Best Online Stock Brokers for IRAs for February 2020

Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice, and in 2017 he received the SABEW Best in Business Award.

We are committed to full transparency in our mission to make the world smarter, happier, & richer. Offers on The Ascent may be from our partners - it's how we make money - and we have not reviewed all available products and offers. That transparency to you is core to our editorial integrity, which isn’t influenced by compensation.

Opening an individual retirement account (IRA) can put you on the fast track to a fully-funded, stress-free retirement, but an IRA is only as good as the place you keep it. The broker you choose to house your IRA can affect what investments are available to you, how much you pay in fees, and ultimately, the returns you earn on your account. Check out the article below for more on the best brokers for IRAs.

Ratings Methodology
Our Bottom Line

TDA is one of our few 5-star all-around brokers, and it keeps that top rating for IRAs with its large amount of commission-free ETFs and mutual funds, along with strong sign-up promotions.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Don’t wait. Open and fund an IRA today with TD Ameritrade and get up to $600. Learn more.

Open Account

On TD Ameritrade's Secure Website

Our Bottom Line

Fidelity is a top option for IRAs with thousands of no-transaction fee mutual funds and hundreds of commission-free ETFs, along with no account fees or account minimums.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Open Account

On Fidelity's Secure Website

Our Bottom Line

Seamless integration and added perks make Merrill Edge a top IRA option. Merrill also scores points for no account minimums and a wealth of no-transaction fee mutual funds.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Get up to $600 when you invest in a new Merrill Edge® Self-Directed account

Open Account

On Merrill Edge® Self-Directed's Secure Website

Our Bottom Line

E*TRADE is a strong option for IRAs with hundreds of commission-free ETFs and over 4,000 no-transaction-fee mutual funds. Additionally, they don’t have account minimums for IRA accounts.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Special Offer

Limited time! Deposit or transfer as little as $5,000 to get $100. Or add even more for up to $2,500.

Open Account

On E*TRADE's Secure Website

Our Bottom Line

Low fees, no account minimums, and over 100 commission free ETFs make Ally an attractive place to park your IRA funds, though it doesn’t offer any no-transaction fee mutual funds.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Open Account

On Ally Invest's Secure Website

Our Bottom Line

Schwab sports hundreds of no-commission ETFs and the largest amount of no-transaction-fee mutual funds of any broker we evaluated, and individual stock trades are now $0. One improvement would be better sign-up promotions.

Read Full Review
Fees:

$0 per trade

Account Minimum:

$0

Open Account

On Charles Schwab's Secure Website

Our Bottom Line

Vanguard gets dinged slightly in our model for having high-ish account minimums for some of its services and an often-pricey fee structure for individual stocks, but it remains the gold standard for index funds and ETFs.

Fees:

$0 per trade

Account Minimum:

$0

Open Account

On Secure Website

What is an individual retirement account?

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

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. But we'll have more to say on that later… for now, let's look at the three most common types of individual retirement accounts:

  • Traditional IRA -- A traditional IRA is one in which you make pre-tax contributions to the account (meaning that your contributions can be tax deductible) and pay taxes on any amounts withdrawn in retirement. Traditional IRAs are best for people who expect to be in a lower income tax bracket in retirement. For example, someone who is in the 22% tax bracket today but expects to be in the 12% tax bracket at retirement would benefit from avoiding a 22% tax on their income now and paying only 12% when they withdraw.
  • Roth IRA -- This type of IRA is one in which you make post-tax contributions and do not pay any taxes on amounts withdrawn in retirement. So you can't deduct your contributions, but qualified Roth IRA withdrawals will be 100% tax-free. Roth IRAs are generally best for people who expect to be in a higher tax bracket in retirement. For example, someone who is in the 12% tax bracket today but expects to be in the 22% tax bracket at retirement would benefit from paying 12% taxes now to get tax-free withdrawals later.
  • SEP IRA/SIMPLE IRA -- These types of IRAs are for self-employed individuals, including contractors and freelancers, as well as for 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.

