What is a Good IRA Management Fee?
IRAs allow you to save for retirement tax-advantageously and accelerate compounding effects; however, their fees can quickly eat away at your account balance.
Investment management fees, commonly referred to as wrap fees, combine with individual mutual fund and exchange-traded fund expenses when you invest in them.
Assets Under Management
An individual retirement account (IRA) is a tax-advantaged investment vehicle designed to allow individuals to save and invest for the future with tax advantages. They can be opened with various providers offering various investment options, fees and services.
Fees must be considered carefully when investing for retirement, since even small variations in fees can add up over time and end up costing big money.
Management fees are charges levied by professionals entrusted with managing assets on behalf of clients, typically charged as a percentage of total assets managed and collected on an ongoing basis.
Legacy IRAs may incur costly custodial and investment fees, whereas online IRAs tend to be much more cost-effective and provide educational resources to help consumers understand their investments. Some investors may prefer traditional IRAs for their hands-on control and flexibility – in such instances it would be wise to locate an IRA provider with no account-level fees and low commission rates on US listed stock, ETF and mutual fund trades online.
Wrap fees provide investment managers with an effective means to charge an all-encompassing management fee that covers multiple services at once – such as financial advice, trade execution fees and brokerage services.
Wrap fees can be an attractive solution for investors, but it’s essential that they understand exactly which services and costs are covered under each program before enrolling in it. Doing this can prevent unpleasant surprises while guaranteeing you receive maximum value from your retirement savings account.
Yvonne, an Narrow Bridge Finance reader, recently realized her Meryl Lynch wrap fee was increasing by $100 annually – this could significantly erode away from her retirement savings over time. Luckily, she was able to pay it herself before it was deducted from her account, but not everyone will be so fortunate.
Custodian fees are charges levied by an institution (like a bank) responsible for managing and protecting your IRA investments in accordance with IRS rules. Custodial fees typically are non-deductible unless paid from outside personal funds or an itemized deduction is claimed against them.
Custodial fees are charged either quarterly or annually, with fees typically hovering around $50 annually on average. While some custodians charge flat fees, others have fees specific to alternative investments or assets held with them.
Some IRA providers waive custodial fees for customers that meet a certain minimum investment level or opt to receive electronic documents instead of paper statements, which is a great way to reduce fees and increase potential returns. Be sure to inquire if your provider offers these waivers; otherwise it might be wiser to switch providers who don’t charge such fees as this could save hundreds over time!
Account Maintenance Fees
IRAs can be an invaluable addition to the retirement planning arsenal, magnifying compound interest by enabling taxpayers to save tax-free. But an IRA isn’t free; rather it comes with multiple fees associated with its operation – including account maintenance charges from providers and trading transaction costs; transaction commissions associated with trading within an account, mutual fund expense ratios and sales loads that must be covered as well.
Fees charged by asset management providers typically take the form of a percentage of total assets managed and are applied on an ongoing basis; typically monthly or quarterly. Any discrepancies in fees could have an enormously detrimental effect on overall returns.
Banks, brokerages and investment firms today are often willing to waive these fees for their IRA investors – an indication of an industry understanding the importance of keeping fees as low as possible and encouraging comparison shopping between providers for your IRA account. It also means you should compare fees before choosing your provider.