Yearly fees

[Guest soanywaytx]

I would like to purchase stock and designate it as my Roth IRA. The broker I've spoken with told me that in addition to the initial purchase fee for buying stock, there is a yearly maintenance fee for the Roth IRA. What kind of fee is common for this type of account? This is my first Roth IRA and I would appreciate any comments.

[John G]

First, not all brokerages, mutual funds and banks charge annual fees. Some that do charge fees will waive the fee if you just ask, or if you are a significant customer, or if your retirement assets exceed 5k or 10k. I am not saying that zero fees are common, but there are still some places where it is possible.

I have seen annual fees range from $10 to $50. Anything above $25 is a huge rip-off and should be avoided. The salesperson will often tell you about the wonderful service that the fee account provides... in my opinion there are very little actual service differences between custodians and the differences that do exist do not seem to have any relation to fees. "Anything to make the sale" seems to be the moto in face to face meetings. Resist the urge to sign up based upon promises.

You should avoid fragmenting your initial contribution into multiple mutual funds as this might increase the fees that will be charge.

Many custodian will allow you to pay fees with a check so that the tax sheltered funds are not consumed.

By the way, first you deposit funds with a custodian, then you make the investment decision. You fund IRAs with cash, not with previously purchased stock.

[papogi]

Both Scottrade and Datek continue to offer no fee IRA's (as of today!).

[John G]

Also beware of loaded funds sold by brokers. I would recommend that you stick with NO LOAD funds. You can change plans without exit fees. Loaded funds are funds with either front end or back end commissions of 2 to 7%. Brokerages often push loaded funds because of the fat fees they collect. On the other end of the spectrum are the index funds (like Vanguard) that are not only no load but ultra low annual operating costs.

It is pretty common to find a no-load fund to match each type of loaded fund where the performance is very similiar.... so why pay the sales charge? If you do a little bit of reading, most tax payers can make reasonable choices. Performance is often driven more by the type of fund you select (international vs US, large company vs small, growth vs value) then the individual stocks the manager chooses. It is very hard to have a broad perfolio of stocks that diverge in performance from the complete list of stocks because you get so much overlap in holdings.