Tuesday, January 11, 2011

Choosing an Online Broker For a Roth IRA

In case you're not familiar with what a Roth IRA is, Dave Ramsey explains it well here. If you are single and make under $105k or married and your combined income is less than $166k for 2011, you are eligible and can contribute a maximum of $5000 per person per year towards an individual Roth IRA. They have to be separate accounts in each individual's name.
You have until the tax filing deadline, usually April 15th, of the following year to make your contributions for that year. I'm planning to make contributions now for last year and then make regularly recurring monthly payments into the accounts going forward.  I saw two main potential options, choose a low fee, no load mutual fund company and sign up with them directly, or choose an online discount broker.
For our accounts I decided to go with Vanguard and the 2045 Target Date Mutual Fund (VTIVX). I did that because they have the lowest expense ratios in the industry, currently .2% and have a comparable rate of return to competing company funds of the same category.  Additionally, you do not have to pay any fees to purchase the fund, which is another main reason for going directly to Vanguard, instead of purchasing the same fund through another company.
The downside to Vanguard is that they require a minimum $3000 initial investment for that fund, and most of their funds in general. If you have less to start with, T Rowe Price came in a close second, they have slightly higher fees of roughly .6%, but they have a lower minimum $1000 initial investment for their similar target date funds.
Open an IRA @ OptionsHouse Today.
If you prefer to have a wider range of choices and would like to actively buy and sell individual stocks, I'd recommend going with Options House.  They charge only $3.95 for stock trades, they have a current new sign-up promotion of 100 free trades and they cover any sort of fees up to $125 if you are transferring in an IRA from another broker.  A great deal and potential option for those interested in a more active approach.  

Feel free to leave a quick note to let others know what online investment sites you utilize and whether you like or dislike them as well, the more opinions the better.


Jen said...

Seems easy enough! I'm getting ready to do this in a few months so this info. is very helpful!

Design by Free WordPress Themes | Bloggerized by Lasantha - Premium Blogger Themes