How to Open an IRA Account With a Low Expense Ratio

A traditional or Roth IRA offers tax advantages to retirement savers. But you still want to pay as little as possible in investment costs. The expense ratio is the equivalent of operating cost for a mutual fund or exchange-traded fund. Finding a no-load fund, or one with no sales fee, might feel like a triumph. But a high expense ratio can still eat into your returns because fund operating costs, in a stated percentage, are deducted from your fund balance each year, whether the balance has risen or fallen. To invest your IRA money in a fund with a low expense ratio requires research.

Get the list of fund offerings from a number of financial institutions. Banks, credit unions and brokerages typically offer IRAs. Each boasts a selection of mutual funds and ETFs from which to choose.

Find a fund with a low expense ratio. With your list of fund offerings in hand, visit the Morningstar website where you can find expense ratios by typing in the fund name or symbol. "The New York Times" also publishes fund expense ratio data every Wednesday.

Pick the fund or funds in which to put your IRA money. You might want to consider other factors such as sales fees and short- and long-term past performance. In addition, take into account the fund's risk level and whether it will help diversify your retirement holdings. With so many factors to consider, you might want to glean advice from an investment or retirement planning professional.

Open an IRA at the institution that offers the funds of your choice. You may be able to open a fund online or using hard-copy forms. You will need to provide your identifying information and your Social Security number. Name your beneficiaries and specify the dollar amount with which you want to open the IRA. List your fund choices where indicated. If you are choosing more than one fund, you may have to enter a dollar amount or percentage figure for each fund. If you are automatically transferring the initial investment, provide your bank account information. Otherwise, include a check when you send your form. Mail or fax it to the address indicated.


  • According to the Motley Fool, a low expense ratio is a ratio of less than 1 percent. Some brokerages routinely offer funds with expense ratios of less than 0.5 percent.
  • The expense ratio is made up of a management fee of 0.5 to 1 percent on average and administrative costs, typically between 0.2 and 0.4 percent. Some funds also charge a 12b-1 distribution fee. This is used for marketing and advertising the fund and may run from 0.25 percent to 1 percent of fund assets. Not all funds charge a distribution fee.

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D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.