4 Best IRA Accounts Comparison in 2024
Are you in need of an IRA account? There are so many different types of IRAs offered by brokers today, but not all of them are equally profitable. We have prepared a rating of the best brokers today who are offering simple IRA accounts as well as Roth IRA accounts in 2023.
In this guide, we'll break down the best IRA accounts for beginner and experienced investors to try today. We'll also look into the best brokers that offer such accounts, the differences between types of IRA accounts, and what exactly IRA accounts are. Just as well, this guide will break down everything from minimum deposits to fees to profitability for each account. If you're unsure of how to choose the right IRA account or what the difference is between an IRA and a 401(k), we'll explore those concepts as well.
4 Best IRA Brokers
Whether you need the best Roth IRA accounts or traditional IRA accounts, you’ll be able to find the right product from one of these six brokers.
eOption
The eOption broker (eoption.com) is an American stockbroker headquartered in Glenview, Illinois. It has been operating since 2007 and is a member of FINRA (CRD#: 7297/SEC#: 8-21765) and SIPC. It specializes in options trading and also acts as an intermediary in trades involving the popular securities classes. The company offers low trading commissions, super-fast execution of orders, and modern platforms with an advanced set of analytical tools. In 2020-2021, eOption was recognized as the best options broker by several resources such as Investopedia, The Tokenist, Benzinga, Investormint, and NerdWallet.
Interactive Brokers
Interactive Brokers is among the best-known US investment companies, operating since 1977. The broker offers to trade currency pairs, but its basic instruments are stocks, CFD, indices, metals, ETF, futures, and other exchange market assets. The company is regulated by the US Securities and Exchange Commission (SEC), the US Financial Industry Regulatory Authority (FINRA), the UK Financial Regulatory Authority (FCA, 208159), and other international financial regulation commissions. In 2020, the broker was awarded the "Best Online Broker” (Barron's) and "Best Broker for Economical Investments" (NerdWallet) titles and got five stars in the Online Stock Trading for Traders category (Canstar). Also, the broker is popular in other countries. Here you can read reviews of Interactive Brokers in Canada, Singapore, Australia, Hong Kong, Ireland.
M1 Finance
M1 Finance is a subsidiary of M1 Holdings Inc., which provides long-lasting investment services. M1 Finance is registered and regulated by FINRA (Financial Industry Regulatory Authority of the United States, CRD#: 281242/SEC#: 8-69670), and also cooperates with SIPC (Securities Investor Protection Corporation), which guarantees investors comprehensive protection and financial compensation in the event of a financial mishap. The M1 Finance broker provides services exclusively to US residents and offers to choose a trading account with personal or joint access, create a trust and retirement account, and open an account for minors. In addition to investing, M1 Finance clients have access to loan and payment services with a special M1 card.
SoFi Invest
SoFi (Social Finance, Inc.) is an investment company founded in 2011 by graduates of Stanford Business School to provide federal and private student loans. The SoFi Invest division appeared in 2019 to provide brokerage services to active traders and passive investors from the United States. Currently, the broker is a member of FINRA (CRD#: 151717/SEC#: 8-68389) and SIPC and serves over 1,800,000 clients. SoFi Invest offers to invest in stocks (including fractional ones), cryptocurrencies, ETFs, and IPO.
What is an IRA?
An individual retirement account, or IRA, is a type of savings account that offers tax advantages that individuals can use to save and invest in their retirement in the long term. An IRA is often compared to a 401(k), as the two types of accounts are very similar. However, a 401(k) plan is typically only available to those with employers, though there are a few 401(k) options for entrepreneurs and business owners. A 401(k) also has a much larger contribution limit than most IRA accounts.
There are a few different types of IRAs. These include traditional IRAs, Roth IRAs, Simple IRAs, and SEP IRAs. Each of these types of accounts has its own advantages and disadvantages that vary quite a bit. Money that is held in an IRA, in general, can’t be used until the account holder is 59 and a half years of age, lest they want to deal with a pretty intense tax penalty of 10% of the total amount withdrawn for the year.
