A:

Most financial services institutions - such as banks, brokerage firms, credit unions and mutual fund companies - offer Roth IRAs. Establishing a Roth IRA with your financial institution of choice may be as simple as completing a one-page document (your Roth IRA adoption agreement) and depositing your contribution to your Roth IRA. Of course, you want to make sure you choose the financial institution that offers your financial product of preference.

In choosing a financial institution, you should at least consider the following:

  • Any minimum investment requirements - Some financial institutions require new accounts to be established with a minimum amount.
  • The investment options available at the financial institution - Do they offer certificates of deposit (CDs), money-market funds, mutual funds, bonds, etc.?
  • How conservative do you want to be? - In equities, there are few guaranteed investments - for example, money-market funds and bank CDs. These do not offer the best return, but they are among the safest. Usually, the investments that offer the highest return potential are the riskiest. Should you decide to choose other investment alternatives, such as mutual funds, stocks and bonds, be sure to research the performance and fundamentals of the item. Of course, you should bear in mind that past performance is no guarantee of future performance.
  • Fees - The annual administrative fees for IRAs vary among custodians/trustees. A difference of $30 could be significant, especially if your IRA balance is only $3,000. Also ask yourself how this difference compares to your rate of return. If you invest in mutual funds, ask about all the fees that may apply. You do not want to be surprised by short-term trading fees should you decide to sell/liquidate your mutual funds within a short period of buying them.

To learn more about Roth IRAs, see Roth IRA: Back To Basics, Roth Or Traditional IRA...Which Is The Better Choice? and How do I go about opening up a Roth IRA?

This question was answered by Denise Appleby.
(Contact Denise)

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