Best Places to Open and Setup a Roth IRA

by Junior Boomer on March 27, 2012

If you have come to conclusion that you are ready to open a Roth IRA, it can be confusing on choosing the best place to setup your Roth IRA account.

Jeff Rose from Good Financial Cents has created a movement he has dubbed the Roth IRA Account Movement in an effort to encourage young adults to start saving early. Young adults like many investors are clueless on where to get started.

In this day and age, you have many, many choices.  In fact, it’s worse that going to all you can eat buffet when it comes to plethora  of options you have. You can go to your bank, you can go to a brokerage firm, you can go online.  It’s almost to the point where you can go to Wal-Mart to open a Roth IRA account.

Not quite, but you never know.  Your situation and your needs will be the largest determinant on where the best place is to setup shop.  Here is a breakdown at the different choices you have at opening a Roth IRA and why it may be best for you.

Best Places to Open and Setup a Roth IRA
Creative Commons License photo credit: Andi Sidwell

My favorite places right now to open a Roth IRA are Scottrade and Sharebuilder. There low cost trades and no maintenance fee make it a no-brainer.

Open a Roth IRA at a bank

….if the word stock market equates to a major feature horror film, then opening a Roth IRA at a bank is probably your best choice.  Why?  Typically, at a bank, if you open a Roth IRA, your only two investment options are going to be CDs or money market savings accounts.  Both of these will be covered by the FDIC limits, which for IRAs are $250,000 per account.

By setting up the Roth at your bank or credit union, you’ll never have to worry about losing principal and you’ll never have to worry about the stock market.

Be careful though. If the bank or credit union has a brokerage firm within it, and that you get referred to the financial advisor there, then you’ll be most likely won’t be investing in a CD or a savings account.

Setup a Roth IRA account at a brokerage firm

…..if you’re looking for some more investment options other than CDs or money markets, but you still need help choosing the best investment for you.  In this case, you may want to consider going to a local brokerage firm.  Going to a brokerage firm will allow you to invest into mutual funds, ETF, stock, bonds.

The one downside by going to a major brokerage firm to open a Roth IRA is that the financial advisor could be skewed in his recommendations.  If they are employed by an in insurance company, they may have their own in house proprietary annuities or mutual funds that they might try to sell you.  Also, they may have a secret alliance to a particular mutual fund company, so you may not be getting unbiased advice.  Tread carefully and make sure to read the prospectus and ask plenty of questions.

Open a Roth IRA at an independent financial planning firm

…if (Same rules apply with the brokerage firm) you want more investment choices versus a bank, an independent firm might be the best choice for you.  With an independent firm, you should eliminate any biased advice or recommendations and have investments suggested to you that is purely based on your needs.

The only downside with an independent firm is that if you are a new investor they may have certain account size minimums in bringing on new clients.  If this is the direction that you are destined to go, it never hurts to ask to see what the possibilities are of working with an independent financial advisor.

Setup Your Roth IRA directly at a mutual fund company

….if you are hardcore zealot of that mutual fund company.   For example, if you love Vanguard because of their low expense mutual funds, then it makes perfect sense to open your Roth IRA account there.  Same rule applies for Fidelity, T. Rowe  Price, American Funds, etc.  The benefit of doing so is that you should (double check with the mutual fund company) be able to switch your mutual funds holdings without every occurring a another sales charge.

The downside is that you are typically limited to the that company’s mutual funds.  Vanguard, though, has 130 domestic and 40 international funds to choose from so you still get a very decent selection.

Open a Roth IRA at a online brokerage

…if you consider yourself a “do it yourselfer” and feel educated enough to make your own investment decisions, then opening a Roth IRA account at a online brokerage firm would be the best choice for you.  Like with a personal pension by opening a Roth IRA account online, you should pay less in transaction fees, annual custodial fees, and you have the freedom and flexibility to make changes to your portfolio whenever you want.

Here’s a look at some of the best places to open a Roth IRA online if this is the way for you:

My favorite places right now to open a Roth IRA are Scottrade and Sharebuilder. There low cost trades and no maintenance fee make it a no-brainer.
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{ 3 comments… read them below or add one }

Daddy Paul April 17, 2010 at 12:06 pm

At Fidelity you have a choice of over 1400 no load mutual funds. To me that makes an IRA an easy choice.
Opening an IRA with a fund company can be a nice option for those with lesser funds.
Gabelli will let you open an account with 250 bucks.
.-= Daddy Paul´s last blog ..The best taxable bond mutual funds =-.

Slinky May 5, 2010 at 11:09 am

Also, if you like Vanguard or Fidelity or such, most offer a brokerage account where you can buy both their funds and other funds. My Roth IRA is at Vanguard, but I also have a TRowePrice fund in it.

Allen Haddock May 15, 2012 at 1:20 am

I have an Roth IRA with Scottrade and a big money trading account with trademonster. I like the trademonster account much better and have been thinking of transfering my scottrade account to trademonster. Great article. Thanks for sharing. I love Dave Ramsey also. He is so genuine and helpful.

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