IRAs offer tax-efficient ways to compound interest and accelerate retirement savings – but they’re not always free.
Fees have been steadily decreasing at most online brokerages and robo-advisors, with account setup fees decreasing or near-eliminating at many providers.
Schwab stands out in multiple areas, offering no recurring fees and offering an extensive array of investments. Betterment charges a $4 monthly fee but helps investors create portfolios as well as offering long-term financial planning services.
1. Expense ratios
Fees associated with an IRA are charged annually, and over time these can add up quickly. When investing in mutual funds or ETFs, look for ones with low expense ratios to maximize returns and minimize fees.
Expense ratios are expressed as a percentage of total fund assets, and reflect management, administration, distribution, and marketing fees that a fund incurs. They’re usually included in its prospectus for easy accessibility.
Many people overlook IRA fees when rolling over savings from workplace plans. For example, when moving R6 shares from one 401(k) plan to A shares at their new employer’s retirement plan could cause them to incur higher fees and risk losing thousands in fund growth and future gains.
2. Wrap fees
Though it might be tempting to opt for one-stop investment management fees, wrap fees can often prove more costly than purchasing individual services separately. They’re typically calculated based on a percentage of assets managed and cover expenses such as brokerage fees, investment advisory services and the management of mutual funds, ETFs, bonds, equities and options. The Securities and Exchange Commission requires investment advisors provide a wrap fee program brochure as part of their Form ADV filing so investors are aware exactly what their money covers.
These fees can quickly eat away at an IRA balance over time, especially as their compounding effect multiplies with the longer investment periods associated with retirement accounts. Therefore, it’s always preferable to avoid these fees completely whenever possible.
3. Account-level fees
Americans pay high fees on their 401(k), Roth IRA and IRA accounts without necessarily understanding why. This is particularly true of asset based fees which are charged against retirement plans’ assets as a percentage per year and quoted as such.
Fees that accumulate over time can eat away at an IRA’s value. Luckily, many IRA providers now offer low or no transaction fees for online trading; wrap fees have also been significantly reduced at leading robo-advisors; it pays to research providers offering such features as even half-percent reduction in fees can add up quickly – one such provider could reduce your IRA balance by thousands over time and could mean the difference between retiring earlier or not! Keep reading to discover ways of avoiding hidden costs!
4. Minimum balance requirements
Consider whether an IRA provider charges an account maintenance or custodial fee when choosing one – these costs will come directly out of your investment returns, which adds up over time.
Be mindful of any fees related to trading. Many online brokers now provide IRA accounts with low or no trading commissions and an option for investing your IRA funds into lower-cost mutual funds.
If you are rolling over an IRA from another provider, it is advisable to select a firm which doesn’t impose account maintenance fees, or makes this fee secondary in their selection criteria. Fidelity offers traditional IRAs without account maintenance fees and zero commission trades online U.S. stocks ETFs options and more trades; thus lowering overall investment costs while giving more money for investing toward retirement goals – after all that’s ultimately what counts most!