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Charles Schwab IRA Review

I recently opened a Roth IRA with Charles Schwab.

It’s not my primary IRA–that’s with Vanguard. In fact, the only reason I initially opened the account was to take advantage of Schwab’s 2% cash back credit card. (With the card, the cashback bonuses are deposited into a Schwab brokerage account. From there, you can have the money swept into a Schwab IRA.)

That said, I’ve been quite pleased with Schwab so far. Over the last year, they’ve become significantly more appealing to buy & hold investors like myself due to their reduction in trade commissions (to $8.95/trade) and release of commission-free ETFs.

Schwab Commission-Free ETFs

Schwab’s selection of in-house ETFs (on which they don’t charge trade commissions) seems to grow by the month. Currently the selection includes:

Domestic Stock ETFs

  • SCHB: A domestic, broad-market ETF, with an expense ratio of 0.06%.
  • SCHA: A domestic small-cap ETF with an expense ratio of 0.13%
  • SCHV: A domestic large-cap value ETF with an expense ratio of 0.13%

International Stock ETFs

  • SCHF: An international equity ETF with an expense ratio of 0.13%
  • SCHE: An emerging markets ETF with an expense ratio of 0.25%.

Bond ETFs

  • SCHP: A TIPS ETF with an expense ratio of 0.14%.
  • SCHO: A short-term US Treasuries ETF with an expense ratio of 0.12%.
  • SCHR: An intermediate-term US Treasuries ETF with an expense ratio of 0.12%.

Between those 8 ETFs, you can easily put together a diversified portfolio with super low costs.

No-Commission Treasury Bond and CD Purchases.

Also, at Schwab you can purchase Treasuries (both TIPS and nominal) at auction without paying any commission. Purchases of new-issue CDs are commission-free as well. So if you would prefer not to use a bond ETF, you can just put together a CD or bond ladder for the fixed-income portion of your portfolio.

Schwab Customer Service

To date, I’ve only contacted Schwab’s customer service once. At the time I called (a weekday afternoon), there was literally no hold time. Of course, I can’t say that would necessarily be the case at other times of day or on weekends. And I have yet to contact their customer service via email, so I can’t say anything about that one way or the other.

Where to Open an Account

If you think Schwab might be a good fit for you, here’s the page to open an account.


  1. Mike,

    Thank you for the review- I was considering opening a Schwab brokerage account since they started the commission-free ETFs, reviewing the available ETFs was quite helpful. Two questions:

    #1 What is your impressions about their web interface?
    #2 Do that have a tax efficient commission free fixed-income option like a municipal bond fund?

    -Rick Francis

  2. I’m quite happy with their online interface. Though perhaps I’m not terribly picky, as I’m also happy with TradeKing’s and Vanguard’s. (I haven’t found a company whose website I’m not satisfied with really.)

    Here’s the list of the funds available in their no-transaction-fee marketplace, sorted by category.

  3. Mike, I was unclear as to whether this was a second Roth IRA or the only one. In either case, my question is whether it matters or not to have multiple IRAs of either type, or to split your holdings among multiple providers. My urge has been to consolidate everything with Vanguard, as it makes tracking and rebalancing easier.

    (Minor personal disclosure: I went to high school with a young man who later became co-CEO at Schwab and obviously very successful, before a rather ignominious demotion in the mid-’90s. His name was David Pottruck.)

  4. This IRA was in addition to my IRA at Vanguard. You’re absolutely right that the more providers you use, the more complicated things are. My initial motivator was simply the Schwab credit card, which requires a Schwab brokerage account.

    From there, I figured that if I’m going to have a Schwab account, it may as well be an IRA rather than taxable. (Between my Roth, my wife’s Roth, my wife’s plan at work, and my business income, we could contribute upwards of $50k per year to retirement plans if we had the cash. So there’s no worry about running into contribution limits.)

  5. But you could each contribute no more than $5k per year to all your IRAs, right?

  6. Correct. $5k per year to split up between all your traditional or Roth IRAs.

    Said differently, having IRAs at more places neither increases nor decreases the total contribution limit.

  7. Any other feedback out there on Schwab’s customer service. We have accounts with several brokerage firms but want to move Fidelity investments (or not add to our relationship) since their customer service (over telephone) is so poor. It is good that they finally reduced trading fees, but most other fees have increased. Fidelity also has a 2% reward card (American Express) for retirement plans or 529 plans (529 customer service is especially poor-even at supervisor level). It will be interesting to see if the reward cards continue this year. Fidelity used to have a MasterCard program and now only has American Express. Any one know if Visa (Schwab card) or Amex is accepted more?

  8. As to which card is accepted in more places: I’ve never had an Amex card, but I can tell you I’ve never had anywhere not accept my Visa (cash-only businesses notwithstanding).

  9. Mike- feel free to edit as you see fit if you feel it doesnt fit here or help the discussion.

    Ok as background I am looking for a low, no fee Individaul 401k account provider.

    Fidelity offers the Individual 401K with no admin fees. Unfortuanately if I want to purchase Vanguard funds for my Individual 401k at Fidelity I would have to pay a $75.00 fee for each fund.

    Fidelity said they do not offer the Roth Option with the Individual 410k at this time. One rep I spoke to said that they may later this year.

