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How to Choose an IRA Custodian

Why your custodian matters.

By
Elizabeth Carlassare
Episode #039

 

Today’s topic is how to choose an IRA custodian.

In last week’s episode, I explained how to roll over your 401(k) to an IRA when you leave a job. In today’s episode, I have some tips on how to choose an IRA custodian.

Varieties of IRA Custodian

It’s possible to open an IRA at many types of financial institutions, including brokerages, mutual fund companies, banks, credit unions, insurance companies, and self-directed IRA custodians. Having so many choices can be overwhelming!

As listener Joshua put it in an e-mail he sent me, “When you are in a situation where you want to start your retirement savings, and you have no idea whether you’d be better off just giving the money to the bank, giving it to a mutual fund company, or some other institution, it is so daunting that you just don’t do anything.”

Now, don’t let the abundance of choices keep you from taking action! Remember, delay has a cost: during the time you spend in a state of indecision about where to open an IRA, your money could have been growing for you.

How to Choose an IRA Custodian

So here are four tips on how to make a smart choice about which IRA custodian to go with:

  • Tip 1: Choose an IRA custodian with a broad selection of investment options, including a wide variety of mutual funds as well as individual stocks and bonds. Fidelity, Vanguard, and Charles Schwab are just a few examples of mutual fund and brokerage companies with broad investment choices.

    Keep in mind that an IRA is simply a tax-advantaged container for investments. You can buy just about any type of investment with an IRA and different IRA custodians make their money by selling different things. If you open an IRA at a bank, you’ll be able to invest in CDs. If you open an IRA at an insurance company, you’ll be able to invest in annuities. And, if you open an IRA at a brokerage and mutual fund company, you’ll be able to invest in mutual funds, stocks, and bonds. For most everyone, opening an IRA at a brokerage and mutual fund company makes good sense.

  • Tip 2: Compare fees when selecting an IRA custodian. Some custodians charge higher fees than others. Find out if there’s an annual maintenance fee. Many custodians do not charge maintenance fees. Check to see if the custodian offers a wide variety of no-load mutual funds; that is, mutual funds without sales fees. Vanguard is known for its low mutual fund management fees. Also, compare the commissions charged for trades.

  • Tip 3: Look for a custodian with excellent customer service. Is their website easy to use? Can you execute transactions and monitor your portfolio from their website? Do they have a toll-free number? Do they have retirement specialists who will help you choose your investments?

  • And lastly, tip 4: Consider whether you’d like to take your IRA beyond stocks, bonds, and mutual funds and invest in other types of investments, such as real estate or privately held companies. Remember, you can invest in just about any type of investment with an IRA. If you think you might want to invest in real estate or private companies with an IRA, listen to Episode 7 to learn about self-directed IRAs and whether one might be right for you.

And here’s a bonus tip: When you open a new IRA, be sure to designate beneficiaries for the account. The beneficiary designation on file with the IRA custodian controls who will inherit your IRA, so it’s important to indicate to whom you’d like to leave your IRA funds.

Administrative

Today, I’m giving away a copy of Rich Dad’s Retire Young, Retire Rich by Robert Kiyosaki and Sharon Lechter. And the winner is Ian G. Ian was automatically entered in the book giveaway when he sent me an e-mail. Congratulations and be sure to check your e-mail for instructions.

Cha-ching! That’s all for now, courtesy of Money Girl, your guide to a richer life.
 
As always, everyone’s situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.
 
If you’d like to request a topic or share a money tip of your own, e-mail it to money@quickanddirtytips.com.
 
Money Girl is part of the Quick and Dirty Tips network. This week Modern Manners Guy is talking about the importance of being on time.
 
Thanks for listening!

Image courtesy of Shutterstock

 

About the Author

Elizabeth Carlassare
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