How do I choose a bank for my IRA?
June 22, 2005 7:05 AM   Subscribe

I want to open a Roth IRA account. How do I choose the bank?

These threads have been helpful, but I'm still wondering about the IRA specifically. I've been wondering about this a long time, so any feedback, experiences would be helpful. What banks have mefites had good experiences with their IRAs? Should I just stick with the bank that has my checking account and have it all in one place? Or is investigating other bank's track records with investments imperative? Are there resources for comparing banks' IRA packages other than just visiting their websites and comparing? Why doesn't ING offer IRAs?

Please help this financially ignorant person, and be easy with the snarkiness, I'm an easy target.
posted by scazza to Work & Money (16 answers total) 3 users marked this as a favorite
Personally, I've avoided banks for my Roth and my 401K. I use Vanguard for my Roth and have been amazingly happy with the service and options offered, as well as the low fees.

As for ING: I can't find a solid answer one way or another (without getting in contact with them), but their site leads me to believe that they do offer them...
posted by NotMyselfRightNow at 7:15 AM on June 22, 2005

I worked for Vanguard for years. I'd never want to be an employee agan, but I will invest with them for the rest of my life. I can tell you from the inside that if there seems to be a mistake they will error onthe side of the investor every time. They are amazingly honest which is not as common in finance as it should be.

I am not an advisor, but take a look at the Index 500 fund and the logic behind it.
posted by BeerGrin at 7:18 AM on June 22, 2005

Definitely do not open a Roth in a bank. You do not want to have an interest earning account (you are usually investing in a CD or bond in those accounts). You will want to take more risk (not a ton more, just more) with this account since you will never pay tax on the earnings. It doesn't really matter which investment house you go with (Schwab, Fidelity, Vanguard, etc.), you will probably want an Index fund like BeerGrin recommends.

Check for yearly fees for having an account with them and make sure the fund you purchase has low maintenance fees (these include 12b-1 fees and administrative fees).

I would recommend opening the account yourself (online, usually you fill everything out, print it, sign it, include a check and mail it in), and look for funds that are not Class A or Class B (Class A = front end loads, Class B = back end loads - B is more expensive). I know that Schwab has a customer service number that you can call and they should help you without making you choose a broker.

If you have any other investment questions, is a great resource for definitions and common theory. Also, feel free to send me an e-mail anytime.
posted by blackkar at 8:16 AM on June 22, 2005

Another vote for Vanguard here. I used them for 7 years and am very happy with them.

In choosing who to go with for your IRA, take the following into consideration:

1) Fees. You want to keep these to a minimum. Avoid places that charge you to open an IRA or charge huge "maintainence" fees annually. Figure out what sort of investments you will be using in your IRA (mutual funds, stocks, bonds, etc.) ahead of time, and then compare the fees at different places (for example, if you want to put some of your IRA money into a broad, S&P 500 type of index fund, compare the fees that each company charges; ideally, you are looking for no fee (or "no load") funds). The reason we like Vanguard is that they have much lower fees on their mutual funds than most other companies.

2) Convenience. Does the company allow you to do web-based transactions? Is it equipped to handle a broad range of financial instruments, including mutual funds, stocks, bonds, etc.? Does it give you a lot of information on those instruments so that you can educate yourself? Does it allow you to link your IRA to a checking/savings account so that you can transfer money electronically? Can you set up an automatic deposit that will put a portion of your paycheck into your IRA on a regular basis?

3) Reliability. Although this slightly contradicts (1) above, I would say that since you're a novice, you should go with a big, reputable company, even if it might charge slightly higher fees. Don't get suckered by bargain-basement brokers with attractive introductory offers; some of them are just fine, but some are scams that will wind up charging you excessive fees down the road.

In general: Figure out what your investment strategy will be ahead of time and what you will need. Will you put all of your money into a broad index fund, or will you want to diversify across different kinds of instruments (funds, stocks, bonds, etc.)? Will you want to actively manage the things in your account, or do you want to put your money in there and forget about it? Once you have figured this out, it will make comparing IRAs across different companies much easier.
posted by googly at 8:17 AM on June 22, 2005 [1 favorite]

"(Class A = front end loads, Class B = back end loads - B is more expensive). "

blackkar is correct here however he is missing a catagory: no load.

For example, Vanguards funds are No Load.
posted by BeerGrin at 8:30 AM on June 22, 2005 [1 favorite]

ING does offer IRAs.
posted by Medieval Maven at 8:33 AM on June 22, 2005

I almost asked this very question myself the other day. I would love to ask- Traditional or Roth IRA? How do you decide?
posted by ThePinkSuperhero at 8:57 AM on June 22, 2005 [1 favorite]

PinkSuper: Here's a very clear series of articles that explain the difference.

The key paragraph: The Roth offers tax-exempt rather than simply tax-deferred savings. One word makes a big difference. While both allow you to accumulate wealth without paying taxes along the way on your profits, the traditional IRA ultimately sticks you with a tax bill for those profits (plus your initial contributions if those were deducted when made). The Roth doesn't. As long as you follow the rules, you never pay taxes on your gains. So paying the piper now before contributing to the Roth may work out to be better for you than paying him later on your investment profits.

