Where Should I Open an IRA?

Opening an IRA is a relatively simple procedure - not much more complicated than opening a checking account. However, many beginner investors have no idea where to start. They are overwhelmed by the number of banks and brokerages that offer IRAs, and are often unaware of the multitude of investment options available. This lack of understanding leads many beginners to open IRAs with the wrong institution and/or hold the wrong type of investments in their IRAs. For more information, be sure to read "What is an IRA? A Beginner's Guide", which covers many IRA basics.

Most banks, brokerages, mutual fund companies and online stockbrokers offer IRAs. Each institution will have its own set of rules regarding IRA accounts, including various fees, account minimums and automatic contribution plans that you should consider. However, the most important thing for any investor to decide before opening an IRA is the type of investments he or she wants to hold inside the IRA. Why? Well, not all types of investments are available through every institution, so in many cases the investments themselves will determine the best place to open the account. For instance, if you know you want to hold the Vanguard S&P 500 Index mutual fund in your IRA, it doesn't make a lot of sense to open the account through your local credit union, because it's not the most efficient place to buy that particular mutual fund - open the account at Vanguard instead. Likewise, if you want to hold an ING Bank CD inside your IRA, then you probably shouldn't open an IRA at a brokerage house - that CD is likely only available at ING.

Unfortunately, many beginner investors don't understand that an IRA can contain almost any type of investment, so they don't know that they need to decide on investments at all, let alone decide before opening an IRA. Several other series articles, including "What are Stocks and Bonds?", "What are Mutual Funds?" and "IRAs vs. Mutual Funds: What's the Difference?", will help explain the types of investments that can be held inside an IRA. Mutual funds are a popular option, as are individual stocks and bonds, money market funds and CDs.

Once you've decided what investments you want, it should be easy to decide where to open your IRA. Also, if want to buy several different investments with your IRA money, you can open IRA accounts at more than one institution - you just have to make sure not to exceed the yearly contribution limit across ALL accounts. Choosing your investments may take a little work, but choosing where to open your IRA need not be difficult! Be sure to check out the series introduction article for more personal finance advice for complete beginners.