Why use an 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, any dividends, interest, or capital gains are taxable, whether you withdraw the proceeds or not. Thus, if you sell an investment that has appreciated by $5,000, you would owe taxes on the $5,000 gain. An investor who pays 20% taxes on long-term capital gains would thus 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 has appreciated by $5,000, you won't pay taxes on the gain unless you withdraw the money from the IRA. That allows you to lock in a gain and reinvest the money into another investment without paying taxes in between when you contribute and when you withdraw in retirement.

Likewise, a Roth IRA isn't taxed at all, because it is funded with post-tax dollars. So if you have a $5,000 gain on an investment, and you sell it, you could withdraw the money in retirement without paying taxes on the gain.

An example of IRA tax benefits

A simple example can really illustrate the benefits of using an IRA over a taxable account. We’ll assume you start with a $5,000 balance and pay 20% on any capital gains. We'll also simplify the scenario and assume that every time your account balance doubles, you sell your investments and reinvest elsewhere (thus triggering taxes for the taxable investor).

IRA Taxable account
Starting balance $5,000 $5,000
First double $10,000 $9,000
Second double $20,000 $16,200
Third double $40,000 $29,160
Fourth double $80,000 $52,488

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 rebalance their stock and bond allocation, or to shift assets from high-cost funds to lower-cost funds, among other reasons.

As you can see, the taxable account rapidly falls behind the IRA 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 as you can see, it really adds up as your investments appreciate and your account balance grows.

The discount broker advantage

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 individual investors save more for retirement.

Over time, the price of investing has only declined. Thirty years ago, one might pay $40 to place a trade through a discount broker. Ten years ago, the standard price was $10 to $12. Today, most online brokers offer free stock trades.

Not all brokerage firms have reduced their trading prices, however. 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 on which stocks or funds to buy. In practice, high commissions also encourage brokers to sell products that carry higher commissions, so as to maximize their own compensation.

We think that self-directed investors can do better on their own by selecting their own investments and putting the cost savings in their own pockets. If you'd like to compare top brokerages, see our expert reviews of the best online stock brokers.

How brokers compare for mutual fund investors

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 IRA into a few key holdings. With just three funds, an investor could easily own every U.S. and foreign stock and top it all off with a broadly-diversified bond fund.

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

Broker Mutual funds No-transaction-fee mutual funds
Ally Invest More than 8,000 None
Charles Schwab More than 5,000 Over 5,000
E*TRADE More than 9,000 More than 4,400
Fidelity More than 10,000 More than 3,600
Interactive Brokers More than 10,000 More than 4,000
Merrill Edge More than 3,000 More than 3,000
TD Ameritrade More than 13,000 More than 4,000
Vanguard More than 6,000 More than 3,000

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

Best IRA brokers for stock investors

Investors who plan to invest in individual stocks in their IRAs 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 as being more important than fund investors do.

Broker Stock commission Automatic dividend reinvestment Foreign stocks
Ally Invest $0 Yes ADRs only
Charles Schwab $0 Yes ADRs plus 30 countries
E*TRADE $0 Broker-assisted trades ADRs only
Fidelity $0 Yes, but only for the whole account ADRs plus 25 different countries
Interactive Brokers $0 Yes, but only for the whole account ADRs plus more than 100 markets around the world
Merrill Edge $0 Yes ADRs and broker assisted trades internationally
TD Ameritrade $0 Yes ADRs and broker-assisted trades internationally
Vanguard $0 Yes ADRs only

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'd be excused for picking, say, Merrill Edge because it can be linked to your Bank of America checking account, or selecting Charles Schwab because you already use it as your online bank. Convenience is often worth more than just a couple bucks here and there.

What are the contribution limits for IRAs?

The amount you can contribute to an individual retirement account depends on the type of the account, your income, and in some cases, your age. The maximum contribution amounts for 2019 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.