Any individual who earns income can easily open an IRA savings account to start saving for their retirement and will be able to enjoy the tax benefits such accounts offer. Usually, an IRA can be opened through a bank, investment firm, brokerage, personal broker, or other financial institution. It’s worth noting that there are annual income limitations for contribution deductions for traditional IRAs as well as limitations for contributions to Roth IRAs. Those limitations aside, an IRA is a great way to start preparing for your retirement, and reaching annual contribution limits is much more doable when compared to a 401(k).
IRA Account Types Explained
If you have income, you can open an IRA. Even if you already have a 401(k) through your employer, you can open an IRA quite easily. IRAs are based on a number of different financial products, such as stocks, ETFs, bonds, and mutual funds. Just as well, there are a variety of IRA account types that have different rules involving investor eligibility, taxes, withdrawals, etc.
There are some key differences between different types of IRA accounts. Let’s compare and contrast the main four types of IRAS: Simple, Roth, SEP, and traditional IRAs.
Simple IRA
A Simple IRA, or Savings Incentive Match Plan for Employees IRA, is an account that is quite similar to a 401(k). This type of IRA is used by small businesses and self-employed individuals. Employees can contribute to their accounts through a salary deferral. The contribution limits are around $13,500, though this number changes on a yearly basis. Employers are required to contribute up to a 3% matching contribution, or a fixed contribution of about 2% for each employee’s compensation. In order to acquire this type of IRA, an employee must earn at least $5,000 in the two years leading up to the opening of the account.
Roth IRA
One of the more popular types of IRAs, Roth IRAs allow investors to make contributions with the income they have already paid taxes on (also known as after-tax) and their money could possibly grow tax-free, along with untaxed withdrawals throughout retirement. Certain conditions must be met in order to make tax-free withdrawals. While traditional IRAs offer some tax benefits for contributions in the year they are made, Roth IRAs do not offer immediate tax benefits for contributions. However, contributions to a Roth IRA can be made at any time without the need to worry about taxes or additional penalties.
SEP IRA
A SEP IRA, or simplified employee pension IRA, is a type of traditional IRA that is funded for employees by their employer. The employer received tax benefits for doing so. Earnings can grow tax-free, but distributions in retirement are unfortunately taxed. Just as well, contribution limits are significantly higher than other retirement counters. Up to 25% of employee compensation or a total of $58,000 can be contributed in a year, though this limit changes on a year-to-year basis. Employees cannot contribute to the plan through a salary deferral but must work for an employer for at least three years and earn a minimum of $600 annually.
Traditional IRA
With a traditional IRA, individuals can make contributions with income that might be deductible on one’s tax return. Any earnings from a traditional IRA could possibly grow entirely tax-deferred until the individual withdraws those funds in retirement. Most retirees tend to be in a lower tax bracket compared to where they were pre-retirement, so a tax-deferral means that the money they’ve made could be taxed at a much lower rate. Deductions can also be phased out, depending on income. Distribution in retirement is usually taxed as ordinary income. When an individual reaches 72 years of age, they will be subject to required minimum distributions.
Is a 401(k) account Different?
There are a few key differences between an IRA and a 401(k). Both IRAs and 401(k)s are retirement savings accounts that are tax-deferred. However, a 401(k) is usually only offered by employers, though there are some solo 401(k) accounts offered to self-employed individuals. IRAs are usually offered by brokers or banks, though some employers can offer contribution matches to SIMPLE IRAs and SEP IRAs. IRAs usually have a lot more investment options and choices available when compared to IRAs. However, the contribution limits are very different. For 2023, the contribution limit for traditional and Roth IRAs will be $6,000. For 401(k) accounts, the contribution limit for 2023 will be $20,500. Those are pretty steep differences, but both types of retirement accounts are quite lucrative for individual investors. Contributions to 401(k)s will create lower taxable income in the specific year they are made, and eligibility is not typically determined by income.
