Excuse the possibly stupid question.

I'm working on setting up a Roth IRA. The company I'm considering charges a fee. The fee is 50% from 12 regular monthly payments I believe. In my case - I want to put $3,000 in the account. The company says that $1,500 will be deducted for various charges. They say this is a one time deal. They say that in the end it's an effective charge of 3.333 percent of total payments (total payments planned being $45,000). Naturally if I don't contribute over the 15 year period what I agreed to - the percent would be higher. And if I closed the account for any reason -I'd be out this money - I understand that part.

What I'm wondering is....

Is this common practice? I have kind of a sticker shock here, and I have no experience with investments (except for a money market account which doesne't really count...) I just don't want to get ripped off I guess :-)

Hope someone could help by letting me know if this is normal - or should I be considering another company.

Appreciate any assistance
my email is dmvillarreal@hotmail.com

The question is NOT stupid. But the fee structure surely is! No normal mutual fund that I am aware of charges this type of fee structure. The WORST case scenario is a front load on a mutual fund, plus an annual custodial fee. I would strongly suggest you look to set up your Roth at a no load mutual fund company, or someplace like Charles Schwab which has a ton of mutual funds with no load to choose from.

As you have explained this fee structure.... all I can say is that it is a huge rip-off. Perhaps you should send a copy to Consumer Reports as they like to shine the light on this kind of abusive arrangement. I join Barry is saying this is highly unussual and would go so far as to suggest that the proposal borders on fraud. I guess this firm has a narrow sense of what constitutes "fiduciary duties".

What company has proposed this? Please post a web site reference or a name.

You should understand that many mutual fund families and brokerages impose NO annual fee on IRAs. Those that do will often waive the fee for long time customers and those with significant assets. In addition, some custodians will waive the fees for anyone setting up an automatic deposit program like the monthly approach you mentioned. You can often request a waiver of the annual fee and it is often granted just to get your business. You should just walk away from anyone wanting to charge more that $25 per year. Frankly, zero sounds just about right to me.

The idea of charging 50% of a $3k deposit is robbery. I sure hope no one is falling for this idea. Could this be an insurance company? There is no reputable company that can with a straight face make an arguement that their level of service is worth such a fee.

You can find a list of mutual funds in the March issue of every year in Consumer Reports. Since you appear to be new to investing, I would like to suggest that you start with a basic index fund. For example, Vanguard has a fund that tracks the S&P500 and has low overhead. It is also NO LOAD, which means there are no front end or back end commissions charged. I believe they have a small annual fee. You can find them on the web. Schwab, Etrade, Fidelity, Scottsdale, are examples of various brokerages that you might consider.

The reason for choosing a broad based mutual fund like the index fund I discribed is that they hold a very diverse group of stocks. Stocks tend to outperform other investments when you are talking holding periods of 20+ years. We just have had two down years, which is relatively rare.

If you want additional advice on investment choice, you will need to post some basic info like your age, marital status, likely retirement year, current tax rate, etc. I am willing to give you more details about getting started, just post your questions.