    Vanduard offers the Individual 401k with the Roth option. No setup fees and beginning in 2010, $20 per year for each Vanguard fund held in a Vanguard Individual 401(k) account. If at least one participant qualifies for Flagship, Voyager Select, or Voyager Services, the account service fee will be waived for all participants in the plan.

    With the Vanguard Individual 401K you can not use EFTs as investment vehicles.

    For us the decision make actually comes down to the adoption agreement requirements w/ regard to professional entities.

    Vanguard requires us to prove with documentation that we operate as a sole proprietorship in the State Of Florida. My wife and I are self-emploted, pay self-employment tax, file jointly and have 2 Schedule Cs where at the top it reads “Profit or Loss from Business (Sole Proprietorship)”. We do not have any docs that show we are operating as a sole proprietorship in the State of Florida.

    Sadly, as I understand it, as licensed real estate sales associates in the State of Florida the law prevents from establishing ourselves as a sole proprietorship entity. We can as as individuals be LLCs, P.A.s, S-Corps, and C-Corps. Not sole proprietorships at all under any circumstances. So in order for us to meet the requirements for Vanguards adoption agreement and the Florida laws we would have to establish 2 LLCs or 2 P.A.s. One for each of us as individuals.

    Fidelity’s Adoption Agreement only requires an EIN. I called the IRS and they said that even though we are not required to have an EIN we can get one.

    I explained this situation to the Vanguard Concierge person and said that they would likely loose my business because of their doc requirement. They didnt seem to be bothered by that. πŸ™ I have to say the concierge person was very knowledgeable and professional.

    We have a Schwab brokerage account. Schwab offers a no fee Individual 401K account with no minimum balance. You can use EFTs as investmetn vehicles. Schwab doesnt require any docs w/ regard to sole proprietorship issue. Unfortuantely the Schwab Individual 401K doesnt offer the Roth option at this time.

    So I do not kow what we are going to do yet.
    Kind regards, Capt. Mike

  10. Wow. Thank you for taking the time to share all the information you’ve collected. πŸ™‚

    If you don’t mind, it might be helpful to use it as the starting point for a future blog post.

  11. Use as you see fit Mike πŸ™‚ …I want to mention that I was REALLY pissed when I realized my own profession and State Of Florida laws was in my way and preventing me of saving as I want and need to! Just rediculous!

    I was also hoping that Vanguard would see the light. They are the only business that I came across that requires “the document filed to form the sole proprietorship” when opening an Individual 401k account. You would think the Schedule Cs where at the top it reads β€œProfit or Loss from Business (Sole Proprietorship)” would do the trick. I thought maybe it had something to do with the Roth option. So I asked the Fidelity rep that if and when the Roth option became available would they need “the document filed to form the sole proprietorship” and they said no. So it seems to be something that appears to be unigue with Vanguard unfortunately. πŸ™

    Kind regards, Capt. Mike

  12. I cannot find where to apply for the Charles Schwab visa. Is it buried in the account application somewhere?

  13. Hrm. When I click through, it seems fine, but when I try to apply it says, “Your session has either timed out or has not been correctly established. Please sign on again.” The way it’s phrased, it looks like it’s invite only. I may just have to give them a call. It’s difficult because I already did my maximum IRA contributions for 2009 and 2010; I’d hate to have to open an account with them and pour in new money into a non-tax-advantaged account just to get a crack at the ‘free’ money. Thanks for the lead, though– I’ll see if I can figure out a way to make this work.

  14. Figured it out, this is the link for everybody:

    Oddly, I got a “we will consider your request” screen, which in my experience at least usually means they’re going to decline the application. Odd, since my credit is good.

  15. Mike:

    Nice write-up, as always, but I think you transposed the tickers for the Dreyfus Bond Market Index Fund(s). The Basic class of the fund, DBIRX, has an ER of 0.15%, but trades with a transaction fee at Schwab; the Investor class, DBMIX, is NTF with an ER of 0.40.

    Best regards,


  16. Nice catch. Thanks for pointing it out. I’ve fixed it in the article.

  17. Mike,

    Did you mean to overlook Schwab Total Bond Market Fund (SWLBX) when referring to no commission bond index funds?


  18. Good question.

    I left it out due to its expense ratio. Paying 0.55% for a fund that tracks the same index as DBMIX (0.40% ER and available as a no-load at Schwab) doesn’t make a lot of sense to me.

  19. Good point. I hadn’t realized they were both tracking Barclays until you pointed it out. The Schwab site still refers to it as Lehman.

  20. david pottruck says


    this popped up in my inbox. who exactly is the “Larry” I knew in high school?? im glad you are a Schwab client. they are a wonderful firm to this day.

    dave pottriuck

  21. Mike- an update with regard to my inability to open a Solo / Individual 401 K with the Roth option or component at Vanguard.

    They have been working on this for a couple of weeks now. My rep called me the day before yesterday to inform me that I could move forward. They have seen the light and so we will be opening an Solo / Individual 401 K with a Roth option at Vanguard. πŸ™‚

    I give Vanguard and my rep a lot of credit for going the extra mile for us. I was a little bit of a squeaky wheel…

    For those self-employed or sole proprietors who are interested in learning more about the Vanguard product you can go here:

    and here:

    Kind regards, Capt. Mike

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