Money Market IRAs: Which One is Right for You?

Planning for retirement is on the minds of many Americans. Some already have retirement goals in action while others are still deciding how to go about planning for their retirement. One option for individuals is to establish an investment retirement account or IRA.

There are various investing options for an IRA. For those wanting to maximize the potential of their investment there are IRA stock investments that can double and at times triple the initial investment. However, investing your retirement in stock is risky. Stock can remain stagnant, not increase where you break even or worse, a stock can fail where no interest is earned and the initial investment can be lost. Individuals well versed and accustomed to the ups and downs of the stock market are best suited for this type of investment; however, for individuals who prefer a more stable IRA option, there is the money market savings account.

According to Investopedia, a money market account is a type of savings account offering higher, competitive rates than traditional savings accounts in exchange for larger deposits. Money market accounts are a retail banking product that is available to individuals the same as personal checking and savings accounts and thereby insured. Since money market accounts are a type of savings account, deposit and withdrawal restrictions outlined in Regulation D sections 204.2(d)(2) and 204.2(d)(4) apply.

While the interest earned from a money market IRA historically falls under three percent a year, it is a stable investment product. Your initial investment is not lost due to market volatility and it is insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Even though Regulation D limits the total transactions to six per month or statement cycle, this can work in your favor. There is limit to how much you can contribute to an IRA per year ($5,000 a year) and this transaction limitation can help you better plan your contribution schedule and force you to stay on target with the amount you deposit each year. In addition, it may help you to rethink any early withdrawal ideas you may have. Not only will you receive a 10 percent penalty tax for early withdrawal but also you may run the chance of exceeding your transaction limit resulting in a fee imposed by your bank or worse, your account being closed.

Money market IRAs are typed according to investment amount by many banks and financial sites like Bankrate. Your interest rate for the money market IRA may be based upon your initial deposit. Bankrate highlights five money market IRA types:

• Standard or under $10,000 - lowest interest rates
• $10,000
• $25,000
• $50,000
• Jumbo - highest interest rates

The best money market IRA for you is based upon what you have available to deposit. If you have $100,000 or more to invest, then a jumbo account is the best money market IRA for you.

According to Bankrate, online banks tend to offer the most competitive rates for savings accounts. If you have at least $1,500 available for an initial deposit, then Everbank offers the best money market IRA for your dollar. Everbank offers high yield money market IRAs and has periodic special promotions that offer great rates such as a 2.5 percent APY bonus rate for three months.

If you do not have at least $1,500 available as an initial deposit then Ally Bank offers the best money market IRA for you. Ally Bank is another online savings bank with competitive high yield interest rates for money market IRAs. This Kiplinger "Best for Savings" rated bank, has no minimum deposit or balance requirements, no monthly fees and the bank boasts to have no "sneaky disclaimers."

The best money market IRA investments are found at online banks. The rates tend to be much higher than branch banking and you have easier access to manage your account. You can compare rates on such sites as Bankrate and Kiplinger to find the best money market IRA available.

Freiburghouse, A. (n.d.). IRA Money Market Accounts: Good and Safe. Retrieved March 24, 2010, from Money Rates: http://www.money-rates.com/BasicGuides/MoneyMarket/IRAMoneyMarket.htm

Get Rich Slowly. (2010, March). Best High-Yield Money Market & High-Interest Savings Account - Updated March 2010. Retrieved March 24, 2010, from Get Rich Slowly: http://www.getrichslowly.org/blog/2007/03/21/which-online-high-yield-savings-account-is-best/

Investopedia. (n.d.). Money Market Account. Retrieved March 24, 2010, from Investopedia: http://www.investopedia.com/terms/m/moneymarketaccount.asp