Are IRA Promotions a Good Reason to Invest?


We are in the midst of IRA season and the major financial services firms are in high gear trying to convince you to invest with them.

Fidelity Investments has fired the latest salvo in the IRA promotions war with its IRA Match program.  Under this program investors who transfer at least $10,000 in IRA assets to Fidelity will receive a match on their annual contributions to their IRA account for the next three years.

The matching levels range from one percent for a $10,000 transfer up to a 10 percent matching contribution for a $500,000 transfer.  The maximum match over the three year period would be $1,950 for an investor who transferred $500,000 or more and makes the maximum $6,500 annual contribution (this assumes the investor is at least 50 and takes advantage of the catch-up contribution).

TD Ameritrade is offering a $2,500 incentive to existing customers who transfer at least $1 million to their IRA.  They are offering $600 to new IRA customers who transfer at least $250,000 to a new account.

These and other IRA promotions are certainly attractive and if you would be inclined to invest your IRA money at the firm offering the incentive anyway then they are a good deal.  But are these IRA promotions in and of themselves a good reason to choose an IRA custodian?  I don’t think so.

What is real benefit of the incentive? 

For the investor who transfers $500,000 to Fidelity and makes the maximum contribution the total three year match of $1,950 works out to 0.39 percent of the original $500,000.  For someone transferring $10,000 to Fidelity and who made annual contributions of $6,500 the total three year match of 1 percent or $195 equates to 1.95 percent of the original $10,000.

Again if the investor was going to make the transfer to Fidelity or TD or another custodian anyway based upon the custodian’s merits then the IRA promotional incentive is just icing on the cake so to speak.

What factors should drive the selection of an IRA custodian? 

The decision in choosing an IRA custodian should be made based upon the merits of what the custodian offers and how they fit with your situation.  Some factors to consider:

  • Will there be an annual fee to have the account?
  • What are the transaction costs on mutual funds, ETFs, individual stocks and other investments?  For example if you want to invest exclusively in Vanguard mutual funds perhaps having your account at Vanguard makes the most sense to avoid transaction fees that other custodians will charge.
  • Is there a benefit to consolidating all of your investment accounts to a single custodian?
  • What services and programs does the custodian offer?  For example if your needs include a trust account or financial advice how does this custodian stack up?  Both Fidelity and Schwab (SCWH) tout no fee ETF transactions.  Are the ETFs included under this umbrella the ones you would want to invest in? 

The Bottom Line 

Major financial services firms offering incentives to lure IRA transfers are nothing new.  Fidelity’s IRA Match program is innovative and catchy.

At the end of the day the selection of an IRA custodian should be made based on your needs as an investor matched up with the services and fees offered by the custodian.

Approaching retirement and want another opinion on where you stand? Check out my Financial Review/Second Opinion for Individuals service.

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