Should You Open a Roth IRA at a Bank? - NerdWallet (2024)

FAQs

Should you open a Roth IRA through your bank? ›

Bank Roth IRAs are insured by Federal Deposit Insurance Corporation (FDIC) for up to $250,000. Brokerages may offer a broader range of Roth IRA investment options than some banks. In most cases, buying a Roth IRA from a brokerage makes more sense when you're trying to fund a comfortable retirement.

Should I Open an IRA at a Bank or Brokerage Firm? Whichever you're comfortable with, but you'll have more investment options—and higher potential earnings—at a brokerage firm. Banks tend to offer minimal, low-yield investment options, such as savings accounts and certificates of deposit (CDs).

The major difference between most institutions is the fee structure. So make sure to carefully compare fees before choosing where to open your IRA. A no-load mutual fund family such as Fidelity, T. Rowe Price or Vanguard can often be a good way to go.

Roth individual retirement accounts (IRAs) offer several key benefits, including tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMDs). One key disadvantage: Roth IRA contributions are made with after-tax money, meaning there's no tax deduction in the years you contribute.

Let's say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you'd amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years, you would accumulate over $900,000.

If you contribute 5,000 dollars per year to a Roth IRA and earn an average annual return of 10 percent, your account balance will be worth a figure in the region of 250,000 dollars after 20 years.

Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account. This substantial amount is due to savings accounts' relatively low return rate.

The Roth IRA income limits are $161,000 for single tax filer and $240,000 for those married filing jointly. Arielle O'Shea leads the investing and taxes team at NerdWallet.

IRAs typically don't come with account setup fees, but you'll likely have to pay transaction and advisory fees when applicable, as well as fund expense ratio fees which cover operational costs. Before funding an IRA, you need to understand the contribution limits and tax implications.

Opening an IRA at a bank is as simple as deciding on the CD rates and terms that best suit your situation. If the potentially stronger returns of a brokerage-based IRA interest you, you'll have some other decisions to make. Once your IRA is set up, the last thing you'll do is select your investments.

Where is the safest place to put an IRA? ›

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

If you're over 70 ½, you can no longer make contributions to a traditional IRA, but you can make rollover contributions. If you're under 70 ½, you can keep on making those contributions.

Bottom Line. If you hold your IRA or Roth IRA with an FDIC-insured depository bank, and if that account holds qualified depository assets, it will receive FDIC coverage.

You can set up an IRA at almost any bank, brokerage, or other financial institution. All it takes is your signature on the paperwork and a check for your first contribution. You can also take care of most of the details online.