) to show that they aren’t out to make a buck on every transaction you have for retirement.

But the number of no-fee funds offered is drastically different than the advertised number of mutual funds that attracted you to the broker in the first place. (Also, don’t get confused between no-transaction fee and no-load mutual funds. No-load funds mean there is no sales load cost as a percentage of assets on your investment; no transaction-fee means there is no fee to trade in and out of the mutual fund. No-load funds can have transaction fees.)

The easiest way to avoid unnecessary fees on your mutual funds is to simply cut out the middleman. You don’t need 10,000 different mutual funds nor do you need to pay for every transaction you have to buy or sell into those funds. A well constructed portfolio of low cost index funds can offer you the best returns at the lowest cost.

Cutting out the brokerage middleman means going directly to the source: the mutual fund companies themselves. Not every mutual fund company will let you open a Roth IRA with them, but two of the largest will. VanguardT. Rowe Price, and Fidelity let individuals open Roth IRAs and deal directly with the company to build their nest egg.

Vanguard

Vanguard has long been an industry leader in low cost investments and the online account access is easy to navigate. The expense ratios on some of their index mutual funds are absolutely unbeatable.

Fees are clear to understand with Vanguard; we had to use the search function on the T Rowe Price website to discover the fee structure. Vanguard has an easily found link under the IRA portion of the website. Plus, we like Vanguard because the company is a non-profit dedicated to low investment fees.

  • Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20)
  • Minimum Required Investment: $1,000 for “starter” mutual funds, most other funds $3,000
  • Minimum Subsequent Investment: Varies, usually between $100 and $1,000 (electronic transactions only have a $1 minimum)
  • Commissions: If you invest in Vanguard mutual funds only, $0. Commissions vary for mutual funds outside of Vanguard or for ETFs.

T. Rowe Price

T. Rowe Price is another industry leader that offers mutual funds directly or through a broker. Expense ratios for index funds with T. Rowe Price are very competitive with the industry meaning you will get the maximum growth out of your invested dollars.

The company has a great Roth IRA page that explains everything you need to know about your eligibility to invest in a Roth IRA. The fee structure is mostly clear, although to find the full fee prospectus I had to do a search on their website.

  • Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20 if your balance is less than $10,000)
  • Minimum Required Investment: $1,000
  • Minimum Subsequent Investment: $100
  • Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of T. Rowe Price or for ETFs.

Fidelity

Fidelity is another massive mutual fund company that offers its funds directly to investors and through brokerage firms. Of the three mutual fund companies, Fidelity has the highest minimum required investment for you to get started at $2,500. On the flip side, there is no minimum additional contributions after that.

Fidelity has been battling with Vanguard and T. Rowe Price on expense ratio costs meaning you will be getting very competitive expense ratios.

  • Fees for Roth IRA: $0 for IRAs
  • Minimum Required Investment: $0 (although most Fidelity mutual funds have a $2,500 investment minimum)
  • Minimum Subsequent Investment: $0 for Fidelity mutual funds
  • Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of Fidelity or for ETFs.

How to Manage Multiple Investment Accounts

Of course you may have investment accounts, Roth IRAs, and Traditional IRAs across several different companies. You have multiple logins to remember to check up on your investments, and having some understanding of your asset allocation is not easy.

Enter Personal Capital. The company aims to solve the problems of managing multiple accounts, tracking your asset allocation, watching the performance of your investments, and in general helping you keep all of your financial tasks in order. With a slick web interface and mobile apps that work on iOS and Android you can see everything together in one well-designed space.

The best part about Personal Capital? The software is 100% free.

best places to open roth IRA


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Comments | 14 Responses

  1. says

    When I was in college I started my Roth with Scottrade because only $500 was needed to get going and many funds had no transaction fees. But they had no way to make contributions without mailing in checks or going to the stores and I didn’t make enough money to do direct deposit. When I graduated I moved to Vanguard because I’m a huge fan of their products and the company. The rollover was kind of confusing but they do have dedicated staff that do a lot of the work for you. I haven’t looked back and keep a Roth and traditional IRA with them now.

  2. says

    Good call on Vanguard for your brokerage. Vanguard is above the rest of the industry in putting customer interests first. Customer interests being getting maximum diversification at minimum priced, which is what long-term investing is all about. Their customer service can sometimes (not often) feel subpar, but that’s because they run such a low-expense ship.

    I have mixed feelings about Betterment. It’s true that the service they provide is useful and their rates are not outrageous, but Vanguard provides the same without charging anything at all in the form of their life-cycle mutual funds. You can definitely do worse than Betterment, but it’s trivially easy to get same results and save the 0.15%-0.35% annually with Vanguard.

  3. Josh Epson says

    Many if not most financial institutions will waive the associated fees if you opt-in a ACH monthly deposit into your account. They will also waive the mandatory minimum amount required to open the account.

  4. Brent says

    This is great info Jeff,

    I’ve been a member with Vanguard via a former employer for years. I never had any problems with them. No hidden fees/costs and nice returns!

  5. Ursula Z. says

    401-Ks are great if the economy is good and you’re gainfully employed. God help you if you need to draw funds before you hit 59 ½. My husband lost his job a while back and my hours were drastically cut at my job. We had no choice but to take out a portion of our savings. That was over three years ago and we’re still paying for it!

  6. Army Amy says

    Don’t forget about Ariel Investments. I have a Roth account with them in addition to a TSP account working for the Department of Defense. They have decent returns and no fees unless I withdraw early

    • Young Blood says

      I checked out Ariel investments but the expense ratios are way to high. Vanguard has a fund comparison tool on their website. You should think about comparing your fund(s) at Ariel to the funds Vanguard offer. The TSP is always a great deal though… just remember to allocate your funds somewhere other than the G-fund. A lot of troops make the mistake of just setting it up and then not allocating their funds.

  7. Leila M. says

    @ Ursula,

    We almost did the same thing. We suffered a hardship as well but decided to borrow against our 401-k (Invesco). Our interest rate was low and so were the payments. Keep in mind one of us was still employed so everyone’s situation is different.

  8. Gracie says

    I looked at the promotion for Scottrade and Sharebuilder–the fine print states that the offers do not apply to IRAs.

  9. Vanessa says

    Jeff, I was wondering if you have a joint Roth IRA with your wife or do you and your wife have separate accounts? One of my main goals is to have a Roth IRA despite not having too much knowledge on how to get started and the best place to invest however now that I’m married, I’m unsure if it’s even possible to have a joint Roth IRA?

    • says

      @vanessa You can not have a joint Roth IRA. What you do is list your spouse as the primary beneficiary so if something happens to you it goes directly to them. It’s basically the same as having a joint Roth IRA.

  10. jeff says

    Hello Jeff can you tell me how to go about moving a roth ira to another company I am sick of the fees from wells fargo thanks

    • says

      @ Jeff All you have to do is open a Roth IRA account at the new firm. Once the account is open you then will complete their transfer paperwork (they’ll usually need a complete statement from your existing Roth IRA). That’s it.

      Be aware that your old custodian (Wells Fargo) will most likely charge you a transfer out fee. This could be anywhere from $50-$115.

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