800px-American_Cash_BestBrokerI keep my IRA at Tradeking and I tell all of my friends to use Vanguard.  The customer service has been great and all of the problems I have with them are small and don’t apply to average people.  The first question you should probably consider when choosing a broker for your IRA is whether you intend on being an active investor or a passive investor.  If you plan on being a passive investor then you simply want to get the IRA which has the lowest all-in fee structure on the investments you plan on purchasing.  If you plan on being an active investor then you have all sorts of other questions to deal with.  Costs are still important, but probably most important is figuring out the type of investments you plan on making.

Active Investors

  • Tradeking
    • Tradeking’s main claim to fame here is dirt-cheap trades ($4.95), no special IRA fees, and very responsive customer service.  They also allow for dividend reinvestment if that’s the sort of thing you’re into.  Unfortunately, it isn’t very easy to participate in corporate actions like odd-lot tenders because they charge a $50 fee which will destroy almost all of the profits in that sort of operation.  I also have had no luck trying to buy specific junk bonds.
  • OptionsXpress
    • OptionsXpress doesn’t make trades as cheaply as tradeking but they do have one major advantage.  Corporate actions including participating in tender offers for free! Thus, just starting out with my investing I use them in order to take advantage of trades which depend on having a small capital base.

Passive Investors

  • Vanguard
    • Vanguard’s name is a byword in the passive investing world.  If you use their brokerage you get the ability to trade a variety of super-low cost index funds for free. They’ve run into some trouble lately: http://www.reuters.com/article/vanguard-lawsuit-idUSL4N0Q05JG20140726, but this will probably be resolved.  There could even be upside if Vanguard ends up becoming a private company.
  • Fidelity
  • Sharebuilder
    • If your IRA is relatively large and you want to buy and hold individual stocks I could see an argument for putting everything in sharebuilder.  They allow you to set up an automatic investment plan for a reasonable monthly fee.  You then have to make a monthly contribution which sharebuilder will then sweep into stocks of your choice.  Dividends can also be automatically reinvested.  This is a great choice for someone skeptical of index funds.  If you’re into dividend investing, this would be a good broker for your IRA.  (Only because Loyal3 and Robinhood don’t appear to offer an IRA option just yet.)

Of the above brokers I have an account at Tradeking (my IRA), OptionsXpress (taxable account), and Vanguard (my 401k).  I’ve found that they’re all very good at different things, however, if most of the things we’ve discussed in this article have flown over your head, or you’re just getting into investing.  I think opening an account with Vanguard and using index funds like the Vanguard Total Market fund would be the best idea.  In general “active” investing (buying and selling individual stocks) is a suckers bet and the majority of folks who do it would have been better off if they invested in random stocks and never sold.

Of course, for those of us just starting out, the biggest impact to our retirement account is how much we save, and not how much we make.  If you’re maxing out your IRA every year you’re on the right track.