Unsure if you can have an IRA and a 401(k) at the same time? You’re in luck! Individuals can have both an IRA and a 401(k) at the same time and contribute to those accounts at the same time. Just keep in mind that both accounts will have their own contribution limits that must be recognized.
How to Choose the Best IRA Account?
Unsure of how to choose the best IRA account? We get it. There are quite a few options out there.
Follow these steps to start your journey towards finding the best possible IRA for you:
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Select a company that you trust, such as a bank, mutual fund company, insurance company, or broker.
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Consider what you want to invest in. It’s recommended to opt for ETFs and mutual funds, rather than a single stock or bond. You can also have an advisor help you with this.
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Look for brokers that offer free financial advisory services to help demystify the process.
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Look for any kind of fees, especially funding and account management fees.
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Take the time to shop around. There are many types of brokers out there that offer different things and have different levels of trustworthiness.
Key Takeaways: How does an IRA Account work?
An IRA works by allowing individuals to contribute funds that are then invested in a wide range of different assets. Essentially, the user can choose how the account is invested. In order to really make returns on an IRA, it’s vital to not take out withdrawals early. While it is very rare, it is possible to lose all of the money you’ve contributed to an IRA. However, this only happens if your entire IRA balance is invested into a simple stock or bond. Mutual funds and ETFs are significantly safer.
What Assets Can I Trade?
When it comes to IRAs, you have a lot of options when it comes to tradable assets. With an IRA, individuals can choose from individual securities that include things like single funds, stocks, bonds, exchange-traded funds (or ETFs), or certificates of deposit (or CDs). It’s worth noting that an IRA is a cash account and does not operate on margin, so individuals cannot trade with borrowed funds. Short selling isn’t allowed. To put it simply, short-term trading isn’t really possible with IRAs. Think of them as savings accounts with a “buy and hold” investment strategy.
What Are My Risks? Can I Lose Money with an IRA?
This is possible, but quite unlikely. Extremely negative market movements, early withdrawal penalties, no diversification of assets, and not enough time to compound your contributions can lead to substantial losses. However, IRAs are meant to be long-term investments. The longer you have a diversified IRA (especially those invested in ETFs or mutual funds), the more time your account will have to grow value. Anyone can start an IRA at any time, but in general, it is recommended to open an account in your twenties or thirties.
Are there any brokerage fees for IRAs?
Most of the brokers we’ve mentioned in this guide do not charge brokerage fees for IRA accounts. However, some brokers or financial institutions will require users to pay different transactions and advisory fees, in addition to fund expense ratio fees. Do your research and look at the fine print when shopping for an IRA provider. We recommend looking into the six IRA brokers we’ve mentioned in our list to ensure that such fees won’t be an issue.
What Kind of Funds Can You Contribute to an IRA Account?
The contribution limits for most types of IRAs are about $6,000 per year. For Roth IRAs, contribution limits are usually reduced or eliminated for those with higher incomes. For traditional IRAs, those contributions are tax-deductible, but the amount deducted can be reduced or removed entirely if you are covered by a workplace retirement plan. This amount usually changes slightly each tax year, but the type of funds you can contribute usually stay the same.
While most types of income are eligible for IRA contributions, not all income types are eligible. Some sources may not be allowed when it comes to IRA contributions.
What You Can Contribute to an IRA
Individuals can only contribute earned income to any type of IRA. There are basically two different ways to receive earned income. You must work for someone or a business that pays you your earned income, or you run your own business or farm and earn income.
Earned income will come from a variety of sources, such as wages, tips, commissions, bonuses, salaries, and self-employment payments. The IRA typically considers disability and retirement benefits as earned income until you have reached the age where you can receive an annuity or pension if you don’t have a disability. Basically, if you earn your money, that money can go into an IRA.
