Ally IRA Review

Most reviews of Ally Invest (the brokerage side of Ally Bank) rhapsodize about the convenience of being able to manage all of your financial matters — savings, checking, auto and home loans, credit cards, investments — in one place. But is the convenience of account consolidation enough to justify setting up an IRA at Ally Invest? What if, like me, you’re not currently an Ally Bank customer?

I opened an Ally Invest IRA account to test it out. The broker’s simple platform delivers on many of the high-priority items on my IRA shopping list (like low fees and a wide selection of no-load mutual funds and ETFs), making it suitable for DIY investors. Less impressive — and, frankly, potentially dangerous for your long-term investment returns — is Ally Invest’s free Robo Portfolio offering. The requirement to allocate 30% of your retirement portfolio to cash as a “buffer” makes it an inappropriate choice for all but the most conservative investors.

Ally Invest IRA pros & cons

Retirement account types

Traditional, Roth and rollover IRAs are all front-and-center offerings at Ally Invest. Although “spousal IRAs” aren’t explicitly named on the broker’s IRA splash page, this type of account is an option for married couples where just one spouse works for pay.

Off the menu are custodial IRAs for minors with earned income (Ally Invest does offer a non-IRA custodial brokerage account), inherited IRAs or retirement accounts designed for the self-employed. A better choice for SEP and SIMPLE IRAs is Fidelity or Charles Schwab.

Ally Bank IRA: The Ally Bank IRA is a bank-based IRA (versus the brokerage-based variety at Ally Invest) available in Roth and traditional flavors and SEPs funded by an employer. Ally Bank IRA investment options are limited to certificates of deposit (CDs) and the bank’s high-yield savings account, versus stocks, mutual funds and ETFs offered through IRAs at Ally Invest. An Ally Bank IRA may be appropriate if you’re already retired and need a safe place (that is, less volatile than the stock market) to park cash you’ll need in the next handful of years. But if you’ve got a longer time horizon and are seeking to grow your retirement savings, stick with the IRAs at Ally Invest.

» Here’s how to decide between a Roth IRA vs. a traditional IRA.

Ally Invest IRA fees

There are three types of IRA-related fees to be aware of. Here’s how Ally Invest compares to other brokers out there.

Account fees: Like most brokers, Ally Invest does not charge any account setup or maintenance fees on its IRAs. However, leaving the broker will cost you: Transfers out of a self-directed or robo-advisor portfolio cost $50 (annoying, but not egregious), and you’ll pay an additional $25 IRA closure fee if you remove all your money (a below-the-belt parting shot, in my opinion). True, some other brokers charge IRA closure fees — $20 at SoFi, $49.95 at Merrill Edge, $75 at J.P. Morgan. But it’s a sign of confidence and customer friendliness that companies like Fidelity, Schwab and Vanguard do not hit customers with this junk fee as they’re heading out the door.

Trading fees: Ally Invest hasn’t always kept up with rivals when it comes to trading commissions; it took it awhile to drop its $9.95 mutual fund trading fee. But the broker has finally caught up, and today all commissions on stocks, ETFs and mutual funds cost $0. The company’s $20 broker-assisted trading fee is actually on the lower side.

Transfer fee credit: I stumbled upon this perk accidentally: If you’re transferring $2,500 or more into an Ally Invest account, you may be eligible for a $75 credit to cover any account transfer fees. Claiming the credit requires filling out a “brokerage account transfer reimbursement form.”

Investment management fees: Ally Invest can manage your IRA portfolio for you for a 0% to 0.30% advisory fee (charged as a percentage of the amount of money under management). Before you get excited about the prospect of paying $0 for professional money management, scroll down to “managed investment options” to find out why I don’t recommend going with Ally’s free robo advisor option. (Spoiler: You’ll be forced to hold a huge chunk of your retirement savings in cash — not a solid strategy for achieving good long-term investment returns.)

Self-directed investment options

Stocks, ETFs, bonds, CDs, U.S. Treasurys — Ally Invest is solid for retirement investment choices. It offers mutual funds from more than 500 fund families, with a healthy choice of more than 10,000 no-load mutual funds. But in other areas the broker’s lineup comes up short.

Fractional shares: Nothing to see here, sadly. Ally Invest’s arsenal of investment options does not include fractional shares, which allow you to invest with low dollar amounts. To buy partial shares, head to Fidelity, Charles Schwab or Robinhood. The broker does, however, have a dividend reinvestment program (DRIPs), which lets you automatically invest any dividends you earn on shares you own back into the asset.

Trading tools: Word of caution to intermediate and advanced investors: Ally Invest isn’t known for its research and screening tools. But if you don’t need detailed option data or after-hours charting, and aren’t looking to build a bond ladder, you’ll be fine with the broker’s tool chest.

Trading platform: The Ally app for iOS and Android is command central for all of the company’s banking and investing products. But if you want access to the full suite of Ally Invest’s offerings, use the web-based trading platform. There are some pretty major functionality differences between the Ally Invest website and the Ally Invest app. For example, mutual fund trading is not available at all via the Ally Invest app. (Granted, when is the last time you’ve had a “mutual fund trading emergency” arise when you’re out getting coffee?)

If you’re a hardcore data hound or tool-hungry investor, Interactive Brokers may more your speed. Check out our Interactive Brokers IRA review for more.

