Where To Invest Ira Money

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An Individual Retirement Account (IRA) is a vital component of financial planning. IRAs are tax advantaged accounts, meaning you receive a tax benefit from holding money inside of the account. They are designed to promote retirement savings.

In exchange for the tax break you receive, the government puts restrictions on the accounts. For example, you cannot withdraw money before age 59.5 without, in most cases, paying a penalty.

There are two main types of IRAs investors should be familiar with, and they differ in how the tax advantages work.

Many people end up having both a traditional IRA and a ROTH IRA, which is a benefit, since it gives you more planning flexibility in the future.

There are dozens of places an investor can open an IRA, each with its own pros and cons. The path of least resistance for many is to turn to their bank, many of which do provide IRA accounts. However, banks tend to have substantially higher fees and more restrictions on investment products than other providers. If your bank isn't the best place to open an IRA, what are your best options? That depends on what's most important to you.

Here are our picks for the best places to open your next IRA.

In This Post

Fidelity Investments

Best for lower costs

Fidelity is a low cost leader and has pioneered the first ever no fee index funds. Most mutual funds come with an expense ratio, which is a percentage of the money you invest that is charged by the fund each year. Expenses have been dropping significantly over the past decade, and Fidelity recently announced their zero fee index funds.

There are only four funds that are zero fee. If you want the absolute lowest costs, and are comfortable with just four funds, Fidelity is a very attractive option. Fidelity also offers thousands of other fund options at competitive prices, but they are the only company at this time offering zero fee funds. There is no minimum deposit required to open an IRA at Fidelity.

Vanguard

Lowest Cost Runner-Up

You'll notice on Fidelity's website that the comparison they make is almost always to Vanguard funds. Vanguard is regarded as the financial institution which pioneered index funds, and is the long time low cost leader in investing. It's true that Fidelity has recently dropped their costs for certain funds below even Vanguard's, but the differences should be put into context.

For comparable investments, the difference between Vanguard and the new offering at Fidelity is just $40 per year on a $100,000 investment.

Vanguard also has a unique ownership structure in which the investors in its funds are the owners of the company. This has allowed Vanguard to have a multi-decade history of lowering costs to investors, since the investors are also the owners of the company.

Most Vanguard mutual funds require at least a $3,000 investment, although you can open a Vanguard IRA with just $1,000 and invest in one of its target date funds.

Betterment

Best for Automated Investing

Betterment is regarded as the first "robo-advisor" and is the largest independent robo advisor, with more than $16 billion in assets as of February 2019. Betterment uses algorithms to build portfolios based on the efficient market hypothesis, which balances the risk and reward tradeoff of different investments.

As a digital first company, Betterment makes investing as simple as possible. You don't need to select funds yourself. You enter a bit of information about yourself, your age, and when you expect to need the money, and Betterment designs your investment portfolio for you.

From there, Betterment automatically keeps your account in balance with the original target. It does this by rebalancing the investments as market values change and by using your new deposits strategically to bring your investments in line with the initial allocation.

When you sell your investments, likely during retirement, Betterment will automatically select which shares to sell based on which shares would be most tax efficient for you. In summary, if you want to be totally hands off but also want your investments to be handled according to research based best practices, Betterment is the solution for you.

Betterment costs .25%, with breakpoints once you get to $2 million invested on their platform. There is no minimum to open an account.

Schwab

Best For All-In-One Financial Services

Schwab has been right alongside Vanguard and Fidelity in the lowering of investment costs over the past several decades. Schwab also provides the benefit of having Charles Schwab Bank, giving you the ability to keep your checking, savings, and IRA accounts all at one provider. In contrast to many of the biggest banks, Schwab does not restrict your investment options only to funds owned by Schwab, but instead offers more than 4,500 mutual funds and ETFs commission free.

Schwab's fund fees and trading costs are comparable to other major custodians, so if you want to simplify your financial life to just one institution, Schwab is a great place to consider. There is no minimum to open an account.

Motif Investing

Best for Values Based Investing

With the recent announcement that Swell Investing is shutting down, Motif Investing is a strong option for those interested in values based investing. A common critique of Socially Responsible Investing (SRI) or Environmental, Social, and Governance (ESG) investing is that people define those terms differently, and what's "socially responsible" to one person may not be to another. Motif has a much wider variety of options in this space, giving each individual more flexibility in building their own values aligned investments.

Each "motif" is a basket of up to 30 stocks or ETF's built around a specific theme. You can buy a motif of all "Fossil Free" companies, or you could use the motif for "Modern Warfare", which is made up of weapons, defense, and surveillance companies. You can even invest in a "Junk Food" motif, made up entirely of companies that expand your waistline.

MOTIF is not for an investing novice, and has many options that could be confusing if you're not already experienced with investing. The cost to use any of their Thematic Portfolios (referenced above) is 0.50% of assets a year–higher than for some other "robo" advisors. The cost for Mortif's "Impact Portfolios" is 0.25% of assets, and provides options more similar to what we may traditionally think of as impact investing. You can start investing with as little as $300.

Trading fees vary by account type and investment type, and can be on the higher end of trading costs. While there are low or no costs for trading at the "Next Market Open", there are costs ranging from $4.95-$19.95 for real-time trades. The costs vary based on portfolio type. This makes Motif much more expensive than robo advisors like Betterment or others, which have a "wrap fee", meaning the percentage charged for assets under management includes all trading costs.

Personal Capital

Best Retirement Planning Tools

Personal Capital started as a place to track your spending and net worth, but has built out many additional services in recent years. You can now open investment and retirement accounts and have them invested using its automated investing service. Its service is similar to Betterment, though it uses individual stocks in the investments, rather than exchange-traded-funds.

Personal Capital has interactive planning tools that allow users to project their path to retirement. You can adjust variables such as saving rate, spending rate and retirement date. The result gives you an idea of if you're on the path to a secure retirement. Their tools also include cashflow tracking for those who want to keep track of their spending in the same spot as their investments, as well as a view of your net worth and growth of net worth over time.

The planning tools are free, but the fee for investment management is .89%, substantially higher than Betterment and other robo-advisors. For that 0.89%, you do get access to human advisors, since Personal Capital is what is known as a "hybrid" service. The minimum investment required is $100,000. For comparison, Betterment offers a hybrid service for 0.40% of assets, with a minimum of $100,000 in assets invested and Vanguard offers its hybrid Personal Advisor Services for 0.30% of assets, with a minimum of $50,000.

Ally Invest Select

Best for Active Investors

Ally Bank has some of the lowest per trade costs out there, starting at $4.95. If you are regularly trading, there are breakpoints for investors who make more than 30 trades per quarter, and then are charged $3.95 per trade

Ally also has a phone app that allows easy trading from wherever you are. This makes Ally a great choice for investors who are continually monitoring their investments and trading regularly.

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Ryan Frailich

I worked as a teacher and as a school administrator overseeing HR before becoming a fee-only financial planner. Working in HR revealed a lot about the financial lives of employees, and the lightbulb went off: Too many smart and talented people feel overwhelmed with finances, always wondering if they're making mistakes. And too many people who want help are taken advantage of or shut out by large financial institutions. I changed careers, earned a certificate in financial planning, and started Deliberate Finances. I work with couples in their 20s, 30s, and 40s to put together the pieces of their financial puzzle, from getting married, to student loans, what it means to plan for retirement, and what to expect (financially!) when a baby is on the way. When not working, I spend my time exploring my adopted home city of New Orleans with my wife & young son.

Benjamin Curry

Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.

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