How to Choose an IRA Custodian

Hello and welcome to Money Girl's Quick and Dirty Tips for a Richer Life.
Today's topic: How to choose an IRA custodian.

In last week's episode, I explained how to roll over your 401(k) to an IRA when you leave a job. In today's episode, I have some tips on how to choose an IRA custodian.

It's possible to open an IRA at many types of financial institutions, including brokerages, mutual fund companies, banks, credit unions, insurance companies, and self-directed IRA custodians. Having so many choices can be overwhelming!

As listener Joshua put it in an email he sent me, "When you are in a situation where you want to start your retirement savings, and you have no idea whether you'd be better off just giving the money to the bank, giving it to a mutual fund company, or some other institution, it is so daunting that you just don't do anything."

Now, don't let the abundance of choices keep you from taking action! Remember, delay has a cost: during the time you spend in a state of indecision about where to open an IRA, your money could have been growing for you.

So here are four tips on how to make a smart choice about which IRA custodian to go with:
Tip 1: Choose an IRA custodian with a broad selection of investment options, including a wide variety of mutual funds as well as individual stocks and bonds. Fidelity, Vanguard and Charles Schwab are just a few examples of mutual fund and brokerage companies with broad investment choices.

Keep in mind that an IRA is simply a tax-advantaged container for investments. You can buy just about any type of investment with an IRA and different IRA custodians make their money by selling different things. If you open an IRA at a bank, you'll be able to invest in CDs. If you open an IRA at an insurance company, you'll be able to invest in annuities. And, if you open an IRA at a brokerage and mutual fund company, you'll be able to invest in mutual funds, stocks and bonds. For most everyone, opening an IRA at a brokerage and mutual fund company makes good sense.

Tip 2: Compare fees when selecting an IRA custodian. Some custodians charge higher fees than others. Find out if there's an annual maintenance fee. Many custodians do not charge maintenance fees. Check to see if the custodian offers a wide variety of no-load mutual funds; that is, mutual funds without sales fees. Vanguard is known for its low mutual fund management fees. Also, compare the commissions charged for trades.

Tip 3: Look for a custodian with excellent customer service. Is their Web site easy to use? Can you execute transactions and monitor your portfolio from their Web site? Do they have a toll-free number? Do they have retirement specialists who will help you choose your investments?
And lastly, Tip 4: Consider whether you'd like to take your IRA beyond stocks, bonds and mutual funds and invest in other types of investments, such as real estate or privately held companies. Remember, you can invest in just about any type of investment with an IRA. If you think you might want to invest in real estate or private companies with an IRA, learn about self-directed IRAs and decide whether one might be right for you.

And here's a bonus tip: When you open a new IRA, be sure to designate beneficiaries for the account. The beneficiary designation on file with the IRA custodian controls who will inherit your IRA, so it's important to indicate to whom you'd like to leave your IRA funds.
Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

As always, everyone's situation is different, so be sure to consult a tax or financial adviser before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.

Rebalancing investments in your IRA

Tuesday August 14, 6:00 am ET
George Saenz
http://biz.yahoo.com/brn/070814/22772.html?.v=1&.pf='retirement'

Dear Tax Talk:
Can I roll over money from my traditional IRA to a money market account without tax consequences? I don't plan on touching the money. I just want to move it to a location less vulnerable than the stock market, like a money market fund because this will be more stable. I will turn 58 this year. Thank you in advance for your help.
--Larry

Dear Larry,
It is understandable that you would want to change your investment strategy. As we age, our investment time-frame changes, decreasing our tolerance for risk.

When you're in your 30s, your investment time frame for retirement savings is probably well over 20 years. This will allow you to recover from most downturns in the stock market. At 58 years of age, you may be thinking of early retirement and want to be assured your capital will remain intact. Hence, you'll move away from investments that put your capital at risk, such as equities, and move to safer investments, such as money markets.

This rebalancing of your portfolio doesn't mean you have to take your funds out of an IRA. This is especially true when you're under age 59-and-a-half, when most retirement fund withdrawals will result in a 10 percent penalty.

An IRA is an investment account designation. An IRA-designated account can be invested in most traditional investments, such as money markets, certificates of deposit and stocks. One IRA can be invested in more than one type of investment product. For example, you can have an IRA that is 50 percent CDs and 50 percent stocks.

When you rebalance, you may want to consider leaving some of the account that you may not need in the near future in an investment product that can yield better returns than a money market fund.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.