Where to open an account

An IRA is not an investment. It is a wrapper around investments that changes how they are taxed, and the most common mistake is opening one, funding it, and leaving the money in cash because nobody said there was a second step.

Roth or traditional

The same contribution limit covers both together, and the choice is a bet on your tax rate now against your tax rate in retirement.

RothContributions are made after taxNothing is taxed on the way out

TraditionalDeductible now, if you qualifyWithdrawals taxed as income

Roth eligibility phases out above an income limit, and traditional deductibility phases out if you also have a workplace plan. Both thresholds move every year, so check the current ones at IRS.gov rather than trusting any figure printed on a page like this one.

If your income is over the Roth limit: the backdoor

A nondeductible contribution to a traditional IRA, converted to Roth. It is legal, ordinary, and about ten minutes of work, but the order matters and one rule catches people out.

Open both a traditional IRA and a Roth IRA at the same provider.
Contribute to the traditional IRA and take no deduction for it.
Leave it in cash and convert to Roth shortly after, before it gains anything.
File Form 8606 for the year. This is the step people forget.

The pro-rata rule. If you hold any other pre-tax IRA money, a traditional, SEP, or SIMPLE IRA, the conversion is taxed pro-rata across all of it rather than just the new contribution. You cannot convert only the after-tax part. A rollover IRA sitting from an old job is the usual culprit, and rolling it into a current 401(k) first is the usual fix. If you are in this position, this is the point to ask someone, because getting it wrong creates a tax bill you did not plan for.

Where to open it

FidelityNo account or fund minimums, clean backdoor Roth process, competitive default cash sweep · Also the most common HSA provider, so one login can hold bothOpen an account

Charles SchwabFull-service, strong phone and branch support, broad fund range · Default cash sweep pays little; move idle cash yourselfOpen an account

VanguardOwns the index funds it sells, so fund costs are structurally low · Weakest interface of the three; some funds carry minimumsOpen an account

Merrill EdgeIntegrates with Bank of America; Preferred Rewards tiers cut fees elsewhere · Fund selection narrower than the big threeOpen an account

E*TRADEPart of Morgan Stanley; capable platform for someone who wants more than buy-and-hold · Aimed at active traders, which is not what this rung is forOpen an account

Not ranked, and no price column: all of these open an IRA for nothing and trade stocks and ETFs commission-free. What differs is fund minimums, how cleanly the backdoor conversion runs, and what they pay on uninvested cash, which varies by several percentage points and is how some of them make their money.

After you open it

Contributing is not investing. Money that lands in an IRA sits in a cash settlement fund until you buy something with it. Uninvested IRA money is the single most common expensive mistake at this rung.

You have until the tax deadline. An IRA contribution for a given year can be made until that April, which means two years can be funded in a few months if you are catching up.

We do not recommend specific investments, funds, or allocations, and nothing here is personalized investment advice. This page is about which account to use.

See what a year of contributions is worth over time with net worth projection, or what a pre-tax contribution saves you this year with the tax calculator.