Younger than 50 50 years old or older
Traditional IRA $6,000 $7,000
Roth IRA $6,000 $7,000
SEP IRA 25% of salary (Maximum of $56,000) 25% of Salary (Maximum of $62,000)
SIMPLE IRA $13,000 (Plus 3% of salary up to $280,000 as an employer contribution) $16,000 (Plus 3% of salary up to $280,000 as an employer contribution)

People who qualify for a SEP IRA can also double dip by using a traditional or Roth IRA and a SEP IRA, thus increasing the total maximum amount they can set aside each year.

When can you make IRA contributions?

IRA contribution limits follow a weird calendar because 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 2019 tax year, you have until Wednesday, April 15, 2020, 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.

What is a rollover IRA?

One big perk of individual retirement accounts is that you can rollover 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 and then move the cash over. For example, if you own shares of several different 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. However, if you fail to make the deposit in time, the amounts you receive will be treated as a distribution from your 401(k), potentially resulting in taxes and penalties on the amount withdrawn.

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. Since some mutual funds can charge redemption fees equal to 1% of your assets, moving a $75,000 balance through the indirect method could cost you as much as $750 in fees.

FAQs

  • In some cases, there is a minimum initial investment required to open an IRA. This is more common if you’re opting for a professionally managed IRA or want to put your IRA into a robo-advisor. Most brokers who allow you to open a self-directed IRA do not have a minimum deposit requirement so you can get started with as low as a few dollars.

    If you’re opening an account with a very small sum of money, it can be especially important to look for a brokerage that doesn’t charge a commission for buying investments. Otherwise, a good portion of your funds could be eaten up by this fee. You may also want to look for a broker that allows you to buy fractional shares as this will enable you to acquire a small ownership stake in companies even if you can’t afford to buy a full share.

  • The IRA contribution limit changes annually. For 2020, you can contribute a maximum of $6,000 to an IRA or $7,000 if you are 50 or over and eligible for catch up contributions. If either you or your spouse have access to a workplace retirement plan, your eligibility to make tax deductible contributions will phase out at higher income levels.

  • Most online brokerage firms allow you to open a self-directed IRA for free. This means you chose your investments. If you want professional management or a robo-advisor to select investments, you’ll pay a fee for these services.

    Some brokerages charge a commission for buying and selling assets within your IRA, but an increasing number of online brokers are eliminating commission fees for stock trades and offering commission-free ETFs or no load mutual funds.

    However, you’ll still pay fees associated with certain types of investments, such as fund management fees for mutual funds. These fees are paid to the fund managers, not your brokerage firm, and they’ll apply no matter which broker you use to buy the investment.

  • Yes. Many people think they can only have one IRA, but this is simply untrue. You could have 100 IRAs if you wanted to, though you probably wouldn’t want to, because administering that many accounts would be really cumbersome.

    Importantly, having more IRAs doesn’t mean that you can contribute more money. If you have three traditional IRAs, your contribution limit applies to all of them. In other words, the contribution limit is per person, not per account. Thus, people who are younger than 50 years old could contribute only $6,000 combined in 2020, while those who are 50 years old or older could contribute only $7,000. Thus, a 30-year-old could contribute $3,000 to one IRA and $3,000 to another ($6,000 total), but they couldn’t contribute $6,000 to both ($12,000).

Broker Best For Commission Rating Start Investing
TD Ameritrade
Best For:

Research

Commission:

$0 per trade

Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
Fidelity
Best For:

Investors

Commission:

$0 per trade

Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
Merrill Edge® Self-Directed
Best For:

Customer support

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
E*TRADE
Best For:

Mobile platform

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
Ally Invest
Best For:

Low fees

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
Charles Schwab
Best For:

Retirement investors

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account
Vanguard
Best For:

Index funds

Commission:

$0 per trade

Rating image, 4.5 out of 5 stars.
4.5 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor.
Open Account

About the Author