Fees for Traditional IRAs
Putting money aside in a traditional IRA allows you to save for retirement while enjoying an immediate tax break. You can write off the amount of your traditional IRA contribution against your taxes, providing an immediate tax savings and boosting the value of your investment that much more. But before you set up a traditional IRA, you need to take a hard look at the fees and charges associated with that account, from initial setup fees and maintenance costs to the fees associated with the investments themselves.
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Setup Fees
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In some cases, you might be charged a setup fee when you first establish your traditional IRA. But if you shop around carefully, you should be able to avoid that fee. You can choose from a number of IRA administrators, including banks, brokerage firms and mutual fund companies. By shopping and comparing, you should be able to find an IRA administrator that does not impose a costly setup fee on its new account holders.
Annual Maintenance Fees
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Some mutual fund companies, banks and brokerage firms charge an annual maintenance fee for their IRA accounts. The amount of this fee varies, and it should be reflected on your annual account statement. In some cases, the IRA administrator will waive this fee once the value of the account reaches a certain threshold. If you have assets with a brokerage firm, bank or mutual fund company already, you might consider moving your IRA to that same administrator to avoid those maintenance fees.
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Expense Ratios
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For many investors mutual funds are the bulk of their IRA accounts, and that can be a good thing. Mutual funds provide the kind of diversification that is hard to duplicate anywhere else, and this can reduce the risk associated with stock and bond market investing. But mutual funds have costs as well, and investors need to understand the true impact of those costs. All mutual funds charge an annual expense ratio, expressed as a percentage of plan assets. This expense ratio can range from less than 0.20 percent for low-cost index funds to more than 2 percent for some managed funds. Over time those fees add up, so it is important to keep them as low as possible.
Load Fees
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If you invest your IRA money in mutual funds, you need to be aware of sales loads and commissions. Some mutual fund families charge a commission, known as a load, simply for buying the fund. The amount of the load varies, but it can be as much as 3 or 5 percent of the purchase price. That means if you invest $100,000 in a fund with a 5 percent load, you are left with $95,000 after you pay that sales charge. In most cases, you can find a mutual fund with a similar investment strategy and performance record but no load, so shop around carefully before you buy a fund that charges a commission. If you are buying mutual funds for your IRA through a broker or financial adviser, make sure you understand all of the fees and charges associated with those funds.
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References
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