Best IRA Accounts for December 2022

An individual retirement account (IRA) is a smart investment vehicle for a variety of investment goals. It can help set you up for retirement, even if you already contribute to a 401(k), and it can be a valuable tool for tax planning.

But an IRA is only as good as the place you keep it. Brokers decide which investments you have access to and how much the account costs you, plus, they influence how much the account will grow over time.

In this guide, we'll share our picks for the best IRA accounts, plus some terms and details you should know to choose the right broker for your retirement savings.

Merrill Edge® Self-Directed

Best for: Customer support

Merrill Edge is a solid choice for virtually any type of retirement brokerage account, with a wide variety of account types and thousands of no-transaction-fee mutual funds. Merrill Edge is an especially good fit for Bank of America customers, as the bank owns Merrill and the investment side is well integrated with the banking functionality of its platform.

TD Ameritrade

Best for: Research

With a full suite of educational and research offerings available, investors looking for any type of retirement brokerage account should enjoy TD Ameritrade. TD Ameritrade has excellent customer support, no minimum deposits, and one of the best selections of no-transaction-fee mutual funds in the industry. The broker's web-based and mobile trading platforms are very easy to learn, and more advanced investors will appreciate TD Ameritrade's thinkorswim software.

Ally Invest

Best for: Low fees

Ally Invest is a good broker for investors who want a simplified, user-friendly investment platform, especially those who want to invest in mutual funds, as Ally's standard $9.95 commission is one of the lowest in the industry. Ally is a full-service bank as well, so it could be a smart choice for investors who want to keep their banking and investment accounts at the same institution.

SoFi Invest

Best for: Low fees

Investors who need a traditional, Roth, or SEP-IRA and want a high-tech, fully integrated financial app to manage their investments and banking needs should take a look at SoFi Invest. With no minimum deposits, the ability to buy fractional shares of stock, and a user-friendly platform, SoFi is an especially good choice for investors who want to get started with their retirement accounts. SoFi is most appropriate for investors who want to invest in stocks and ETFs, as the platform doesn't currently support mutual funds and bonds.

E*TRADE

Best for: Mobile platform

E*Trade is an excellent choice for investors who want a retirement account with tons of investment options and educational resources. E*TRADE offers many different retirement account types, has thousands of fee-free mutual funds, and even has a network of physical branch offices for investors who need face-to-face guidance. For investors who don't want to choose individual stocks and funds for themselves, E*TRADE offers a terrific robo-advisor platform as well.

Fidelity

Best for: Investors

Investors who want a full-featured brokerage account for their retirement savings need look no further than Fidelity. Fidelity offers plenty of retirement account types, lots of no-commission mutual funds (including Fidelity's own), access to international stock exchanges, and the ability to buy fractional shares of stocks. It also has an extensive branch network for investors who want face-to-face guidance.

Charles Schwab

Best for: Retirement investors

Investors who want a full-featured broker with lots of investment options and account types for their retirement savings may find a good fit with Charles Schwab. Investors can buy fractional shares of stock, plenty of no-commission mutual funds, and can also take advantage of Schwab's full suite of banking products like checking accounts and credit cards in the same place as their retirement accounts. Schwab also has about 340 branch offices, making it an excellent choice for investors who may want face-to-face help.

Vanguard

Best for: Index funds

Investors who want to use mutual funds extensively in their retirement strategies should appreciate Vanguard. Vanguard offers thousands of no-transaction-fee mutual funds, including its own low-cost index funds (which are rarely on fee-free lists elsewhere). Vanguard has several retirement account types, and also allows investors to buy and sell stocks, ETFs, and options.

An individual retirement account (IRA) is a tax-advantaged investment account you can use to save for retirement. One of the biggest benefits of an IRA is that, unlike a 401(k), it isn’t tied to your employer, and it offers way more flexibility in how you invest your money for the future.

Some investors think of an IRA as a tax-efficient container for holding investments. In practice, that's all it is -- an account in which you can hold investments and enjoy tax benefits that you wouldn't receive if you used an ordinary brokerage account. The trade-off is that the account is designed to be used for retirement, so you lose the tax benefits if you withdraw money before then.

Let's look at the three most common types of individual retirement accounts:

• Traditional IRA: A traditional IRA is one to which your contributions are tax deductible, and you pay taxes when you withdraw the money in retirement. Traditional IRAs are best if you expect to be in a lower income tax bracket in retirement than while you're working. You can withdraw from a traditional IRA after age 59 1/2 without penalties; early withdrawal gets you a tax penalty.
• Roth IRA: With a Roth IRA, your contributions aren't tax deductible, and instead you pay no taxes when you withdraw the money. Because you've already paid taxes on the contributions, you can withdraw from Roth IRA contributions anytime without penalty. Roth IRAs are generally best if you expect to be in a higher tax bracket in retirement, or if you need to keep some of your retirement savings more liquid.
• SEP IRA/SIMPLE IRA: SEP IRAs and SIMPLE IRAs are for self-employed workers and small business owners. SEP and SIMPLE IRAs are treated like traditional IRAs for tax purposes, meaning that contributions are made with pre-tax dollars, and withdrawals are taxed as income in retirement. The primary advantage of SEP and SIMPLE IRAs is that they have substantially higher maximum annual contribution limits than a traditional or Roth IRA.

An IRA offers several major advantages over a traditional brokerage account. When deciding between a brokerage account vs. an IRA, the primary difference comes down to how your investments are taxed, which can have a huge impact on the ultimate value of your investments.

