Working individuals should plan for their retirement. Unfortunately, planning on collecting social security benefits when you reach the eligible age to receive the benefit is not planning for retirement. It is unlikely that your social security benefits will be sufficient to meet all of your expenses when you retire. Many individuals invest in their employer 401K program; however you may not always be with your current employer, so you need a plan B. An Individual Retirement Account or IRA is a good place to start.
What is an Individual Retirement Account (IRA)?
An IRA is a personal retirement account that is tax-deferred. There is no minimum contribution but there is a maximum amount that can be contributed per year. Individuals can invest a maximum of $5,000 a year into an IRA. If you are age 50 or over you can make what is known as “catch-up” contributions up to $1,000 a year in addition to the $5,000 annual contribution limit. IRAs allow you to choose from different investment products to place your money in such as certificates of deposit (CDs), money market savings, stocks, mutual funds, bonds, and exchange-traded funds (ETFs). There are three common types of IRAs available: traditional, Roth, and rollover. Each type has its own unique benefits and the best place for an individual to invest in an IRA will help you evaluate which type is right for you.
Where Can an IRA be Opened?
Besides your employer there are many financial institutions one can invest in an IRA with. Retail banks offer IRAs to their personal banking customers. Brokerage firms are used by experienced investors for IRA investing. Individuals who know the stock market and can evaluate which stocks and funds will perform well long term, go this route. Selecting mutual funds on your own is another IRA option many individuals consider. Online firms such as Scottrade and ING Direct are places that allow you to have control over and monitor the performance of your investment.
It used to be that the best place to open an IRA was with a discount broker. Discount brokers offer lower transaction costs than traditional brokers for IRAs; however, even discount brokers have fees and commissions they charge their clients. Brokers can charge annual maintenance fees to maintain your IRA as well as trading commissions when you buy or sell stock to keep your IRA funded. At first, these fees may not seem like a lot but over a 10 year span that extra $60 in fees and commissions can cost you tens of thousands in lost investment accrual.
Retail Banks May Be the Best Option to Open an IRA
Retail banks are perhaps the best place for individuals to invest in their IRA. You can open an IRA at any bank or choose to open one up where you currently do your personal banking. Banks offer a greater variety of investment products whereas a discount broker may try to push investing in stocks or ETFs, which are riskier investment products that beginners may not want to get into right away. Banks offer online comparison tools to allow the individual to make a more informed decision about how they will invest their funds.
Some banks, such as Bank of America, do not charge IRA maintenance fees and for certain mutual funds, transaction fees are waived as well. If the customer is leery of stocks or mutual funds they can also open an IRA investing in traditional bank products like CDs and money market savings accounts which have a lower return but pose the least amount of investment risk. You do not have to stick with the same investment options for the life of your IRA. A bank will allow you to place some of your investment in stocks or mutual funds. You can also receive advice from your banker as to which stocks or mutual funds are the safest bets for your investment.
Finding the Best Bank to Open an IRA With
Perhaps the best place to begin your search is with your own bank. Inquire about what types of investment products are available for their IRAs, what their fees are, also if any fees can be waived because you stand to have multiple accounts opened with the same bank. Do not rule out other banks either, check what information different banks in your area have concerning IRAs. Compare your findings based upon the types of IRAs available, fees, earning potential and convenience.
Banks are the best place to invest in individual IRA accounts. Begin shopping around for the best deals so you can begin investing in your retirement as soon as possible. Remember social security may not cut it but the added security of having your individual retirement account ready for use once you retire will make your retirement years a little more enjoyable.