What You Can’t Contribute to an IRA
Only earned income can be contributed to an IRA. There are a lot of things that do not qualify as earned income. A few types of income that do not qualify as earned income include unemployment benefits, social security payments, retirement income, interest and dividends from different types of investments, income generated from rental property as a landlord, divorce alimony, child support, and payments received while incarcerated as an inmate in a penal institution.
It’s worth noting that if you do not have earned income, but your spouse does, you can open a spousal IRA. Such an account will allow a spouse with earned income to contribute to the account on behalf of their spouse. Spousal IRAs can be traditional or Roth IRAs, and the spouse can contribute to both their own IRA and their spousal IRA with the limit of two IRA accounts, or $12,000.
Summary
An investment retirement account or IRA is a great account to contribute to for retirement. These accounts offer many perks, most of which are tax deferment and deductibles later in life. Similar to 401(k)s, IRAs are savings accounts that invest in different things, such as stocks, ETFs, mutual funds, etc. One can acquire an IRA from a bank, financial institution, investment firm, or broker.
It’s worth noting that only earned income can go into an IRA as contributions. Just as well, some IRA account types provide tax benefits to those who contribute to their traditional IRA during the contribution year.
FAQs
Can I take money from my IRA while I am still working and not yet retired?
Technically, yes. Anyone with an IRA can pull funds from that IRA at any time. However, certain types of accounts are subject to serious penalties for withdrawals before retirement age, most of which is a whopping 10% of the amount withdrawn.
Regardless of your age, come tax season, you will need to file a Form 1040 and note the amount that you withdrew from your IRA for the year. If you withdrew the funds before you have reached the age of 59 and a half, you will need to pay an extra 10% tax on early distributions. In some cases, you will need to file a Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts with your tax return. For certain distributions from Roth IRAs, penalties and taxes are not applied.
There are some exceptions to the 10% penalty. If you have made permissible withdrawals from a plan that offers automatic enrollment features, you are not subject to a penalty. The penalty also doesn’t apply to withdrawals when an IRA owner passes away, becomes permanently disabled, or requires higher education expenses. If a series of substantially equal payments are made to the account, in most cases the 10% penalty will not be applied. This also applies to first-time homebuyers that need up to $10,000 from their IRA and those who had to pay health insurance premiums while they were unemployed.
What types of investments can I actually make with my IRA?
There are many things that one can invest in with their IRA. However, the U.S. government does not permit IRA funds to be invested into collectibles or life insurance policies. If you choose to invest your IRA illegally into collectibles, the amount you’ve invested will be subject to a 10% additional tax on early distributions. Types of collectibles that apply include things like artwork, antiques, special metals, gems, coins, stamps, alcohol, and other types of physical personal property. If you’re unsure if a commodity is considered a collectible, check Publication 590-A from the IRS.
Is it possible to roll over my workplace retirement plan account to any type of IRA?
In most cases, yes. Almost any form of workplace retirement plan account can be rolled over into most types of IRAs. However, there are some exceptions:
- Required minimum distributions
- Loans that are considered distributions
- Hardship distributions
- S corp allocations
- Dividends from employer securities
- Distributions that are considered substantially equal payments
- Distributions of related earnings and excess contributions
Distributions from a Roth IRA can only be effectively rolled over to another Roth IRA or Roth account.
At age 70, how much money must be taken out of my IRA?
Once an individual reaches 70 and a half, they must meet the required minimum distributions for the rest of their lives or the lifetime of the IRA. The RMD amount can be calculated by dividing your IRA account balance by the applicable distribution period, or life expectancy of the account owner.
Team that worked on the article
Oleg Tkachenko is an economic analyst and risk manager having more than 14 years of experience in working with systemically important banks, investment companies, and analytical platforms. He has been a Traders Union analyst since 2018. His primary specialties are analysis and prediction of price tendencies in the Forex, stock, commodity, and cryptocurrency markets, as well as the development of trading strategies and individual risk management systems. He also analyzes nonstandard investing markets and studies trading psychology.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.