How Much Should IRA Fees Be?
Roth IRAs provide investors with tax-free investment growth throughout their retirement. Unfortunately, like any investment account, they incur fees that can reduce your balance over time.
Over time, fees have decreased considerably. Here are the things you should keep an eye out for:..
Fees for Investments
Fees should always be taken into consideration when investing in an IRA, since even minor differences in fees can add up over time and cost your account an outsized sum of money.
Custodial and management fees are the most prevalent IRA costs, ranging from nothing at some brokerage firms to several dollars a month at others. To find an IRA provider who does not charge annual maintenance or transaction fees at all is generally best.
Many credit unions and brokerage firms that charge annual custodial fees waive them for customers meeting certain minimum balance or opening deposit thresholds, making IRA management/custodial fees even less of an itemized deduction expense. It may be worthwhile paying these expenses from outside funds rather than from within an IRA account, as doing so could help lower tax liability under itemized deduction rules.
Fees for Services
Your custodian (also referred to as your trustee) may charge fees for its services, though these should be clearly disclosed to you and listed on your IRA Disclosure Statement that is usually provided when opening an IRA account.
Most reputable IRA providers do not charge custodial fees; however, be wary of providers that charge account setup, maintenance or transfer fees as these charges add up quickly and may impede your money from contributing towards retirement.
Pay careful consideration when paying investment fees for traditional (non-Roth) IRA accounts that will produce taxable income when distributed, since such fees can become costly over time thanks to compound interest. Look for low-cost IRA investing providers; perhaps there are even those offering no-fee IRAs as well as low expense ratio investments so that you can focus on getting the most from your IRA account.
Fees for Rollovers
Many who change jobs or retire opt to transfer their old workplace retirement accounts into an individual retirement account (IRA), as these typically offer lower fees than 401(k) plans.
Pew Charitable Trusts estimates that this difference may seem minor at first, but over decades it can amount to hundreds of thousands in less savings. According to them, 401(k) investors often have access to mutual funds with lower fees than would cost when invested through an IRA (measured using “expense ratios.”)
But if you make an indirect rollover – where the 401(k) plan sends the funds directly to you, and then you transfer them yourself – it gets taxed twice, plus any fees related to moving the money yourself may expose your IRA to additional potential charges, such as opening fees and wiring costs.
Fees for Closing Your Account
Fees associated with an IRA might not be exciting to discuss, but they’re essential in understanding its impact on your savings value. Select an account provider with low or no fees for faster savings growth.
When it comes to traditional or Roth IRAs, fees should always be low for maximum returns. The same holds true for 401(k) accounts and other tax-advantaged retirement accounts such as SIMPLE (employee choice) or Simplified Employee Pension (SEP) IRAs used by self-employed individuals and small business owners.
Be wary of fees charged by financial advisors – such as “wrap fees” — which can eat away at your savings over time and reduce the amount that compounds over time. Look for providers offering no custodial fees, minimal management fees and trading commissions so your savings grow faster and reduce the chances that they run out during retirement. Luckily, several major providers, including BlackRock Mutual Funds and Vanguard offer competitive IRA fee structures.