One of the most frequent questions I get is Where should I open an IRA?

Short answer: Anywhere, just open one! If you want mutual funds, open an account with the company that offers the funds you want, like Vanguard, Fidelity, etc; because they will let you buy and sell the funds for free. If you want stocks, open an account with a company that offers the lowest fees.

Minimize Fees

The best brokerage for an IRA is the one that will charge you the least amount in fees. Since you are only allowed to contribute a limited amount into your IRAs, the importance of minimizing expenses is exceptionally magnified. The contribution limits for Traditional and Roth IRAs for 2009 is $5,000 (+$1000 if youre aged 50+). With a taxable brokerage account, you can always contribute more and pay the fees out of your pocket. You cant with an IRA, once you pay the fee, you lose the tax advantaged status of those dollars forever. If you have to pay an $50 administrative fee, youre automatically losing 1% each year.

1% may not seem like much, but over forty years, the difference between earning 5% and 4% is staggering. On $1,000, the investor earning 5% will have over $7000 after forty years; the investor earning 4% will have $4800.

• Vanguard: All my retirement investments are with Vanguard (with the exception of my Solo-401k, because Vanguard didnt offer one at the time) because I like the inexpensive mutual funds they offer. Vanguard IRAs do not charge account service fees if you sign up for paperless statements (e-service package.).
• Fidelity: Fidelity IRAs do not charge brokerage account fees, according to their front page. I dont have an account so I cant confirm this. One benefit that Fidelity has over many of its peers is that you can open a Fidelity AMEX card and get 2% cashback contributed to your IRA.
• TradeKing. They charge $4.95 per stock and option trade, $14.95 per no-load mutual fund purchase and sale (this is why going direct to the fund company is better). They do not charge an IRA annual fee but they do charge transfer out fees and termination fees (full fee schedule ).
• E*Trade. They charge $12.99 a trade, almost 3X TradeKing, but on no-load, no-transaction-fee funds they will not charge you a transaction fee (otherwise its $19.99 on the other transaction fee funds). I listed them because they may not offer cheap stock trades but they do offer cheap mutual funds, so if you want both, this might be a good way to get it.
• TDAmeritrade They offer slightly cheaper trades than E*Trade, $9.99 (regardless of account balance or trade volume), and they do not charge any hidden fees, maintenance fees, or inactivity fees. If you want mutual funds, you will pay $49.99 if they are no load funds that arent on this NTF fund list. Its pricey on mutual funds, but I wanted to throw another option out there.

Investment Options

Ever broker will offer the same investment options. The typical retirement menu will feature stocks, bonds, and mutual funds. If you want to go strictly with mutual funds, go direct to the mutual fund company because they will give you the best prices. If you want only stocks, open an account with a broker that offers cheap trades and no account fee. If you want both, then it gets to be a little tricky. E*Trade is one of the few reputable award-winning brokers that wont charge you a transaction fee on some no-load mutual funds. I havent exhaustively reviewed this

Check Minimums

The one downside of going direct to mutual fund companies is in the minimums. Vanguard requires a minimum of $3000 and then additional investments have a minimum of $100. Fidelity has a $2,500 minimum but they will waive it if you enroll in automatic contributions of $200 per month (or $600 per quarter). The brokers will usually have low or no minimums (E*Trade has no minimum, TDAmeritrade has a $500 minimum).

Ignore Promotions

E*Trades current promotional offer is 100 commission-free trades on stocks and options within the first thirty days. Ignore it. These are retirement assets you wont access for decades, many of the free trade promotions will only distract you from the broker characteristics that matter investment options and fee schedule. TDAmeritrade offers 30 days of commission-free trades when you open an account with $2,000 dont be distracted.

Free trades sound good, but lower fees are far more important. An investor with $900 growing at 5% for forty years will have $6335; an investor with $1000 growing at 4% for forty years will have $4800. At best, the 100 free trades offer is meaningless. At worst, itll cost you thousands of dollars.

Awards

I dont think you can assess how good a broker is through awards, but I can say that I read the criticisms very closely whenever they are published. I recapped the 2008 Smart Money best brokers report but each one of the brokers has their own page listing their awards.

Where do you have your IRAs? Any recommendations or other gotchas to look out for?