Promotions at Brokers for New IRA Accounts before Tax Deadline

2007 ira contribution deadlineThere are only four days left before the April 15 tax deadline, but it isn’t too late to make 2007 IRA contribution which has a limit of $4,000 ($5,000 if 50+ years old). At this time, some brokers are offering incentives to encourage people to open IRA accounts with them. For example:

Scottrade: 1-year subscription of Smart Money magazine;
Commissions: Stock: $7; Mutual fund: $17 for transaction-fee funds;

optionsXpress: Get 3 free trades;
Commissions: Stock: $14.95; Mutual fund: $14.95;

E-Trade: 50 commission free trades;
Commissions: Stock: $12.99 for assets less then $50,000; Mutual fund: $19.99 for transaction-fee funds;

Fidelity: One-year commission free trades for rollover IRA only;
Commissions: Stock: $19.95 (lower commission available); Mutual fund: $75 for transaction-fee funds;

Firstrade: Six-month commission free trades for rollover IRA of $25,000 or more;
Commissions: Stock: $6.95; Mutual fund: $9.95 for transaction-fee funds;

TD Ameritrade: 30-day commission free trades;
Commissions: Stock: $9.99; Mutual fund: $49.99 for transaction-fee funds;

While it’s nice to receive incentives when opening an account with the broker at your choice, the bonus shouldn’t affect one’s decision on which broker to use. In fact, when I look at these brokerage firms, it’s quite clear that some, like Fidelity and Ameritrade, charge ridiculously high commission for mutual funds that are either not their own or not in their respective no-transaction-fee fund category. The no-transation-fee fund list could have hundreds of funds, but popular funds are usually excluded, meaning that if an investor wants to buy a Vanguard fund from TD Ameritrade, a $49.99 commission will be imposed. That doesn’t make too much financial sense for an IRA account with an annual contribution of $4,000. The commission could eat up a big chunk of the investment right at the beginning.

I always identify the fund that I want to invest first, then find the right broker to buy it for less. Not the other way around.

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4 Responses to “Promotions at Brokers for New IRA Accounts before Tax Deadline”

  1. Jesse |  Apr 11, 2008 at 11:53 am

    “I always identify the fund that I want to invest first, then find the right broker to buy it for less. Not the other way around.”

    I do it that way as well…though I generally don’t experiment with various funds, I always find whatever it is I want to invest in first and then find where I can do it the cheapest…except when all other things equal then I go with my default broker.

  2. Ken Clark - CollegeSavings.About.com |  Apr 11, 2008 at 2:24 pm

    Commission free trades scares me a little… surprised Fidelity is offering it!

    People can churn themselves into oblivion if they’re not careful.

    It always seems some cost, even small, causes people to stop and think before they trade!

    Thanks for the list.

  3. cs |  Apr 12, 2008 at 1:43 pm

    Fidelity offers commmission-free trades only to rollover IRA. I use it to buy Vanguard ETFs in my Fidelity rollovered IRA account.

  4. Sun |  Apr 15, 2008 at 10:54 pm

    Ken: The free trades are offered by the firms, but you don’t have to use them if you fear you will get into the habit of making frequent trades in your retirement account. However, I do think it’s good for those who open their accounts before the tax deadline and buy a few stocks/ETFs with their new money. At least they can save some on commissions.

    cs: Yes, the free trades from Fidelity are for rollover IRAs.