Roth IRA Selection Tips

Many financial institutions offer Roth IRAs.

Many financial institutions offer Roth IRAs.

When you picture your retirement, maybe you see yourself living a life of relaxation and luxury. Or maybe you envision frequent travel and adventure. Whatever your plans for retirement, building a nest egg by taking advantage of tax-advantaged retirement accounts can help your plans become reality. A Roth IRA is a type of retirement account that lets you put away $5,000 a year (as of 2012) in after-tax dollars. Any money you withdraw from the account, including investment gains, at retirement age are tax-free.

Keep Options Open

Many financial institutions offer Roth IRAs, such as banks, credit unions, stock brokerage firms, insurance companies and mutual fund companies. The type of financial institution you choose can affect the investment options you have in your Roth IRA. For example, a bank might only allow you to put your money in fixed interest accounts, while a mutual fund company might limit you to investing in specific funds that it manages. Selecting an institution that lets you invest in variety of stocks and mutual funds keeps your options open; even if you don't plan to move your money around now, you might want to do it sometime down the road.

Meet Minimum Investment Requirements

Certain companies place minimum limits on investments, which can be troublesome for IRA investors who can only contribute $5,000 a year. For instance, certain mutual funds require minimum balances of $10,000 or more, meaning customers with newly opened IRAs cannot possibly meet the minimum requirement. Make sure your initial contribution meets the required minimum of the investment you want to buy before choosing where to open your account.

Avoid High Fees

Your financial institution doesn't manage your account for you out of the goodness of its heart: it wants to make profit by charging fees. Some companies charge annual account fees that you have to pay simply for having an account. You also have to pay fees for investment trades that you make within your account, although some companies may allow free trades between funds that they manage. Since some companies don't charge annual account fees on Roth IRAs, you may want to avoid those that do. If you plan to make frequent stock trades in your account, choose a company with low trading commissions.

Ask About Special Features

Financial institution offers different special features and benefits on IRAs, but you might not find out about them unless you ask. For example, some companies offer free investment advice and research tools that can help you pick stocks and funds that meet your needs. Others may offer a limited number of discounted or free trades each year, which can be a valuable benefit if you plan to make occasional trades.

 

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