It finally came to you, maybe you were talking to a co-worker, or perhaps a member of your family, or maybe you just heard it on TV or the radio, but the realization finally came to you that you need to start thinking about your retirement. You’re not going to be able to live on Social Security, you know that. And your savings are just never going to be enough. Every time you go to put money into your savings, you find you’ve lost too much of it already to taxes. So you were wondering, what’s the best way to start putting away money for your retirement? The IRA is the answer you’re looking for.
IRAs help shield you from tax burdens. The money you put into an IRA is tax deductible. In some cases, like if you don’t already have a retirement account such as a 401K or a pension set up at work, then you will in most cases be able to deduct all the money you put into your IRA.
Of course there are variations in the rules. There are also expenses involved with managing your fund. So what are these fees exactly? How much are they going to cost you? That depends. That depends on the type of fund you have, where you invest your money, and who you invest your money with.
Just about any investment fund you put money into is going to have costs, expenses, commissions, etc. There will be transaction fees, and if there aren’t there will be management costs, and maybe sometimes there will be both. It’s up to you when setting up your IRA to find out what sort of charges you will receive. With the Roth IRA there is an additional fee tacked on known as the custodian fee. These will vary from company to company and will be different depending upon either the amount of money in your account or the type of investment your fund is in, or both.
The first thing you should do is to go to several companies (custodians) and get the applications and compare the fees. It’s best to go to the same types of institutions for these comparison, such as bank to bank or brokerage to brokerage. This will give you a good idea who is charging more and for what.
Secondly, make sure you see in writing what these custodian fees are going to be. IRAs at banks may have a $20 to $30 annual fee. This is pretty low. A more high-end account like a real-estate account may charge fees upwards of $200. Compare each type of account with the same type account at another firm for a clear comparison.
Third. Don’t be shy about asking for any sort of deductions or waivers in fees. Negotiate with your prospective custodian. Remember, they need you more than you need them. You’re the one bringing the money, not them.
Fourth. Make sure you are comfortable with your new custodian. Even though one may charge slightly more than another in fees does not mean you don’t feel as though he would be the right choice. Maybe you like what one custodian has to say better than another. Even though he charges $10 every year, the returns he brings you may very well offset this fee greatly.
What exactly are the Fees?
Most all IRAs are the same. There is a little variation between the Roth IRA and the traditional IRA, but at their cores they are in essence the same thing. All the same rules apply, and most all the regulations too.
There is however room for leeway when it comes to how you are going to invest these funds. You have choices. You can invest in higher yield, higher risk funds like mutual funds via the stock market, or you may choose to go the more conservative route and invest in bonds or even bank certificates of deposit. Either way, there are going to be fees involved with administering your IRA. Your custodian, or trustee, is not going to work for free. He’s in it to make some money too.
As a rule, the more your administrator, your trustee, has to work for you the more fees you are going to pay. That’s not to say that’s bad. Just the fact that you are being charged doesn’t mean they aren’t going to good use. You may pay more in charges, but every fee may earn you more money. So don’t shy away from fees just by the word alone. See what they are bringing to you in return, then make your decision.
Of course you can save on a lot of fees if you decide to make all your investment decisions on your own. Many people do. If you are a professional investor, if that’s what you do for a living, it would be wasting money to pay someone else to do what you can do for free. But most of us are not brokers or traders and we could stand to use some professional advice. Remember, just because you’re paying someone for good advice doesn’t mean he’s not making you even more money off your investment. Sometimes professional advice, even though it’s not free, is the best advice. And sometimes free advice, well, it’s the worst kind of all.
Full Service vs. Self Directed IRAs
Sometimes you can have partial involvement, or no real involvement at all. If you just want to let the professionals do all the work, you may want to take advantage of a full-service IRA. Here the seasoned professional can help guide you through the maze that is investing. Or maybe you’d like to just have a little hands-on. You can opt for a self-directed IRA. The fees are smaller here but you will be spending more time and making more direct decisions about the investments of your IRA.
What other Fees are there?
Most all trustees are going to charge you an initial setup fee. This is pretty standard. The annual fee for your account typically depends on which type of IRA you establish. And it is pretty common for you to get charged additionally for holding things like precious metals (like if you’re invested in, for example, gold coins), for moving your money from investment to investment, as well an assorted administrative fee. But really, all these are just basic brokerage charges. These are the same types of fees you would pay any financial institution for handling your investments. These are not special to IRA accounts only.
Before you go out and set up your IRA also remember this very important note: BY LAW, anyone offering you their services to handle your IRA MUST provide you with a comprehensive fee schedule. They MUST put down in writing everything they are going to charge you. Because of this, you will know in advance what sort of commissions you are going to be paying. Keep your eyes always open for discounted fees, or even waivers. It’s up to you, the customer, to always be looking for good deals. The amount of fees you pay for your IRA will vary on the type of account you set up, where you set up your account, what other types of investments you might want to choose from time to time, and the amount of money that you not only have in your account, but earn. In short, the amount you are going to be paying in charges is very much up to you, and to a large extent is in your control.