In a traditional brokerage account, dividends, interest, and capital gains are taxable, whether you withdraw the proceeds or not. If you sell an investment that's appreciated by $5,000 over the year, you would owe taxes on the $5,000 gain. If you pay, say, 20% taxes on that gain, you would have only $4,000 to reinvest after paying $1,000 in taxes.

With a traditional IRA, you pay taxes only when you withdraw from the account. So if you sell an investment that's appreciated by $5,000, you won't pay taxes on the gain unless you withdraw the money from the IRA. That lets you lock in a gain and reinvest the money -- taking advantage of compound interest -- without losing some of the gain to taxes.

Likewise, Roth IRA gains aren't taxed at all, because the account is funded with post-tax dollars. So if you have a $5,000 gain on an investment, you can reinvest without losing money to taxes, and you can withdraw the increased amount in retirement without paying taxes.

An example of IRA tax benefits

Let's illustrate the benefits of using an IRA over a taxable account.

Assume you start with a $5,000 balance and pay 20% tax on capital gains. For simplicity, also assume that every time your account balance doubles, you reinvest.

Realistically, most people don't employ such a strategy (selling everything each time their balance doubles), but many investors frequently sell stocks or funds to keep their accounts in line with their investment goals.

As you can see, the taxable account rapidly falls behind the IRA's growth because of the tax drag. When the IRA balance doubles, the taxable account balance increases by only 80%, due to the 20% tax applied to capital gains. This difference may seem small, but it really adds up as your investments appreciate and your account balance grows.

While an individual retirement account offers more investment choices than virtually any other retirement account, the investments you can buy inside your IRA are ultimately limited by the selection your broker offers.

Many investors use funds to simplify their investment decisions. With access to just three funds, you could build a diversified portfolio that could withstand major fluctuations in the market.

If you use mutual funds or exchange-traded funds (ETFs) to build a portfolio, you'll want to be picky when choosing a broker. That's because mutual fund availability and costs differ from broker to broker.

Here are some examples of brokers that offer mutual funds.

Choosing a broker that offers a large assortment of no-transaction-fee mutual funds can help you avoid commission expenses. This is particularly advantageous if you're just starting out because this can save you a tremendous amount of money over time.

LEARN MORE: How to invest in mutual funds

If you plan to invest in individual stocks in your IRA, you can be less discerning when picking a brokerage. That's because virtually all brokers offer the same basic ability to buy or sell shares of companies listed on U.S. stock exchanges.

Investors who want to buy and sell individual stocks may find commissions, functionality of the broker's platform, and other features to be more important than fund investors do.

Here's what some major online brokerages offer for individual stock trading.

As you can see, all of our picks for the best IRA brokerage firms charge $0 for an ordinary stock trade.

Given the virtually nonexistent difference in pricing among major online brokers, you might choose a broker based on more personalized features. For example, a Merrill Edge investment account can be linked to a Bank of America checking account, and a Charles Schwab account can link with a Schwab online bank account.

Need a checking account? See The Ascent's roundup of the best checking accounts.

The amount you can contribute to an individual retirement account in a given tax year depends on the type of the account, your income, and your age.

The maximum contribution amounts for 2021 are detailed in the table below. Keep in mind that these are the maximums -- you may be restricted based on your income and whether you have another retirement plan available through your employer.

IRA contribution limits follow a weird calendar. You can contribute for any given year up to the tax-filing date for that year. For example, if you want to make contributions for the 2021 tax year, you have until the tax deadline in 2022 to do so.

The timeline extends to the tax-filing day for tax-planning purposes. Some people wait until tax time to figure out whether it makes sense to contribute to a traditional IRA, Roth IRA, or both.

One big perk of individual retirement accounts is that you can roll over balances from an employer-sponsored plan like a 401(k) into an IRA. Many people open a rollover IRA when they change jobs, thus moving their retirement investments from a 401(k) to a new IRA.

There are two ways to do a 401(k) rollover to an IRA:

1. Direct transfer: This is by far the easiest method. In a direct transfer, any investments you hold in a 401(k) or other retirement account can simply be moved to an IRA. You don't have to sell your investments to move cash over. For example, if you own shares of several mutual funds, those shares are just moved from your existing accounts to your rollover IRA.
2. Indirect transfer: An indirect transfer can be messy. In an indirect transfer, your investments are sold, and your 401(k) plan sponsor will send you a check for the balance. You then have 60 days to deposit the check into a rollover IRA to avoid paying taxes and penalties on the amount as a withdrawal.

We recommend doing a direct transfer whenever possible because it will minimize the effort required and can potentially save you a fortune in transaction costs.

LEARN MORE: How to Rollover a 401(k)

We think discount brokers (the brokers you see on our list) are the smartest place for individual investors to open an IRA. That's because discount brokers have substantially reduced the cost of investing, which helps you save more for retirement.

Most online brokers offer free trading, so you won't lose a chunk of your investments to fees. Not all brokerage firms have reduced their trading prices, though.

Many full-service brokerage firms still charge $100 or more per trade, while others clip massive commissions on mutual funds, equal to a percentage of the amount you invest. In theory, these high fees and commissions help traditional brokerages offer more hands-on attention and advice. But in practice, high commissions also encourage brokers to make decisions with your money that put more money into their pockets.

Self-directed investors now have access to more affordable tools that can help them select the investments they think are in their best interest -- and save money on fees and commissions. To compare top brokerages, see our expert reviews of the best online stock brokers.