Three Main IRA Providers
The purpose of a traditional individual retirement account (Traditional IRA) and many of its variations (ROTH IRA, 401K, SEP IRA,
SIMPLE IRA, etc) has always been to have a safe place for people to save and grow their nest egg, which they will use during their retirement years.
There are three main and most popular sources for a retirement account in the United States today: employers, banks, and brokerage companies.
Let's take a look at pros and cons of all three options.
Most people get their first individual retirement account (usually it's Traditional IRA, ROTH IRA, or 401(k)) with their employer. We believe that employers, when
they offer some kind of matching contribution, are the best places to keep an IRA for the majority of people. If an employer offers any kind of
matching contribution, investors should always use it to the maximum allowed amount. Employer retirement plans are usually safe since the companies are
vary about their workers loosing their savings and therefore they only offer the least risky options for investing.
The main disadvantage of employer IRA is limited investment options and no way to protect yourself in case of inflation surge.
Retirement accounts at the banks are the safest places for IRAs. This is true not because something could happen to your retirement account at your employer or at the
brokerage firm - they both have an equivalent of the bank's FDIC insurance. Rather, it's because banks usually don't provide customers with easy ways to invest in
risky assets, such as stocks. This also saves investors from another danger - overtrading. These are the two main ways bank IRAs (such as Discover bank IRA)
save a lot of people from wild stock market
crushes, company bankruptcies, and, most importantly, from themselves - the powerful human emotions of fear and greed that often lead investors to financial ruin.
The drawbacks of bank IRA are the same as with employer IRA: limited investment options and no protection in case of inflation.
The world we live in now is changing faster than ever. New challenges arise all the time. For example, we now have to be concerned with what would happen if the dollar
were to devalue due to unsustainable debt in the U.S. economy, or what would happen if the Eurozone were to collapse. The old prudent way of keeping
cash in a safe place for IRA might turn out to be disastrous in that case - it offers no protection for your money in an inflationary environment.
For this reason, we believe that for savvy investors the best, safest place for IRA today and in the future will be a brokerage account. It provides the flexibility to quickly move between
various investments and cash. If some sort of inflationary news were to suddenly come out, cash could quickly be moved into precious metals ETFs,
inflation-protected bonds, or other inflation-protected assets. This is usually not possible with a bank- or employer-maintained IRA.
Dangers of the Brokerage IRA
Of course, the downside of a brokerage IRA is that account holders could be tempted to invest or even trade stocks or other assets they don't know much about.
This is probably the most common way with which otherwise prudent and financially savvy people lose their hard-earned money.
Being very disciplined, careful, educated, and maybe even hedged with your investments is paramount. We can't stress enough how important it is to know
exactly what you are doing in this area. The price of making uneducated, rushed, emotional decisions could be your life savings. Remember - never gamble
with your retirement money, protect yourself by always having a clear exit strategy out of any investment, and stick to that strategy.
Safest Companies To Open IRA
Our recommended safest places to open IRA account in 2016 are two of the largest brokerage houses in the country for the last 30+ years:
TD Ameritrade (review) and
Scottrade (review). Make sure to read their reviews before opening an account.
Related article: Best brokerage firms for IRA
Updated on 11/16/2016.