If you're deferring 25 percent tax when you contribute to your individual retirement account, fees of 1 percent or 2 percent might not seem like a big deal. However, if you're an average investor, half of everything you're putting into your IRA could be going just to pay fees. If you haven't been paying attention to the fees in your IRA account, it could be time to start.
An IRA custodial fee is an annual account maintenance fee. It's roughly similar to a credit card annual fee or a checking account's monthly fee. Like those two fees, you can usually find someone that will give you an account with no fee. On the other hand, if it costs $20 a year to have an account with a great IRA provider that has low costs on other parts of a $250,000 or $500,000 portfolio, a minimal flat custodial fee might not be a gigantic issue in the scheme of things.
Transfer, Transaction and Cancellation
It's common to pay commissions on trades, like when you buy shares in stocks or exchange-traded funds, and those fees will vary depending on the IRA provider you choose. Sometimes, the provider will reduce the fees when you buy funds that they underwrite. Other IRA custodians will charge you to pull money out of your account for another account or to close your account. While many of these fees are minimal, especially if you aren't trading a lot, loads on some mutual funds can be significant..
For most IRA investors, management fees are the largest expense. Many of the investments that you buy carry a management fee that is built into their returns and used to pay for their staff's salary. If you work with a money manager, he may also charge a fee. These fees are tied to the amount of money that you have invested and can add up quickly. When a $250,000 portfolio is subject to a 1.5 percent fee, it's costing you $3,750 per year. To avoid these fees, consider investing in low-fee vehicles like index funds or exchange traded funds that frequently have fees that are under 0.5 percent -- less than $1,250 on a $250,000 portfolio.
Self-Directed IRA Accounts
Self-directed IRAs are special accounts that allow you to choose from a wide variety of investments like precious metals, business interests or real estate. In exchange for this flexibility, many custodians charge much higher fees than regular IRAs. You can expect to pay account establishment fees, annual fees, storage fees for precious metals and fees for every transaction you make. For example, when you have a piece of real estate that has rents to be collected and bills to be paid, these fees can add up quickly.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.