Starting a retirement or investment account early

I’ve got more than $5,000 invested in a Roth IRA and stocks. But I’ve been lucky.

Even if you don’t have a lot of spare capital to lock into a retirement account, you can still get started with low-minimum investment accounts.

I started an investment account and a Roth IRA with money earned at summer internships and the money freed up by a big scholarship. That was a huge windfall – but if I didn’t have that chance, I’d still want to invest some money.

First, why a Roth IRA rather than a different type of retirement account?

The main reason for me was the logic that, in future, I’ll probably be making more and thus paying a higher tax rate. Since money that goes into a Roth IRA is from after-tax income, it’s not taxed when you withdraw it. Earnings, however, may be taxed if you withdraw the money too early.

So if I run into a financial emergency, I’m not faced with the problem that comes with traditional IRAs. I can take the money I originally contributed and make an emergency medical payment or deal with a catastrophe.

Convinced? Well, if not, you should go do some searches on the power of compounding interest and the decline of employers matching 401(k) contributions, or even offering accounts.

So here are a few of the options (in no particular order) for low-minimum Roth IRAs. These lean more to the buy-and-hold type than the active trader, although there are definitely good deals out there if you want to try your hand at picking stocks. Most of these also offer regular investment accounts with similar benefits but do your research.

  • TD Ameritrade: No account minimum. You can trade several mutual funds and ETFs with no fee. $10 per trade. Offers screening tools and research reports if you want to take an active role.
  • Scottrade: With a $500 minimum, several thousand commission-free mutual funds but no free-to-trade ETFs, Scottrade is a solid option. Stock commissions are only $7.
  • E*Trade: No account minimum and fewer commission-free options than TD Ameritrade but offers access to several research reports. $10 commissions.
  • Charles Schwab: With a $1,000 minimum, this might not be an option. But you get access to Schwab ETFs and some mutual funds without a commission and trades are $9. With the account, you get access to Street Smart Pro, a well-regarded stock analysis and research tool.

I make no claims to be an expert on this, but there are options available even if you don’t have a thousand bucks to put down. If you’re interested in some non-retirement options, check out this Investing Basics column from the Wall Street Journal.

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