Vanguard vs. Charles Schwab: Which IRA is best for you? (2024)

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Vanguard vs. Charles Schwab IRAs: The biggest differences

When it comes to IRAs, Vanguard and Charles Schwab both provide a vast suite of options. You can use either brokerage to set up accounts like traditional IRAs, Roth IRAs, and SEP IRAs, and both also offer multiple options that cater to both DIY traders and passive investors.

But Vanguard is the better choice for investors in search of competitive (and low-cost) retirement funds. The brokerage offers an array of investments — including "all in one" retirement funds — and resources for long-term-focused investors.

Charles Schwab, on the other hand, offers both more IRA account types and greater account flexibility. Unlike Vanguard, it allows for inherited IRAs and custodial IRAs. Plus, its robo-advisors are less expensive than Vanguard's, and you can use both of its automated accounts for most of its IRAs.

Vanguard and Charles Schwab's fees and features also vary.

IRA eligibility requirements

While Vanguard and Charles Schwab both have similar offerings of IRAs, you'll mainly notice differences in fees, available investments and account types, and retirement resources. However, it's important to note each account's eligibility requirements:

• Traditional IRA: Available to those who are at least 18 years of age with taxable income, traditional IRAs let you contribute up to $6,000 per year (or $7,000 if you're older than 50) in pre-tax dollars. You don't have to pay taxes on the money in your account until you make withdrawals at age 59^1/2.
• Roth IRA: With Roth IRAs, you pay taxes up front. This allows for tax-free withdrawals at age 59^1/2. They also have the $6,000 contribution limit ($7,000 for those 50 and older), but you can make early withdrawals without incurring the same tax penalty you would with a traditional IRA.
• SEP IRAs: Designated for self-employed individuals and small business owners, these IRAs allow you to contribute up to $61,000 in 2022 (the 2021 limit was $58,000).
• SIMPLE IRAs: These IRAs are for self-employed individuals or employers with 100 or fewer employees. If you're an employee and want to contribute to one, you'll need to have earned at least $5,000 from the employer in the last two years and expect to earn the same in the current year. Participants can contribute up to $14,000 in 2022 (or $17,000 if you're 50 or older).
• Inherited IRA (offered by Schwab): You can set up this account if you've inherited employer-sponsored plan assets or IRA assets. While you can't make additional contributions to the IRA, Schwab lets the account's funds remain tax-deferred while generally allowing you to make withdrawals without penalty. Eligible IRAs include Roth, traditional, rollover, SEP, and SIMPLE IRAs.
• Custodial IRA(offered by Schwab): These accounts allow parents or guardians to set up traditional or Roth IRAs for minors. The custodian oversees the IRA until the child reaches their state's age of majority (typically 18 or 21). Like Roth IRAs, these IRAs allow for penalty-free withdrawals.

Are Vanguard's IRAs right for you?

Vanguardis a behemoth in both the online brokerage and retirement account space. The company offers an array of IRAs for individuals and small businesses. Plus, the brokerage provides individual 401(k)s and copious retirement planning resources for investors who want to learn more and improve their market acumen.

You'll also find that Vanguard's IRAs serve all types of investors. You can take the DIY route with your IRA and open a self-directed account, or you can use its robo-advisors (also known as automated investing accounts) — Vanguard Digital Advisor and Vanguard Personal Advisor Services — to skip out on the legwork of the investment process.

Another perk is that there isn't a minimum to set up any of its IRAs. You'll only incur fees for its traditional, Roth, and SEP IRAs. All three accounts have a $20 annual service fee, but Vanguard offers multiple ways to waive this fee. You can avoid the service fee if you sign up for its e-delivery service, own a trust or organization account under an employee identification number (EID), or maintain at least $50,000 in qualifying assets.

Finally, Vanguard's extensive collection of retirement resources could be perfect if you're hoping to learn more about long-term investing and other market-related topics.

Are Charles Schwab's IRAs right for you?

Charles Schwab also offers an array of IRAs for individuals with taxable income, self-employed individuals, and small businesses. Among its offerings are traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, rollover IRAs, custodial IRAs, and inherited IRAs.

Like Vanguard, Schwab also has no minimum requirements for any of its IRAs. But unlike Vanguard (many of its IRAs have service fees), Schwab's IRAs come without fees. Both brokerages offer countless low-cost funds, but Schwab has thousands (4,000+) of no-transaction-fee mutual funds.

In addition, Schwab and Vanguard both give you the option to either take the self-directed IRA route, or allocate the work to one of its robo-advisors. However, Schwab's automated accounts (Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium) offer much more wiggle room than Vanguard's.

With either automated account, you can set up traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and Inherited IRAs. Vanguard Digital Advisor, however, only allows for traditional and Roth IRAs.

Schwab's IRA offerings are also supplemented with 24/7 customer service, market analysis, retirement planning resources, and access to hundreds of Schwab branches.

Vanguard vs. Charles Schwab — Frequently asked questions (FAQ)