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Fidelity vs Charles Schwab IRA: The Biggest Differences
Fidelity and Charles Schwab both offer wealth building products for all types of investors. On the IRA side, you can use either platform to set up accounts like Traditional, Roth, Rollover, SEP, or SIMPLE IRAs. And both brokerage houses allow you to automate certain IRAs.
However, Schwab is the best choice for those who want more options for their retirement accounts.
Fidelity offers a Roth IRA for Kids account, but Schwab’s custodial IRA allows you to set up a traditional or Roth IRA for a minor. Additionally, Schwab’s two automated accounts – Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium – support traditional, Roth, rollover, SEP and SIMPLE IRAs. Fidelity automated accounts only support traditional, Roth, and rollover IRAs.
But Fidelity is a better option for retirement investors looking for lower investment fees because it offers several index mutual funds with zero fee rates. Fidelity’s automated advisor-assisted account is also better for those with lower balances.
Fidelity and Schwab fees and features also vary.
Conditions of eligibility for the IRA
Overall, Fidelity and Charles Schwab offer many of the same IRAs, but it’s important to pay attention to the following eligibility requirements for each account:
- Traditional IRA: You must be at least 18 years old and have taxable income to create a Traditional IRA. If you are under 50, you can contribute up to $ 6,000 per year (50 and over can contribute $ 7,000) in pre-tax dollars. In other words, you are not taxed on your contributions until you withdraw from the account. The earliest you can make withdrawals is age 591/2.
- Roth IRA: The eligibility requirements are the same for Traditional and Roth IRAs. Contributions to a Roth IRA, however, are after tax. This means that you won’t have to pay tax on your income once you qualify for a withdrawal at age 59.1/2. But you still have to meet certain income requirements to make the full contribution (for example, single filers can contribute the full $ 6,000 or $ 7,000 if their modified adjusted gross income (MAGI) is less than $ 125,000) .
- Roth IRA for children (available through Fidelity): You can use this retirement account if you are under 18 and have unemployment benefit. The $ 6,000 maximum contribution rule is also still in effect, but Fidelity does not allow you to contribute more than what you earn in a year.
- Custodial IRA (available through Schwab): With a custodial IRA, parents or guardians (also called account custodians) can set up traditional or Roth IRAs for minors. The custodian manages the IRA until the child reaches the age of majority in their state (usually 18 or 21). One of the main advantages of these IRAs is that they allow withdrawals without penalty (i.e. you won’t be subject to a penalty tax if you need to withdraw money for things like fees. studies).
- Legacy IRA: These accounts are for those who have inherited employer-sponsored plan assets or IRA assets – eligible IRAs include Roth, Traditional, Rolling, SEP, and SIMPLE IRAs – from a deceased person. You won’t be able to make additional IRA contributions, but Schwab says the funds in the account can remain tax-deferred while generally allowing you to make withdrawals without penalty.
- IRA SEP: Small businesses and the self-employed are best suited for SEP IRAs. Like traditional IRAs, the income in the account can grow tax-deferred and will not be taxed until you make withdrawals. Small businesses can contribute up to 25% of earnings, while self-employed people have a 20% limit (the maximum amount you can contribute for the 2021 tax year is $ 58,000).
- SINGLE IRA: These IRAs apply to the self-employed or small businesses with no more than 100 employees. Employees can contribute as long as they have earned at least $ 5,000 from the employer in the past two years and expect to receive at least $ 5,000 in the current year. You can contribute up to $ 13,500 in 2021 (people 50 and over can contribute $ 16,500).
Are Fidelity IRAs Right For You?
Fidelity currently offers Traditional IRAs, Roth IRAs, Rollover IRAs, Children’s Roth IRAs, SEP IRAs, and SINGLE IRAs.
On the self-directed side, each of its IRAs has no minimum account or fees, and all include commission-free transactions in stocks and ETFs (SEP IRAs and Roth IRAs for Kids additionally allow trading of options without commission).
If you are more of a newbie investor or not, you can also set up traditional or Roth IRAs with Fidelity Go or Fidelity Personalized Planning & Advice. These accounts will cost you, however. You won’t need a minimum account size for Fidelity Go, but you can pay $ 0, $ 3 / month, or 0.35% / year in advisory fees.
The Fidelity Personalized Planning & Advice account includes both automated portfolio management and advisor monitoring, but you’ll need a minimum of $ 25,000, and you’ll need to pay an advisory fee of 0.50% (l The Schwab equivalent also has a minimum of $ 25,000, but its $ 30 / monthly consultation fee is comparatively higher for those with a balance below $ 72,000).
The Fidelity Personalized Planning & Advice account becomes more expensive than the Schwab account once you exceed the threshold of $ 72,000. This is because Fidelity charges a 0.50% asset-based fee, while Schwab charges a constant fee of $ 30 / month. If you deduct 0.50% of $ 72,000 (excluding investment charges), you will get the same result of $ 360 as if you calculated a year of Schwab’s $ 30 / month premium charge .
Fidelity also offers several low cost investments. It offers zero
index funds, thousands of no-transaction-fee funds, over 7,000 commission-free stocks and ETFs, and more.
You will also find that there is no shortage of resources at Fidelity. The brokerage offers 24/7 customer support, online courses and guides through the Fidelity Learning Center, as well as market research and information.
Are Charles Schwab IRAs Right For You?
Schwab also offers a competitive selection of IRAs. Whether you are an individual with taxable income, a small business, or self-employed, the brokerage has an IRA for you. Schwab currently offers Traditional IRAs, Roth IRAs, Rollover IRAs, SEP IRAs, SINGLE IRAs, Legacy IRAs, and Custodial IRAs.
And like Fidelity, Schwab also has thousands of mutual funds with no transaction fees. It currently offers over 4,000 of them. However, Fidelity is the best choice when it comes to zero-fee funds. But Schwab makes up for that with its suite of mutual fund tools.
It has a fund finder tool that helps you identify the mutual funds that best match your preferences. Schwab also offers a predefined mutual fund filter and you can use its comparison tool to compare up to five mutual funds simultaneously.
Additionally, Schwab offers its own set of mutual funds that the brokerage manages itself. These include index funds, active equity funds, bond funds and asset allocation funds. And in total, it provides over 2,000 index mutual funds and ETFs (200 of its index mutual funds have no transaction fees, and all of its index ETFs have $ 0 commission).
Unlike Fidelity, Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium accounts from Schwab allow you to automate Legacy IRAs, SEP IRAs and SIMPLE IRAs. Fidelity automated accounts only allow traditional, rolling and Roth IRAs.
Each Schwab IRA additionally includes commission-free transactions, 24/7 customer support, retirement planning calculators and resources, market information, and access to over 300 Schwab branches.