In my Retirement Planning for Trailing Spouses series, I mentioned that contributing to an IRA can be a good idea even when you are working overseas. With the end of the year approaching, you might be thinking about starting an IRA, whether it’s Traditional, Roth, or a SEP. The first question you may ask is likely, “Where is the best place to open my account?”
It is a legitimate question, but I would recommend that you answer another question first; that is, “What will I invest in?”
Investment is like any other product. What you want to buy with your money is ultimately the more important decision, and will often determine where you go shopping for it. Let’s say that you want to buy a vacuum cleaner. You can easily walk into the closest appliance store and pick up the one with the lowest price, but take the risk of forgoing a sale somewhere else, or of buying a product that is not of your expected quality. A smart shopper will probably read some customer reviews first to decide the brand and model that will meet the need, then do research to find out if there is any discount or sale going on nearby or online. In the same way, you should focus your attention first on the investment you want to buy before you look for the custodian with the best value to open your account.
For example, if you are an index investor, Vanguard, Fidelity, and Charles Schwab all offer free account maintenance and trading when you open an account with them and buy their products. So it makes no sense for you to open an account with Schwab if you know you want to buy iShares index ETFs, for which Fidelity offers free trading. On the other hand, if you want to trade actively, you would want to find a custodian that offers the lowest transaction fee depending on your trading frequency. Furthermore, custodians/brokers offer different pricing on various products they will help you buy and sell. If you have a particular investment in mind, such as options, best to first find out which company will buy, hold, and sell it with the lowest overall cost.
So how do you identify the financial products to invest in? It is beyond the scope of this post and I cannot offer you personalized advice here. The best way to go will be to consult an independent financial adviser who will give you advice based on your interest instead of the compensation the person receives from recommending the product. For those of you who want to invest on your own, I would recommend finding out what investment philosophy you prescribe to first- do you believe you can beat the market, or not? From that point you can devise an investment strategy that works for you.
However, I understand not everyone has the time to figure out what to invest in when the deadline for a contribution is approaching. You can always open an IRA with the lowest cost for you to keep your cash in a money market fund or a sweep account before knowing exactly what you want to invest in. Just don’t leave the cash there forever, or eventually it will lose value over time due to inflation. Once you have identified the investments, you also have the opportunity to open an account with another custodian with the best value for that investment and “rollover” the savings from your existing account. So if you already have an IRA custodian that you are not happy with, remember that you can always find a better one and make the switch.
So going back to the original question, where should you open the account? Many professional review sites offer their take based on the type of product you want to buy, like here, and here, (and here is one for individual 401(k) accounts), so I won’t repeat the effort. The one real consideration for Americans working overseas is the ability for us to do everything online, and have a good enough customer service over the phone. Fortunately, many custodians now offer (or even prefer) this service. I personally have had satisfying experience opening and maintaining accounts overseas with Vanguard and Charles Schwab completely through the Internet and phone. Nevertheless, due to government regulations, you most likely need to be able to mail or fax in proof of identification even though you apply for the account online, no matter which custodian it is.
If you have good experience with opening an IRA account overseas without hassle, share below in the comment section. I would love to hear about it!