You probably already know the major tax advantages of contributing to an individual retirement account. You get to deduct your contributions to a traditional IRA, and all of your investments in either a traditional or Roth IRA grow without incurring any current tax obligation. To qualify for those tax advantages your IRA must be held by a custodian or trustee, who will likely charge custodial fees for their services, and those fees can add up.
Types of Fees
Your IRA custodian or trustee might charge a variety of different types of fees to handle your account, depending on the complexity of your account and the types of investments you select for your IRA. For example, your custodian might charge a one-time set up fee, an annual maintenance fee and a termination fee if you decide to close your account or move it to another trustee or custodian. You might also pay other fees, such as sales commissions, transaction fees, mutual fund loads or management fees which are not, strictly speaking, IRA custodial fees because you would pay those charges regardless of the type of account your investments are held in.
All of those IRA custodial fees can add up over time. The Internal Revenue Service offers you a tax break on those fees, provided you elect to itemize your deductions. You can include with your other miscellaneous deductions any IRA custodial or trustee fees you pay that are billed separately. You can only deduct that portion of your total miscellaneous expenses that exceeds 2 percent of your adjusted gross income, however.
What happens in your IRA, stays in your IRA, and is not subject to current income taxes. That includes any custodial fees, commissions, transaction charges or sales loads. If your custodial fees are deducted out of your IRA account, and you don't pay them separately, you can't take a tax deduction for them.
Like most other financial products, there is a wide range of options when it comes to custodians or trustees. You can choose a bank, credit union, investments brokerage firm, insurance company, mutual fund company or any other financial institution approved by the IRS to serve as your IRA custodian. Each custodian has its own fee structure, and some offer reduced fees for larger investments. Shop around to find the custodian that offers the best fee structure for the type of investments you intend to hold in your IRA, and make sure you understand the fee structure before investing.
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