In this article, I’ll go over all the important aspects of Individual Retirement Accounts (IRAs). I’ll go over the differences between different IRAs and which is best for you. If you already have the basics of IRAs down and want to know where to open one, see my article on the best places to open an IRA here (my recommendation is TD Ameritrade’s IRA).

Individual Retirement Accounts are a type of Individual Retirement Arrangement, and the acronym IRA is used to describe both. For all intents and purposes, we’ll stick with discussing Individual Retirement Accounts and use IRA for short.

IRAs are an important long-term tool for growing assets that everyone needs to become familiar with. They can allow all of us obtain a better quality of life during our retirement years, especially now that Americans are living longer in today’s world.

With IRAs, your contributions can either grow on a tax-deferred basis (as with Traditional IRAs) or on a tax-free basis (as with Roth IRAs).

An IRA is a contractual arrangement between three parties:

• You (a U.S. person and taxpayer who earns taxable income from gainful employment,
• The Internal Revenue Service,
• and an IRA custodian which you choose to hold the assets of your IRA (i.e. stock broker, bank, credit union, or mutual fund company).

*Be sure to check out all the best brokerage bonus offers for IRAs here

Traditional IRA Vs. Roth IRA

Choosing between a Traditional IRA and Roth IRA depends on your particular situation, and factors such as:

• Age (i.e. time between now & retirement)
• Your income & expenses.
• Tax bracket now & after retirement.
• Returns (i.e. earnings on your contributions).

Most will tell you that in the long run, a Roth IRA beats a Traditional IRA. The big benefit of a Roth is that your withdrawals are Tax Free after 59.5 years of age. Another advantage of the Roth IRA over a traditional IRA is that there are fewer withdrawal restrictions and requirements.

Here’s a comparison table from the IRS website, you can also find it here.

Contributing to a Traditional IRA means you typically may deduct some or all of your annual IRA contribution directly from your taxable income. This may provide a cut in your marginal tax rate, but Congress has specific rules affecting taxpayers who work in a job where they are covered by an employer pension or 401(k) plan.

Contributions within the Traditional IRA grow on a tax-deferred basis, and are only taxable by the IRS (and most states) at the time funds are withdrawn (usually in retirement).

Contributing to a Roth IRA will receive NO tax deductions for your annual IRA contribution. The best feature, though, is that your contributions within a Roth IRA grow on a tax-exempt basis, based on the current tax laws which would allow all earnings to be withdrawn in retirement free of tax liability.

Important: While current tax laws state that Roth IRA assets can grow totally exempt from taxation, some worry about whether or not U.S. Congress may change the tax-free status of funds within an IRA. From numerous past U.S. Supreme Court rulings, the United States Constitution does not prevent Congress from changing the Internal Revenue Code that can affect the tax status of either Roth or Traditional IRAs.

Roth IRAs have more benefits for the long-term, but if you need the immediate up-front tax deduction in order to make a full IRA contribution for the year, then the Traditional IRA is certainly better than making no IRA contribution at all.

Most Important Articles To Read About IRAs

In regards to IRAs held by a creditor during bankruptcy: On April 4, 2005, the U.S. SUPREME COURT issued a unanimous ruling determining that Congress intended for IRAs to be sheltered from creditors during a bankruptcy proceeding. Here are some articles of interest:

• IRAs Can’t Be Seized In Bankruptcy
• Supreme Court Issues IRA/Bankruptcy Decision

Important articles from the IRS website:

• IRS overview of Individual Retirement Arrangements
• IRS – Contribution Limits for IRAs
• IRS – IRA Deduction Limits for Traditional IRAs
• IRS – Rollovers of Retirement Plans and IRAs
• IRS – Rules regarding distributions
• IMPORTANT – new IRS one-rollover-per-year restrictions
• IRS – information on employer-based IRAs – Simple IRA etc.
• IRS – Savers’ Credit for lower-income taxpayers
• IRS – Publication 590 (2013 version) – Individual Retirement Arrangements
• IRS Publication 590 – Individual Retirement Arrangements
• IRS Retirement Tax Information Site

Other important comparisons:
401k vs Roth IRA
Roth IRA calculator
Fairmark IRA comparisons

Wikipedia IRA links:
Roth IRA
Traditional IRA
401K

Where To Open An IRA Account…

Here are a few places you can open an IRA account at:

• Get $150 transfer fees reimbursed with a TradeKing IRA account.
• TD Ameritrade was ranked #1 for Novices by Barron’s. Open and fund an IRA today and get up to $600.

After some research, I’ve gathered the best sources for opening Traditional and Roth IRAs below.

*See all the best online stock broker promotions and deals here!

Do you need to know the difference between a Traditional Vs. a Roth IRA first? Read my basics overview on IRAs here.

For many folks, if you think your tax rate will be lower in the future then it makes sense to avoid paying more taxes now by investing in a Traditional IRA, which is eligible for tax deductions.

If your future foretells that your tax rate will increase, the best retirement account for you, if you qualify, is a Roth IRA.

In general, most consider a Roth IRA more beneficial.

Best Places To Open A Roth IRA: Discount Brokers

Options for opening an IRA include discount brokers, full service brokers, and directly through a mutual fund.

You can create a basic portfolio with the follow discount brokerage firms.

