How Much Should IRA Fees Be?
Fees may seem like an obstacle to your investment returns, but you have the power to reduce them by comparing custodian fees and investment costs.
Fee differentials could cost savers billions, as reported by Pew Research Center. This could significantly diminish retirement savings.
Long-Term Savings
Long-term savings accounts can help you meet goals that require years or decades to achieve, such as traveling abroad, purchasing property or cars, saving for college education or building retirement nest eggs.
Long-term accounts can also serve as an emergency fund. Should job loss, home repair needs or medical bills arise unexpectedly, having this money available could make an enormous difference.
Some IRA providers charge account setup or maintenance fees (also referred to as custodial fees). Although these charges are often avoidable, over time they can add up and compromise your investments. To minimize fees altogether and protect yourself against possible penalties, look for providers offering low-cost investments or no-fee robo-advisor solutions.
Tax-Deferred Growth
Even though the Tax Cuts and Jobs Act altered how IRA investment fees should be paid for, most registered investment advisors (RIAs) continue to recommend billing accounts within pricing tiers with pre-tax dollars to ensure funds keep growing without incurring taxes when it’s withdrawn later on. This allows the funds to keep expanding without incurring taxes when they are withdrawn later on.
Investors in higher tax brackets may find this approach particularly advantageous; otherwise, paying advisory fees from outside taxable accounts could provide greater tax-free withdrawal opportunities when retirement arrives.
No matter which path you take, tax-deferred compound growth typically requires many years to overcome the cost of covering fees using pretax funds. Speak with one of Thrivent’s financial advisors today about structuring investments for optimal tax efficiency.
Multiple Investment Options
Numerous IRA providers provide you with an array of low-cost investments. Mutual funds and exchange-traded funds (ETFs), in particular, offer diversification and may produce better long-term returns than individual stocks.
Target date funds, which are mutual funds that automatically adjust their asset allocation based on your retirement age, can be an ideal investment choice in an IRA for people looking for an easy approach to investing. These funds may also make an ideal addition for retirement accounts with multiple beneficiaries who require ongoing management of investments.
If you decide to open a traditional IRA, look for a provider who charges no account maintenance or custodial fees and who provides commission-free ETFs at low transaction fees. Furthermore, for assistance selecting investments you might consider consulting with a robo-advisor with an affordable advisory fee.
Convenience
As retirement savings accounts, IRAs should serve as long-term retirement investments, so any extra fees that reduce investment growth should be avoided. A fee structure that aligns your financial institution’s revenue goals with client retention should be prioritized.
Many IRA custodians now provide low or waived annual IRA fees for high-net worth individuals, so it pays to shop around for one that meets your specific needs.
Betterment excelled in our analysis of robo-advisors and offers IRA accounts without an account minimum or trading commissions on stock and ETF trades onlineFootnote 2. Charles Schwab also boasts outstanding tools and education for new investors as well as low fees on online stock and options tradesFootnote 5.
Flexibility
Financial institutions rely heavily on their IRA fee structures to meet revenue and client retention goals. In order to remain competitive, the structure must be transparent, ethical and tailored specifically towards client needs.
Some IRA providers charge account maintenance fees (or custodial fees) of $50 or more annually; such fees should be disclosed in your paperwork.
Consideration must also be given to transaction fees and commissions associated with brokerage accounts when buying and selling investment-type assets such as stocks, ETFs and mutual funds. Such charges can become significant when investing actively or frequently shifting investments around. Some robo-advisors also charge investment help fees which could derail your retirement savings plans over time if they exceed reasonable limits.
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