When you invest IRA funds, you want as much of your money working for you as possible. Keeping your fees and expenses low helps ensure that your money works hard for you. IRAs are subject to a number of fees and expenses, but if you shop around, you can eliminate some of those fees and lower others.
Some banks, brokerage firms and mutual fund companies charge a quarterly or annual maintenance fee to act as custodian for an IRA, especially on a small account. You can reduce, or possibly eliminate, this expense by shopping around. If your account is large, there is a greater chance those fees will be waived. Ask about any fees before you open the account.
Every mutual fund has an expense ratio, a figure that represents the cost of owning that fund. Some mutual funds, most notably index funds, have low expense ratios, while some managed funds have high expenses. If you choose a well managed index fund, you can get your expense ratio down to less than 0.20 percent, according to The Motley Fool website, while the more expensive managed funds can charge 2 to 3 percent or more.
One of the advantages of IRAs over 401k plans and other retirement plans is that you can use the funds to buy and sell individual stocks. But when you buy and sell those stocks, you can expect to pay a brokerage commission, and if you are a frequent trader those costs can add up. If you plan to actively trade stocks within your IRA, look for a brokerage firm that offers a set number of free trades per month, or at least offers low commissions.
If you choose to invest your IRA funds in load mutual funds, you may incur a sales charge when you buy into that fund, a charge when you sell the fund, or both. If you plan to use load funds, review these charges carefully. You also can look for no-load funds you can substitute for those more costly load funds. No-load funds do not charge a sales fee when you buy or sell them, and that can reduce the cost of trading significantly.
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