Scottrade

As well as being online, Scottrade also had brick-and-mortar locations (more than 500 in the U.S.). This not only gives you access to lower transaction costs, but allows for face-to-face interaction with a real person.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $500
• Commissions On Stocks, ETFs And Mutual Funds: $7 per stock or ETF trade, maximum of $17 per mutual fund trade

Scottrade IRA is best for: New investors and those who want a full-service broker with lower commissions

*Special Offer: Open a new account or fund an existing account and get up to a $2,000 cash bonus

E*TRADE

E*TRADE has always been one of the leaders and pioneers in the industry. E*TRADE has physical locations, but only a handful compared to Scottrade. As a online discount brokerage firm, though, they’re one of the best.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $0
• Commissions On Stocks, ETFs And Mutual Funds: $9.99 per stock or ETF trade, maximum of $19.99 per mutual fund trade

E*TRADE IRA is best for: Investors who want a variety of products in their IRA, low-frequency traders, and long-term mutual fund investors

*Special offer: Get up to $600 when you open an IRA

TD Ameritrade

TD Ameritrade has roughly four times as many brick-and-mortar locations as E*TRADE, and also is very popular as an online solution as well. Aside from higher than normal fees for mutual funds, they are very competitive with stock and ETF fees. They have all the popular retirement options, but their IRA shines.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $0
• Commissions On Stocks, ETFs And Mutual Funds: $9.99 per stock or ETF trade, maximum of $49.99 per mutual fund trade

TD Ameritrade IRA is best for: All levels of experience, those who want to roll over a 401K, and less active investors/traders

*Special Offer: Open an IRA or roll over your old 401k and get up to $600 cash

Capital One Investing (Formerly Sharebuilder)

ShareBuilder is owned and operated by Capital One. Their target audience appears to be the beginner investor. Again, fees are in-line with all of the other competitors.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $0
• Commissions On Stocks, ETFs And Mutual Funds: $4 per stock/ETF/mutual fund trade if using automatic investment; $7.99 per stock or ETF trade with $12 monthly subscription to ShareBuilder Advantage; $9.99 per stock or ETF trade for ShareBuilder Basic accounts, and $19.95 per mutual fund trade

ShareBuilder IRA is best for: Beginner investors and deal seekers

*Special Offer: Up to a $600 bonus with your opening deposit

OptionsHouse

OptionsHouse specializes in Options, but they are also another good choice for opening a Roth IRA. Fees for trades are very low for stocks and ETFs. Fees for Mutual Funds aren’t too shabby either.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $1,000
• Commissions On Stocks, ETFs And Mutual Funds: $3.95 per stock or ETF trade, $9.95 per mutual fund trade

OptionsHouse IRA is best for: Investors looking for low fees who may dab into Options also

*Special Offer: Open an IRA @ OptionsHouse Today and Receive 100 Commission-Free Trades and up to $125 in Transfer Fees! 

TradeKing

TradeKing is one of the best options out there if you are looking to trade often within your Roth IRA account as the stock trade commissions are $4.95. This firm as provides low costs for Mutual Funds as well.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: $50 for accounts with no activity within 12 months that also have a balance of less than $2,500; otherwise $0
• Minimum Deposit To Open Account: $0
• Commissions On Stocks, ETFs And Mutual Funds: $4.95 per stock or ETF trade, maximum of $9.95 per mutual fund trade

TradeKing IRA is best for: Higher frequency traders, Options traders, self-directed investors and deal seekers

*Special Offer: Get up to $150 in transfer fees reimbursed

Charles Schwab

Charles Schwab is more of a full-service brokerage firm, but they do have decent commissions on stock and ETFs at $8.95. However, their mutual fund fees are extremely high.

• Roth IRA Account Set Up Fees: None
• Roth IRA Account Maintenance Fees: None
• Minimum Deposit To Open Account: $1,000
• Commissions On Stocks, ETFs And Mutual Funds: $8.95 per stock or ETF trade, maximum of $76 per mutual fund trade

Charles Schwab IRA is best for: Investors looking for features of a full-service brokerage firm with decent stock/ETF commissions

Best Places To Open A Roth IRA: Mutual Fund Companies

With discount brokers you have to be wary of Mutual Fund costs. Be careful of the difference between advertised no-transaction fees and no-load mutual funds. No-load funds refer to there being no sales load cost as a percentage of assets on your investment. No-transaction fee means there is no fee to trade in and out of the mutual fund. No-load funds can have transaction fees.

That’s where the advantage of opening your IRA through a Mutual Fund Company comes into play. You can cut out the middleman, the discount broker, by going directly to the Mutual Fund companies themselves. There are a few Mutual Fund Companies that will allow you to open a Roth IRA and I’ve listed them below.

Vanguard

With some of the best low cost index Mutual Funds on the market, Vanguard has always been one of the top choices.

• Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20)
• Minimum Required Investment: $1,000 for “starter” mutual funds; most other funds $3,000
• Minimum Subsequent Investment: Varies, usually between $100 and $1,000 (electronic transactions only have a $1 minimum)
• Commissions: If you invest in Vanguard mutual funds only, $0. Commissions vary for mutual funds outside of Vanguard or for ETFs.

T. Rowe Price

T. Rowe Price also has competitive expense ratios for index funds and is another market leader.  .

• Fees for Roth IRA: $0 (with electronic statements and confirmations; otherwise $20 if your balance is less than $10,000)
• Minimum Required Investment: $1,000
• Minimum Subsequent Investment: $100
• Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of T. Rowe Price or for ETFs.
  Fidelity

Fidelity

The third big player among the Mutual Fund Companies is Fidelity. They have the highest minimum required investment for opening an account at $2,500. Luckily, there is no minimum additional contributions afterwards.

• Fees for Roth IRA: $0 for IRAs
• Minimum Required Investment: $0 (although most Fidelity mutual funds have a $2,500 investment minimum)
• Minimum Subsequent Investment: $0 for Fidelity mutual funds
• Commissions: If you invest in Fidelity mutual funds only, $0. Commissions vary for mutual funds outside of Fidelity or for ETFs.