If you are someone who has been researching how to build retirement savings, you probably already know that a Roth IRA account can help you build tax-free income for later in life. The funds for a Roth IRA are taken out pre-tax, so you have already paid taxes on the money. Now, you have several options for opening a Roth IRA, including your bank. Let’s compare some of these options.
Employer Roth IRA Accounts
In the past, you had to choose between contributions to your employer-sponsored 401(k) or open an IRA on your own. Employers did not have the option for an IRA as part of retirement plan offerings. Now, you can have a portion or all of your retirement payroll deductions go to a Roth IRA. Many of these plans are included as an elective when you sign up for your 401(k).
Investment Companies
If you are self-employed, or your company does not offer a Roth IRA contribution as part of its retirement plan, one of the options that you can choose for opening a Roth IRA is through an investment or brokerage firm. Some of these companies include Vanguard, Fidelity, Merrill Lynch, and Charles Schwab. This is the most common route that many take to opening an IRA. One of the most important things to consider when using this option is to make sure you understand any fees involved both now and in the future when you start making withdrawals.
Roth IRA Through Banks
With the popularity of Roth IRAs, many banks have now started offering their customers the option to open this type of account. Many banks offer this option along with other investment banking services. Banks take a different approach to IRAs than brokerage firms. The difference is in the types of investments they make and the amount of risk involved.
Brokerage firms often have several different types of accounts that use different investment instruments. Some of them might involve a high growth rate, but the investments are riskier. Other IRAs might focus on steady, stable growth, while others are a balance between the two. One of the most common investment instruments for banks is CDs.
Banks tend to take a lower risk approach to growth than brokerage firms. While CDs are an excellent option for those that want the lowest risk, they also have the lowest rates of return. CDs offered by banks are FDIC insured up to $250,000 per person, but the investments offered by brokerages do not have this protection. Some banks offer Roth IRAs that involve a mix of CDs and traditional stocks. If you are thinking about opening a Roth IRA at your bank, this is one thing to ask.
Making the Decision
You have several options when choosing where to open your Roth IRA. Regardless of the option that you choose, including if you have an employer-sponsored Roth IRA, you need to ask a few questions before you decide.
Things to Consider when deciding where to open a Roth IRA:
- Are there any fees to open and maintain the account?
- How is customer service available?
- What types of investments does the company offer?
- Are there trading fees?
- Are the funds FDIC insured?
- What type of growth can you expect?
The most important thing to know is that there is no right or wrong answer to the question of where to open your Roth IRA that will suit everyone. You need to consider your circumstances, including how much you can contribute and how close you are to retirement age. Before making any type of investment, you should look at all your options and do your research. Do not be afraid to ask questions, and be sure to look at the individual investment instruments used in each account you are considering.