Roth IRA Fees

Roth IRA fees are a nasty little thing.  What’s the point of avoiding taxes if your returns are eroded by excessive fees? Wise investors consider the impact of fees before choosing an IRA company.  Vanguard, for example (you knew I was going to mention them), waives all IRA fees if you agree to sign up for electronic statement delivery in lieu of receiving paper statements in the mail.

Most Common Roth IRA Fees

Avoid these fees like the plague.  There are plenty of no-fee companies out there.  Why settle?

• Annual  account maintenance and custodian fees – There’s no reason to ever pay one of these fees.
• Commission (sales or transaction) - There are two primary types of mutual funds:  open-ended and exchange traded.  Since ETFs are bought on an exchange throughout the day, you have to pay a brokerage commission to buy and sale them.  There are several discount brokerages with sub-$5 trades such as Tradeking and Zecco.  Open-ended mutual funds sometimes carry a sales load.  There are literally hundreds of high-quality mutual funds out there that don’t charge any sort of sales load, so there’s no reason to purchase one that does.  As for transaction fees, most brokerages have a large no-fee transaction list.  So long as you pick a fund on that list, you won’t have to pay a transaction fee.  If you go with Vanguard, you’ll never pay any of these
• Inactivity - Charged by many discount brokerages.  Make sure there are no inactivity fees before opening an account.
• Start-up (opening) - Do yourself a favor and don’t pay one of these.  There are too many companies that don’t charge one.
• Withdrawal (closing) - Many fund companies charge a fee to transfer your account to another company.  This is ridiculous.

Many brokers will waive the annual fee if a certain large minimum balance or automatic deposit amount is reached. Brokers who are more active managing the IRA will charge higher fees.

The sales commission paid on each transaction (buying or selling an investment) will vary widely. Some will be flat rates, others are based on the volume or amount of the trade.

Contemplate how active you intend on being with your IRA, select the company that caters to that trading level. While some businesses will penalize you for over-use, others will penalize you for under-use. If you don’t do anything with your account for an extended amount of time, you might be charged an “inactivity fee.”

A start-up fee might be charged when you open the account. This upfront charge is very common. Many traders dislike this fee because it reduces the amount of money you can trade even before you get started.

The withdrawal fee is charged when you close the account or withdraw money. Research if there are any time parameters placed on this fee.

Compare IRA Fees Carefully

Since IRAs are involved in trading activities (mutual funds, stocks, bonds and options) the fees charged should be compared to other trading accounts. Most investors don’t want their Roth IRAs needlessly reduced by numerous fees. It is important to analyze carefully all of the different fees that may be assessed on tax-free Roth IRA accounts. There are many different Roth IRA products around; no-cost IRAs are available also.

Before opening a Roth IRA, carefully consider all applicable fees that may accrue because they will have a very real impact on your ending balance.