» Investing with Ally: See what we think about the broker’s full offerings in our Ally Invest review for traders.

Managed investment options

If you have at least $100,000 in investible assets, Ally Invest offers the option to work one-on-one with a dedicated financial advisor for a 0.75%-0.85% annual management fee.

But I’m going to focus on Ally’s IRA portfolio management option that applies to all investors, regardless of how much money you’ve saved: Ally Invest Robo Portfolios.

There are some pluses to this setup. There’s a low $100 initial investment required, and you can choose from four types of portfolios based on your risk tolerance and goals.

But. When choosing which Robo Portfolio you want, Ally Invest presents two options: Do you want to pay the broker 0.3% of the money in your IRA in management fees (via the Market Focused Robo Portfolio), or would you rather shell out $0 in fees, available if you choose the Cash Enhanced Robo Portfolio? Perhaps you’re thinking, “Why is this even a question? Of course I want to pay nothing. Duh!” That was my reaction until I realized that the requirements to qualify for Ally’s $0-fee Cash Enhanced Robo Portfolio would put my retirement readiness at great risk.

To qualify for free portfolio management at Ally Invest you must agree to hold 30% of your IRA portfolio in cash. Translation: Nearly one-third of the Cash Enhanced Robo Portfolio is not invested in stocks or even bonds. For comparison, the Ally Invest Market Focused Robo Portfolio, which charges a 0.30% management fee, also has a mandatory cash position — but it’s just 2% of your IRA assets.

Tying up 30% of your portfolio in cash equals a serious long-term opportunity cost. While your uninvested cash does earn interest, the rate is variable – meaning there’s no guarantee high rates will last for the years between now and when you retire. Uninvested cash is a huge drag on long-term portfolio performance. This is especially true for savers who are decades away from retirement and have years to weather the stock market’s ups and downs. Even with cash earning around 4%, as it is as I write this, it can’t keep up with the 10% that the stock market has delivered on an average annual basis for decades.

So here’s the takeaway: You don’t have to sacrifice your long-term investment returns simply to avoid a portfolio management fee. Charles Schwab does not charge any fees in its robo service, Schwab Intelligent Portfolios. (See our review of Schwab’s IRA offering.) And Fidelity Go offers $0-fee portfolio to investors with less than $25,000 in an IRA.

Retirement planning tools

Need answers to your most pressing retirement planning questions? Ally Invest’s library of beginner-friendly content provides a high-level overview on retirement topics. But unlike the big guns — Schwab, Fidelity, E*TRADE — the lineup of hands-on tools is super light.

Retirement calculator: You don’t need to be a customer to monkey around with Ally Invest’s retirement calculator. Just know going in that it’s an abbreviated version of more sophisticated calculators out there. The calculator answers two questions: the amount your current savings will provide annually if you don’t save any more money, and how much you need to save each year until you retire to meet your goal. The calculator doesn’t allow users to account for additional sources of retirement income or allow you to save your inputs.

Roth conversion tools: Even though there is a lot of interest in how to do a backdoor Roth, the sum total of information I could find on doing a Roth IRA conversion at Ally Invest was a thin FAQ recommending you check with a tax pro to decide. I got a similar response when I asked Ally Invest customer service if there were any tools to calculate the potential tax consequences of doing a backdoor Roth.

Doing an IRA rollover with Ally Invest

After I opened an Ally Invest rollover IRA, I was plopped directly into my empty account where there was no obvious path to follow to get the money from my old 401(k) into my new IRA. For answers, I fired up the live chat feature to ask the “New Account Concierge” what I needed to do to complete an IRA rollover. (FYI: Live chat is only available for current Ally Invest customers. The broker also offers phone and email support.)

Old-fashioned phone and paper route: I put “Daniel” through the paces with a battery of questions about the rollover process. (He did great, by the way.) Daniel advised me to contact my 401(k) plan administrator to initiate the rollover and request that a check with my account number on it be mailed to Ally Invest. Knowing from experience that there was probably an easier option, I pressed Daniel further to see if I could do an Ally Invest rollover online. Answer: yes.

Digital IRA transfers: Click on “Transfer Funds” from the account dashboard to initiate a full or partial transfer by selecting your old broker and typing in your account number. Pro tip: Go digital if you want a faster rollover. Daniel told me that a transfer from Fidelity would take around 5-7 business days doing it online versus 7-15 days for a manual request with paper forms floating through the postal system.

The transfer process isn’t as high-touch as the rollover experience at Fidelity, where customers are encouraged to reach out to the broker’s in-house team of rollover specialists. (Few brokers come close to Fidelity’s Midas touch in this area.)

» Compare rollover options: See our picks for the Best Rollover IRAs.

Bottom line

Unfortunately for retirement investors, Ally's brokerage offerings aren’t yet on the same level as its bank products. (It’s more on par with fellow bank/brokerage SoFi.) It offers the basics for DIY investors — commission-free trading, low account minimums, basic IRA lineup for individuals — who don’t mind making do with a limited lineup of portfolio management tools and aren’t looking to invest in fractional shares. But all but the most conservative IRA investors should steer clear of Ally Invest’s free Robo Portfolio, which requires a mandatory 30% cash allocation.

My recommendation: If managing all of your finances at a single institution isn’t your absolute highest priority, stick with the IRA powerhouses like Fidelity, Charles Schwab and Vanguard.

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