What is a Good IRA Management Fee?

Fees add up and can take a significant chunk out of your retirement savings over time, which is why it is so crucial that you keep tabs on any fees that you are incurring.

IRAs and Roth IRAs can be an excellent way to multiply compound interest through tax-advantaged savings accounts, but opening and managing one may incur fees and costs.

Fees for Advisory Services

Fees associated with retirement savings and investment accounts can add up quickly, from maintenance, advisory fees, trading commissions, back-end loads (charged when purchasing or selling funds), to even back-office loads incurred when buying and selling funds.

After the Tax Cuts and Jobs Act was passed in late 2017, many advisors have begun shifting away from charging an Asset Under Management (AUM)-style fee and instead billing clients directly for mutual fund and ETF costs that they manage – while these fees are non-deductible, they don’t impede with your pre-tax IRA and may be more cost effective than traditional investment advisory fees.

However, some advisors still provide a “pro-rata” billing approach designed to mitigate tax deduction losses. With this strategy, any investment management fees allocated towards traditional or Roth IRAs will be taken from outside taxable accounts while leaving as much of your IRA funds tax-deferred.

Fees for Investment Management

Fees charged by asset management services typically comprise a percentage of assets managed. Thanks to robo-advisors which charge lower management and investment fee rates, many of these fees have become hidden over time.

Fees associated with mutual fund or ETF investments held within an IRA typically accrue in significant amounts over time, especially when compounded across decades.

Once again, transaction fees or commissions associated with your IRA transaction can add up quickly. While each fee might only cost a fraction of a dollar each, they can add up quickly over time. When considering opening an IRA with a broker, make sure they clearly disclose all fees fairly. It’s also essential that any payments for fees made using pre-tax funds instead of after-tax ones in order to prevent a situation where an after-tax fee’s breakeven period outweighs its tax deduction value.

Fees for Administrative Services

As is often the case, fees charged for IRA management have an enormous effect on your retirement savings. That’s due to compound interest: as money accumulates over time it can grow exponentially into greater wealth than initially predicted if invested fees are too high compared to returns generated. If fees exceed this target threshold however, final savings will likely be drastically diminished.

Financial institutions will typically charge administrative fees to manage your retirement account – including record keeping, legal services and accounting services. These expenses may be included as part of your fund’s expense ratio or appear separately on your statement.

One way to reduce these fees is through the use of a robo-advisor like Betterment, which charges a low flat fee of 0.25 percent and provides features such as tax loss harvesting and automatic rebalancing at minimal additional expense. Betterment makes tracking your IRA management fees simpler since everything is located in one convenient place.

Fees for Closing Your Account

IRAs can be an effective tool to help you save for retirement in an tax-advantaged manner, amplifying the power of compound interest. But they’re not without costs: fees charged may have an adverse impact on both investment results and how soon retirement arrives.

As well as wrap fees, fund-style investment fees may deplete your IRA balance over time and significantly diminish retirement savings.

Fees have been reduced or eliminated at most reputable providers; however, check carefully as some IRA accounts still charge custodial fees on low-balance accounts and charge back-end loads that typically amount to several hundred dollars annually.

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