Roth IRA fees / expense ratios

[dh003i]

Regarding the yearly fee for maintaining a Roth IRA and the expense-ratios for mutual funds within a Roth IRA, do they have to be paid for from within the Roth IRA, or can they be paid for from outside of the Roth IRA? I was talking to a Fidelity representative who said the former, but the application forms for Tocqueville say that they can be paid for with money from outside of the Roth IRA.

[Appleby]

The IRA plan document will usually say what's allowed... in general -the administrative fees can be paid out of pocket and may even be deductible. See Page 10 – under “How much can be contributed” and page 12 of IRS publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf... Not sure about expense-ratios. I will check .

[John G]

Some, but not all, custodians allow for the annual fee to be paid by outside funds. Since this is an allowed activity, I suspect that some custodians just don't want to bother with mailing notices and processing checks.

I have never heard of any mutual fund ever allowing expenses to be paid for with non-IRA funds. Imagine someone with $300k in a mutual fund with expenses of 1.5%... if you could write a check for expenses then you could cover the $4,500.

If the reader of this thread has experience with a mutual fund that allows you to cover expenses with outside funds, please post the name and phone number of the fund. I will follow up with them.

Concerning Tocqueville mutual funds: They charge $15 annual fee per IRA type account with the max fees if multiple accounts of $30. The annual fee can be paid by non-IRA check or from the IRA account. They do not allow investors to pay "expenses" outside of the account. One of their advisors said "expenses are an imbedded cost and there is no option for special external treatment".

[Guest Derelict]

If you can tie the expense to the investment it would not be permissible to pay outside the account. (Cost of owning that investment, not having the IRA)

The only thing you can pay outside the account is a recurring administration fee to have the account open.

See RR 86-142 & RR 84-146

[dh003i]

Thanks for the responses. Now that I think of it, it doesn't matter for Fidelity, since they aren't charging Roth IRA fees anymore. It's too bad you can't pay the expense ratios from outside of the fund (that would allow your tax-sheltered money to grow faster). But, at least some custodians allow you to pay the Roth fee outside of the Roth.

[John G]

Even when a brokerage or mutual fund says they have an annual fee - don't accept this on face value. High asset accounts can be exempt. Families with other business ties can be exempt. Anyone who has set up a monthly contribution plan may be exempt. It often pays to just flat out ask for a waiver of the fees, because IRA money is highly prized because it stays with an organization longer than many other accounts. To keep your business or to encourage you to bring more business, some firms will waive the fees. How tough or relaxed a custodian is on fees goes in cycles and is often more driven by competitive pressures than actual costs.

[dh003i]

John,

Thanks. That makes sense, since it is prices that determine costs, and not costs that determine price.

[ElGuapo]

It often pays to just flat out ask for a waiver of the fees, because IRA money is highly prized because it stays with an organization longer than many other accounts.

just an aside, you know what's interesting is when e*trade or fidelity or other discount brokers offer big promotions for transfering an account, they often exclude ira assets from the offer. i can't say for sure what the logic is, because i believe John G is right about these being coveted assets, but maybe the thinking is that everybody has big money in a rollover ira, but only the truly high net worth people have $50,000 in a taxable account as well.

[John G]

"only the truly high net worth people have $50,000 in a taxable account as well. "

I sure would not start at 50k to define high net worth people. It is not just the assets but the depth of the relationship. And, 50k is no magic number. Ya' just need to ask for the waiver and do basic consumer comparison shopping.

The waiver of IRA/Roth annual fees is not just a function of taxable account balances. Most custodians that offer this feature allow any linked account that total to $xxx and that threshold has at times been as low as $20k. So, a family with $15 in taxable and two $20K IRAs would very likely qualify.

It is rare to find someone older than age 35 that would not qualify at some institution for no-fee IRAs.

The key is to ask for the waiver.

A final note. No-fee is not necessarily the dominante issue. Convenience, investment options, research support, access to mutual funds, allowed investment options, web technology, executions (how good a price you get on trades) and commission schedule are also very important.

(In many areas of investing folks are single minded about commissions when trade execution may be a much bigger and hidden cost.)