Another crucial difference: The Roth IRA allows you to withdraw early with no penalty for a down payment on a home (up to $10K), or for higher educational expenses for you or a qualified family member.

So, a very short and simple answer to your question is: If you are relatively young; and expect to either put the money in the IRA for a long time and earn substantial gains, or use it to pay for a house or college tuition for your child, then the Roth IRA is the way to go.

Of course, YMMV, and I am not a qualified financial adviser., so make sure to research this yourself before diving in!
posted by googly at 9:11 AM on June 22, 2005

ING may offer IRAs but you don't want them. Their fees are too high. My IRAs are in Vanguard.

The Fool offers mutual shopping tips and likely that's what your IRA will be in. As someone above said, you want risk, not lame bank interest.

Make sure you're in something aggressive. The whole payoff of a Roth is that the earnings are tax-free. If you're just sucking along you're not maximizing that benefit.

On preview: superhero, the difference is Traditionals you don't pay tax on the initial contribution (which this year is $4k) but the earnings are taxed. In a Roth the initial contribution is taxed normally but the earnings are tax-defered.

SO, if you have $10,000 in taxable income this year and set up a $4,000 traditional IRA you now only have $6,000 in taxable income. This kind of thing feels pretty sweet if you're paying 28% on that money - you just did $4,000 worth of retirement savings that cost you less than $3,000 - you would have had to give that $1,120 to the Fed instead of socking it away.

So putting that $4,000 in a Roth feels a little painful - not only did you take $4,000 out of your pocket but you paid that $1,120 to the Fed for that money. But if you're young it's a way better deal, because if you keep up with the market average of 11% the next year and earn $440 every penny of that $440 stays in there and gets compounded.

It's the same reason you're not going to get that shitty ING account with the several percentage points in fees - that little bit over time makes a huge difference. I didn't find it in my quick google but the Fool has a chart in an article showing how that difference can be a million dollars over a retirement lifetime.
posted by phearlez at 9:14 AM on June 22, 2005

Whoops, I had a brain-sneeze on the way through my editing. As googly said, the traditional is tax-defered, you pay tax at withdrawl (which isn't horrible - at that point you are presumably at a lower rate) wher the Roth you pay taxes on initial contribution like anything else but never pay taxes on earnings.
posted by phearlez at 9:17 AM on June 22, 2005

Oh also, I'm working on a career in creative, intellectual and humanitarian feilds; has anyone had any experience with TIAA-CREF?
posted by scazza at 9:19 AM on June 22, 2005

Thanks, googly, that helps a lot.
posted by ThePinkSuperhero at 9:25 AM on June 22, 2005 [1 favorite]

The Roth IRA allows you to withdraw early with no penalty for a down payment on a home (up to $10K), or for higher educational expenses for you or a qualified family member.

I was under the impression that you could withdraw any amount that you invested in a Roth IRA for any reason, and that there would only be penalties if you withdrew earnings early.

Is that not true?
posted by willnot at 9:39 AM on June 22, 2005

First time home purchase - this is true of a traditional IRA. You still pay the tax (Fed and State) on the distribution, but you wave the standard 10% early distribution penalty (payable to the IRS).

If you take it out of a Roth, you can take the amount you initially invested at any time without the penalty, but if you dip into earnings, you get dinged on the tax (but skip the 10% penalty if it is for a first time home purchase).

Also, Roth IRAs don't require minimum distributions after 70.5 years of age.
posted by blackkar at 10:37 AM on June 22, 2005

I have my Roth IRA with Scottrade. My 401(k) is in mutual funds, so I'm dabbling in individual stocks in the IRA -- hence I went for one of the least expensive discount brokers (their $7 per trade is less than a third of Vanguard's). If you prefer mutual funds they also will happily sell you those, and there are no maintenance or account inactivity fees there.

Roth IRA is the way to go because it serves as an emergency fund as well as an investment vehicle -- you can draw your contributions out at any time, so you retain a good amount of liquidity. Of course, if your securities happen to be down at the time you need to liquidate this can be costly, but it's a nice backup to a few months' expenses in a savings account.

The tax-free earnings are also nice. Over any significant period of time, your earnings will dwarf your original contribution -- at 10% a year, you will double your money every 7 years or so -- so it's better to take the tax hit up front.
posted by kindall at 10:51 AM on June 22, 2005 [1 favorite]

TIAA-CREF is OK. Most universities use them (and a lot of public school districts). I have not had to work with their brokers. Their website has very basic investment information/not overly "new investor" friendly. They usually offer onsite or local (and free) broker meetings. The trick is to meet with them regarding your 403(b) only, don't let them talk you into transferring all of your assets to them. They offer deals to large institutions, but they don't have to offer the same deal to an individual investor, which is what you become (for all intents and purposes) when you transfer over brokerage accounts, IRAs, trusts, etc. Also, I would recommend against rolling any other 401(k) or 403(b) into a new plan. Just roll them out of the old plan into an IRA, you usually get more investment options.
posted by blackkar at 12:45 PM on June 22, 2005

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