Best Pension Providers for Private Pensions

Whilst this list will provide you with a brief overview of the costs and investment choices at the best pension providers for private pensions, I suggest you continue to read the rest of the article as there are other considerations that may affect your choice. If you’re still not sure about which pension provider to choose, consider a pension review with an independent financial advisor for pensions.

Top pension providers for March 2023

Browse my list of the best pension providers in the US

The best pension providers at a glance

• Interactive Brokers
• M1 Finance
• SoFi
• Betterment
• Fidelity Investments
• Charles Schwab
• Vanguard
• Wealthfront
• E*Trade
• Merrill Edge
• Ally Invest

Top 7 retirement income funds

The table below shows the best retirement income funds in the US

Source: Morningstar

*Figures quoted correct at the time of publishing and are subject to change. See source for more information.

What are the different types of retirement plans?

Paying into a retirement plan is the most efficient way to save for a retirement income. In the US there are two primary types of retirement plans available, namely defined benefit plans and defined contribution plans.

Defined benefit plans

A defined benefit plan is a retirement plan that is sponsored by a qualified employer. Typically, a defined benefit plan is a workplace pension, but can also include cash balance plans. In any case, such plans promise the recipient a defined cash amount upon retirement, with these benefits protected by the Pension Benefit Guaranty Corporation (PBGC).

However, in the US defined benefit plans are the exception, not the rule. In 1980, 83% of private sector workers had a defined benefit plan, at 2018 that figure stood at just 17%.

Defined contribution plans

A defined contribution plan is a plan in which the employee or the employer (or both) contribute to the employee’s individual account under the plan. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus the performance of their investments.

Due to the fact that such plans are tied to the performance of investments their value will fluctuate. Examples of defined contribution plans include 401(k) plans, 403(b) plans, IRAs, employee stock ownership plans, and profit-sharing plans.

Do I have a workplace retirement plan?

Your employer may offer you access to a retirement plan, but you will need to check. In the US legislation is looking to ensure that small business employers offer state-mandated retirement plans.

Individual Retirement Account

The Individual Retirement Account, better known as the IRA,

Any individual in the US with an income is entitled to open an IRA account, to help secure their financial independence and security upon retirement.

There are three main types of IRA:

1. A traditional IRA

In a traditional IRA, contributions made into the account may be tax deductible whereby any withdrawals of pre-tax contributions and earnings are taxed as current income during retirement.

2. Roth IRA

In a Roth IRA, contributions made to the account are not tax-deductible, however, any withdrawals made are tax-free.

3. Rollover IRA

A Rollover IRA is an account where you can move funds from your prior employer-sponsored retirement plan into an IRA. Compared to an IRA you have lower fees, and your funds can continue to grow tax-advantaged.

Can I have a retirement plan and a private one?

Yes, you are free to save into more than one type of retirement plan, however, your contribution limits, remain the same across all your products.

Selecting an IRA

For people who are not enrolled in a workplace retirement plan, the quickest and easiest way to save for your retirement is by opening an IRA. Once you have chosen your provider you only have two choices remaining:

• The amount you wish to save each month
• The level of risk you wish to take

Some providers will even help you identify the level of risk, based on your age and attitude.

This type of retirement plan encourages younger savers to invest in stocks, usually 80%. As you age these riskier investments will be replaced with bonds and other safer investment options.

Charles Schwab, Vanguard, and Interactive Brokers are all highly recommended brokers with strong IRA offerings.

What is the tax relief on IRAs?

As mentioned earlier the traditional IRA will defer your tax contributions and a great way to maximize the tax benefits offered by the IRA is to split your contributions between a traditional IRA and a Roth IRA.

In a Roth IRA, you pay tax on your contributions but are able to make tax-free withdrawals upon retirement.

In a traditional IRA, the contributions you make to the account are tax-exempt, but your withdrawals are consequently taxed.

Can you transfer retirement plans?

Yes. Today most workers will have multiple jobs, each with their own plans that they may be automatically enrolled into. It is often a good idea to consolidate all these diverse funds into one, easy-to-manage pot rather than lots of little pots that are often left languishing and not maximizing your return on investment.

There are plenty of pension providers who will help you with this service and will provide you with a dedicated pension consolidation service that can help locate and transfer your retirement plans.

Be aware, that should you take out your pension as an unauthorized lump sum, this will be classed as an ‘unauthorized payment’ and you will subsequently be required to pay tax on the amount.

Some providers can levy a charge on transfers so it is best to speak to both your current provider and the provider you wish to move your pension savings to before conducting a transfer.

Choosing the best IRA

In order to find the best provider for your unique requirements you should take the following into consideration:

Your investment knowledge and experience

If you have no previous investment knowledge or experience, then you may want to consider an account with Sofi, Wealthfront, or Vanguard. The Wealthfront IRA fund is a comprehensive product and thanks to its leading robo-advisors is a great choice for hands-off investors.

For people with extensive investment experience who would prefer to manage their own investments, a platform like Merrill Edge or Fidelity would be a strong recommendation.

The size of your IRA

If you are transferring an existing retirement fund into your new provider, then you need to take into account the size of your fund in order to match yourself with the most cost-effective fee structure. Larger funds may benefit from a flat fee, whereas smaller funds or people who are just starting a pension, would benefit from a percentage fee structure.

Whether you are looking to consolidate multiple existing pensions

If you are looking to consolidate multiple existing pensions then you may want to consider a provider that has a consolidation service. They will do most of the leg work for you, potentially saving you a significant amount of time. Though you can do this work yourself by checking on websites such as MissingMoney.com and Unclaimed.org.

Annual fees and other charges

Always compare the fund fees and charges for any retirement plans you are considering ensuring you are aware of any annual fees, transaction fees, fund management costs, and also any hidden fees such as a one-off cost for transferring your investments, administration fees, and penalties.

How much money should you save?

This very much depends on your unique circumstances and what sort of lifestyle you wish to achieve in your retirement. However, as a rule of thumb, you should look to contribute a percentage of your salary that is half your current age.

Therefore, if you are 40 years old, you should be contributing 20% of your salary to your pension. There is also access to free pension calculators online so you can gain a picture of your financial future and check whether you are on track to reaching your retirement plans.

Are IRAs safe?

Yes, without a doubt, an IRA is a safe option, however, it is always prudent to ensure that the provider you are considering is authorized and regulated by the Securities and Exchange Commission. Also, brokers that are covered by the Securities Investor Protection Corporation (SIPC) will be protected against loss of cash and securities – such as stocks and bonds – held by a customer up to a limit of $500,000, which includes a $250,000 limit for cash.

Sadly, the sheer value of pensions can make them an appealing target for fraudsters and pension scams. This is why it is always prudent to check your provider is authorized by the relevant authorities such as the Securities and Exchange Commission, Employee Retirement Income Security Act, and others.

Do I need financial advice to open an IRA?

No. Anyone can open and manage their own retirement plan, and providers have now made pensions accessible to all walks of life. However, people with a high net worth or those who are already in possession of a substantial retirement fund may benefit from the services of a regulated financial adviser.

It is also often beneficial to seek the services of an independent financial adviser or pensions adviser when it comes time to draw your pension, as they assist with your retirement planning needs.

Remember there are costs associated with financial advice and whether or not this is cost-effective for you will depend solely on your unique circumstances.

Which is the best retirement plan?

The holy grail of retirement plans is the workplace-defined benefit pension. However, for people who are not employed by one of the few US employers that offer this plan, it isn’t a viable option, in which case a private pension would be the best option.