5 Tips for Choosing an IRA Provider

What happens when you need to move your retirement savings out of a 401(k)? In a recent article, I compared employer-sponsored 401(k) accounts with Individual Retirement Accounts (IRAs) and explored some of the reasons why it’s generally better to keep your retirement savings in a 401(k) when possible. However, that’s not always the case. Some individuals don’t have access to a 401(k) through an employer, and others who are closer to retirement may be ready to roll over their savings into an IRA—which is always a better option than taking your savings out as cash. When I meet people in this circumstance, they often ask what seems like a straightforward question: What rollover IRA provider should I go with?

This is a good question, and it’s one with many possible answers. There’s no shortage of businesses out there who offer IRAs, from brokerage firms to insurance companies to banks. Here are some of my best tips for those who want help finding a reliable IRA provider with fair fees and trustworthy support.

1. Learn exactly how a provider is compensated for their services

Whatever company you choose for your rollover IRA, there will be a cost for their services. Some companies charge clear “management fees” based on the total amount of money in your account in order to cover administrative costs. Others will instead build their fees into the investment options you select within your IRA. It’s important that you understand how exactly you’re being charged for your IRA so you can accurately compare different providers and find a good service for a good price. That’s not always easy, because it’s not uncommon to be charged a mix of both fee types. You need to know all of these fees for a complete picture of your IRA’s cost. Hidden fees can add up quickly to eat into your savings and lessen their ability to grow over the years.

And even when you do work with a provider who charges management fees for their services, there may also be additional investment fees that go to the firms managing the investments you choose as commissions. Generally speaking, it’s best to avoid IRA providers who earn a commission on the investment products within your account. If a provider is motivated by a potential commission when you buy into a new investment product, that may lead to an unnecessary amount of trading activity within your account in order to increase their commissions. It’s better to stick to an investment mix and give it plenty of time to grow and weather any fluctuations in the market over the years.

2.  Be wary of promises of “free” accounts and huge returns

The IRA market is a big one, which means there are some companies employing tricky marketing practices to sell their products. I recently spoke with someone who was convinced she’d bought into a “free” annuity. But, as the old saying goes, nothing in life is free—especially insurance products like annuities. If you encounter a promise for a free investment account, it’s probably too good to be true. Press any provider who offers a “free” account for clarity around the investment fees to find out how they get compensated—you’ll likely find that the fees are still there somewhere.

The same can be said for providers who project massive returns based on the quality of their investments. It’s not uncommon for a firm to advertise how well an investment vehicle has performed in the past and imply that it’ll continue delivering big payoffs into the future. But there’s an old investment adage that says past performance is not an indicator of future returns. Every investment brings with it a certain level of risk. Think of it this way: If a firm’s investment product is truly guaranteed to give huge returns, why wouldn’t every investor simply put their money there? If it sounds too good to be true, it probably is. Rather than seeking out promises of huge returns, look for providers who will offer a diverse menu of investment options to choose from for a diverse portfolio.

3. Run an easy background check on provider candidates

Finally, look into the history of any provider you think might be a good fit. The Financial Industry Regulatory Authority (FINRA) offers BrokerCheck, a free service designed to help you look into the background and experience of financial professionals and firms. Type in a name, and see what comes up. Anything questionable will show up in your search so you can avoid problematic providers.

4. Look for simple investment contracts—or no investment contracts at all

Account contracts are typical, but an investment contract is not. You will likely have a contract to sign when you set up your new IRA that will look a bit like the contract for another financial account you’d be familiar with, like a bank account. But the individual investment vehicles contained within the IRA do not commonly have their own contracts. Keep an eye out for contracts with different sections to sign related to specific investment products. Avoid providers who hand you a lengthy 50-plus-page contract full of legalese for the individual investments within your account; that could be a sign that something overly complex is going on under the surface.

5. Avoid investing IRA money in insurance products like annuities

Like a 401(k), IRAs are accounts to hold your retirement savings, which are then invested into things like stocks and bonds for growth over time. A balanced investment portfolio will have a mix of different types of investments, like mutual funds. Sometimes, however, IRAs are paired with very specific types of investments—like annuities—that can be unnecessarily complex. These can offer some tax benefits making them appealing to certain types of investors, but in an IRA, you’re already enjoying tax benefits simply by saving money.

What to Look for in a Rollover IRA Provider

Look for qualified IRA providers offering:

• Transparent fees
• Realistic investment expectations
• Diverse investments
• Clear investment contracts

Wherever you turn for your IRA, remember to seek out clarity in all aspects of your account. It’s important to avoid unnecessary commissions and excessive fees, which could eat up your savings and make it harder to secure the returns you need to reach your retirement goals. Following my tips will point you towards a rollover IRA provider you can trust with your financial future.


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