I am trying to decide where to open my Rollover IRA and Roth IRA accounts.

I have searched and read many articles and discussions on this topic. However, I have not found a clear answer so far. Perhaps it is a matter of spending more time on this. I figure it is worth a shot to ask this question here.

Basically, I am trying to decide between using a mutual fund company such as Vanguard vs. a discount broker such as Scottrade.

At first glance, it seems that a discount brokerage would be preferable. It would afford wider selection of mutual funds and other investment instruments to choose from. As far as I can tell, there is no cost penalty when buying mutual fund shared through a discount broker vs. buying the same shares of the same fund through the mutual company direct. Except, there is a flat fee charged for every transaction (buy, sell or exchange). And this is the cause of my indecision.

I currently have a regular brokerage account with Scottrade. If I open my IRA accounts with them, I will have access to a variety of mutual funds. If I want to buy Vanguard index funds with very low expense ratios, I can buy them and pay the $17 fee Scottrade charges per transaction. That would prevent me from buying additional shares of the same fund on regular basis because $17 would be a significant percentage. So I would have to limit myself to perhaps annual contributions to my Roth IRA fund(s).

Instead of using Scottrade, I can open an account with Vanguard directly. I would have to pay account maintenance fees, IRA custodial fees and (higher) brokerage commissions on any non-Vanguard funds that I decide to invest in.

After having examined fee structures, I think it would be more cost-effective to open these two accounts with a mutual fund company directly, especially if I would be primarily interested in buying their own mutual funds. This way I can avoid spending $17 on commission whenever I want to add money or make changes. Am I missing something here?

You're not missing anything , vvk . Why not consider keeping your Scottrade account and also opening a Vanguard account . I have accounts with Fidelity , Schwab , and Vanguard . I will probably will get rid of an account in the future , but for now , my Schwab account in my home town just a very few miles from me makes doing business there very easy . And I really like the availability of Admiral class shares mutual funds in my Vanguard account .

A couple of points:

1. You probably should not be making a lot of "trades" in any year as the diversification of a mutual fund means there is a low probability of a specific event that will cause you to switch your assets. If you held individuals stocks, you would expect a higher trade frequency. If you but a fund and plan to keep it for years, a small transaction fee won't matter much.

2. If you have a small asset base in this account, then you can reduce you costs by dealing directly with a mutual fund family like Vanguard. Yes, the primary limiting factor here is you can only select from the funds they offer, but on a practical basis many fund families offer 30, 50, even 100 choices.

3. I don't have direct experience with Scottrade, but most discount brokers offer you literally thousands of mutual funds with no transaction fees. You might want to look at Etrade, Schwab, Fidelity, Brown, etc. Not all mutual funds will be listed, but you probably only need to find 1 or 2 to meet your needs. Some fund families, like Vanguard, just are not interested in developing marketing alliances with brokerages. That's why you either don't see them, or get charged a transaction fee.

You framed the problem rather well. Don't forget you can make a decision now, but later move your funds to another custodian.