An individual retirement account, or IRA, is a savings account that you can use to hold investments in a tax-efficient manner. It is usually targeted at people planning for their retirement, and it offers a certain degree of flexibility that no other savings account has.

Registering for an IRA is usually a crucial step to have a fully-funded and stress-free retirement. However, it is just as important to pick the right provider for you to make sure you actually gain some noticeable returns and can access them later on with ease.

For that reason, we’re giving you some of our recommendations for finding the right IRA for you.

The types of IRA

When it comes to IRA, they usually appear in one of three variations. Here’s a quick glimpse at what each variation represents:

  • Traditional IRA: A savings account in which your contributions can be tax-deductible, but you’ll still need to pay taxes by the time you withdraw your money when already in retirement. It’s meant for people who expect to be in a lower income tax bracken when in retirement.
  • Roth IRA: A savings account in which your contributions can’t be tax-deductible, but in return, you won’t be charged any taxes when making a withdrawal as it is meant for people who expect to be in a higher income tax bracken when in retirement.
  • SEP IRA/SIMPLE IRA: A savings account meant for self-employed workers. It allows for contributions to be tax-deductible and your withdrawals to be taxed as income even in retirement.

Why should you use an IRA?

When comparing an IRA to your traditional brokerage account, the most significant difference you can immediately notice is how your investments are being taxed, which can heavily influence how much of your new-found wealth means for you.

For traditional brokerage accounts, every dividend, interest or capital gain is taxable regardless of whether you withdraw your money or not. For example, if you were to sell a stock for $5,000, then you are expected to pay taxes for it straight away. Assuming you pay up to 20% in taxes, your actual wealth will be $4,000.

On the other hand, an IRA only asks you to pay taxes once you have withdrawn the money from your account. Let’s say you sell the same $5,000 stock in the market. This time you aren’t asked to pay any tax for it as long as you don’t withdraw those $5,000 from your savings account. In some cases, you probably won’t have to pay taxes on your gain at all.

Even better for you, you can find access to a vast number of IRA accounts with any given discount broker, which are known for their low costs when opening an account. This works well in conjunction with an IRA’s need, as it helps save even way more money for retirement.

However, it is important to consider that IRAs are extremely retirement-focused, which means that many of them won’t even allow you to withdraw money until you are close to retirement or already in retirement. Any attempt to withdraw money beforehand won’t be as easy or accessible as when withdrawing from a traditional brokerage account. 

Nevertheless, if it is within your interests to get the benefits involved with both types of accounts, it can be done, though one at a time. One of the IRAs’ biggest perks is that you can rollover any balance from an employer-sponsored brokerage account into an IRA. It is as easy as making a direct transfer.

Restrictions in IRA contributions

However, keep in mind that your maximum contribution amounts might face some restrictions, as they might be influenced by your type of account, your income and age.

Here are the numbers as of 2021:

  • An investor younger than 50 with a Traditional IRA can only contribute a maximum of $6,000.
  • An investor 50 years old or older, with a Traditional IRA, can only contribute a maximum of $7,000.
  • An investor younger than 50 with a Roth IRA can only contribute a maximum of $6,000.
  • An investor 50 years old or older with a Roth IRA can only contribute a maximum of $7,000.

IRA recommendations

Now that you know the basics involving IRA accounts, here we have compiled for you a small list with our recommendations for you to give it a start, according to your needs:

  • Ally Invest
  • Charles Schwab
  • E*Trade
  • Fidelity