Retirement Planning Basics
Eric Rosenberg covered small business and investing products for The Balance. He has an MBA and has been writing about money since 2008.
Updated November 20, 2019
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Retirement accounts are an important piece of your long-term financial plan and a core vehicle that allows you to eventually leave your job and settle into your golden years. These tax-advantaged financial accounts are available at banks, investment brokerage firms and other licensed financial institutions. Most places that offer retirement accounts offer more than one option. Popular retirement accounts you can open for free at any major brokerage include Individual Retirement Accounts (IRA) and Roth IRA accounts.
Traditional IRA accounts work similar to an employer 401(k). They let you save and invest for retirement with “pre-tax” dollars. This means you don’t pay any taxes on the funds you invest today. Instead, you pay taxes on withdrawals in retirement, presumably at a lower tax rate than you pay during your working years.
Roth IRA accounts use “after-tax” dollars. This means you pay regular income taxes on the contributions this year, but your withdrawals and capital gains are tax-free in the future. Roth IRAs tend to be better for younger investors, while traditional IRAs are best for those nearing retirement.
Self-employed workers have some additional options, such as a Simplified Employee Pension (SEP) IRA. But as traditional and Roth IRAs are most popular, that’s the focus here.
When signing up for a retirement account, you will want to consider several important factors. That said, fees are the first place you should look in a retirement account. If your account provider takes a large percentage of your assets each year, your account may be working against you. Some account providers that charge fees are worthwhile, but this review focuses solely on accounts with no monthly or annual recurring fees built in.
While some accounts don’t charge any recurring fees, the providers have to make money somehow. In many cases, that comes through trading fees or commissions when you buy and sell stocks, mutual funds, ETFs, bonds, and other investments. Look out for those fees before signing up.
Next, look at the investments the account gives you access to. Some providers, like Vanguard, only give you access to Vanguard funds. Others, like Fidelity and Charles Schwab, give you access to a large range of investments from many fund families. Depending on your needs and goals, take this into account.
Last, but not least, look at your overall relationship and convenience. If you can put all of your investment and bank accounts under one login, you can save a lot of time, and sometimes money, managing your finances.
With so much to take into consideration and so much information to digest, we put together a handy round-up of the best free retirement accounts to open this year, so you can avoid being nickeled and dimed.