Michael on July 11th, 2008
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It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question

Are all custodians of Roth IRAs the same? How do I know whether to pick Ameriprise or Fidelity or a different custodian?

–Jennie K., Burnsville, MN

Although all Roth IRAs are the same, all Roth IRA custodians are not.  Choose a custodian the same way you chose a bank.

More detailed explanation:

An Account is Only an Account

First, remember that a Roth IRA is a Roth Individual Retirement Account.  An account is just a place to hold money; they’re is nothing unique about it.  You can open an account and not even put money in it (Of course, it’s useless to do so, but many people open IRAs intending to put money in and subsequently forget.).  The point is that there are lots of places to get an account; no one has cornered the market on IRAs.

Choices For Your Investments

More important is how you’ll invest the money once it’s in the IRA. While retirement plan investing is an entirely different conversation, your investment choices are relevant as you evaluate different custodians.  For example, can you purchase no-load mutual funds from the potential custodian?  If so, are they any good?  Can you buy with no sales commission from many different fund families, or only a limited few that are affiliated with the custodian?

Account Fees

Another top consideration when choosing an IRA custodian are fees.  This is particularly tree for young people or people who are just starting to invest for retirement who therefore have low balances.  Make sure you aren’t going to get hit with excessive fees. Paying $39 a quarter or something similar because you don’t have (for example) $10,000 or more in your account is very expensive.  Critically, it puts an unnecessary additional hurdle in your quest to grow your retirement plan balance over the long term.  There’s no reason to pay expensive maintenance fees.  To me, anything more than a few bucks a year is ridiculous, especially when there are many no-fee or low-fee IRA programs out there.

Automatic Investment Programs

Another way to reduce the chances you’ll have to pay any fees for simply holding an IRA is to sign-up for an automatic investment program (often abbreviated AIP).

You:  What else would they abbreviate it to besides AIP?

Four letters, my friend: R.S.V.P.

You: Gotcha.

Signing up for an AIP means you agree to invest a certain dollar amount (often as low as $50 a month) and, in exchange, the custodian agrees to waive most, if not all, of its account fees.

Inexpensive access to a diverse array of investments, minimal account fees, and programs like AIP are all important considerations when selecting an IRA custodian.  It’s not much different than selecting a bank, except, perhaps, that location matters even less. Almost everything these days can be done online; so if the custodian you’re considering isn’t as close as another one, but you like the one that’s a little further, go there.  Or to that firm’s web site.


Most important: just get started. Don’t let the uncertainty of choosing the absolute best custodian cause you to delay saving and investing for your retirement for more than an hour.  First of all, there is no “perfect” custodian. Second, you’re going to make mistakes.  Just make them small and make them early in your financial life.  Such minor errors are much easier ones from which to recover and to laugh at years later.

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