If your employer doesn't offer a 401(k) plan, then an individual retirement account should be a major part of your retirement saving plan. And even if you do have access to a 401(k), there are still many reasons to open an IRA as well, including the greater variety of investment choices and the ability to open a Roth-style account.
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Here are some things to consider when opening a new IRA.
Between banks, brick-and-mortar brokers, online brokers, discount brokers, and deep discount brokers, there are a whole lot of companies eagerly waiting to set up an IRA for you. Given the high level of competition, it's a good idea to check your options carefully to make sure you're getting a good deal expense-wise. For example, it's fairly easy to find an IRA trustee that won't charge any annual fees on the account. Trade commissions also vary widely from one broker to another. And if you want an IRA trustee that will manage your investments for you, look for one that won't charge you an arm and a leg to do it. Some IRA trustees charge as little as 0.25% to 0.50% of your account balance for full-service investment management services.
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Before you start comparing brokers, take the time to think about exactly what you want from your IRA. Some trustees only offer access to stocks and bonds, while others permit more exotic investment options such as commodities or real estate properties.And trustees offer a range of investment management services: Some offer full-service investment management, some have low-cost robo-advisors, and some will just toss you some investing guidelines and leave you to your own devices. Decide which services you want from your IRA trustee, and you can further narrow down your choices based on what's available.
Type of account
"IRA" is actually quite a broad category of account options. You have your traditional IRA, which is what most people think about when they hear the phrase "IRA." Your contributions are tax-free, assuming your income is under the limits, and distributions are taxed at the time you take them. You also have the Roth IRA, which is basically the opposite of the traditional IRA: Contributions are taxed, but distributions are nontaxable.
Then you have two IRAs that are designed for business owners and the self-employed: the SEP IRA and the SIMPLE IRA. If you're not self-employed, you'll want to stick with a traditional IRA, a Roth IRA, or some combination of the two. If you are self-employed, then the SEP IRA or SIMPLE IRA may be your best option, but you can also open a traditional or Roth IRA if you like.
Ease of use
Here's another factor that will vary depending on your own preferences. For example, most IRA trustees will allow you to set up an automatic transfer from your bank account -- but if you plan to fund your IRA this way, you'd better confirm that the IRA trustee you choose offers this option. Similarly, trustees may allow you to make trades over the phone, online, through a smartphone app, by text message, or some combination of the above. If you want to manage your account online, look over the trustee's website and see if their online management tools are up to snuff. Not all IRA trustees will offer all of these options, so focus on those that offer the options that are most important to you.
Given the aforementioned high competition between IRA trustees, many of them make special promotional offers -- typically either cash bonuses or a set number of free trades for new clients. These promotions can be tempting, but don't make them the deciding factor when choosing an IRA trustee. A promotion is a short-term event, and your money will probably be with the trustee for decades to come. You don't want to get stuck with an expensive, inconvenient account just because the broker paid you $100 to open it.
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