Account Fees Associated with a Roth IRA
One thing most people who make use of retirement accounts, such as a Roth IRA, fail to think about are the fees associated with having such an account. People tend to focus on the overall balance they hold in these types of accounts, as well as thinking about the rate of return they're receiving on the investment vehicle that they've chosen for their Roth IRA account. Still, fees are assessed to almost every type of retirement account that exists, and these fees can consume some of the gains that you will experience with your retirement investments but do not necessarily outweigh the benefits of a Roth IRA.
Standard Retirement Account Fees
Depending on the types of investments that you're holding in your Roth IRA, you may have different levels of account fees that you'll have to pay. One of the most common types of account fees is an annual fee that's levied against your account. Regardless of whether you use a bank or a brokerage firm to host your Roth IRA account, there's a good chance that this type of annual fee will be assessed.
The annual fee is generally a small amount, maybe $10 or $25, that's used to handle mailings and other account management costs. Sometimes, if you have a certain level of account balance in your Roth IRA, the financial institution will be willing to waive this fee. It never hurts to ask whether you can have this fee waived, especially if you've held the account for quite a while. Some financial institutions may even assess a fee for starting an account, so make sure you ask whether this will apply in your case.
Another type of fee that you may find with a Roth IRA account is the transaction fee. Each time you deposit money into your account, you might be assessed a fee based on the amount of the deposit. This can occur when you've asked the brokerage or financial institution to send you a bill each month, thereby helping you make sure that you make regular deposits throughout the year, allowing you to stay on track with your financial retirement goals.
You'll be assessed a fee if you have stocks or mutual funds in your Roth IRA account, as some fees are based on purchases of these types of securities. Additional fees may be assessed with a mutual fund to deal with the costs of managing the mutual fund, and these fees are assessed to the mutual fund as a whole. So, everyone who holds a share of the mutual fund in a Roth IRA account would be assessed a percentage of the total fee. You might not even notice these fees, as they're deducted from dividends.
Other fees on your Roth IRA account can be levied if you're using a financial professional to help you make your choices of mutual funds or stocks. Each brokerage handles these fees a little differently, so be sure to shop around to find the lowest fees. In fact, some brokerages don't charge these types of fees, keeping their overall fees low with the use of index mutual funds.
Potential Roth IRA Penalties
Account fees associated with a Roth IRA aren't the only potential situations where you could end up seeing some of your gains in the account be lost. For example, if you attempt to make a withdrawal from your Roth IRA account before age 59 1/2, you'll have to pay a penalty on the funds that you withdraw. This penalty can make a significant dent in the financial gains in your Roth IRA, so do everything you can to avoid having to pay this penalty.
Did you Know?
The Roth IRA is a retirement account that is funded with post-tax income. You pay taxes on your income this year as you would during any year and invest the funds in the Roth. Since taxes have been paid before investing you never pay income taxes on those funds in the future.
