It is so important for all of us to make sure we have a retirement saving plan and that we put that into force. Along with this plan it is super important to check that plan on a yearly basis and make sure that our retirement goals are still being met and that nothing has derailed that plan. I have written plenty of times about the things we should be looking at when doing that yearly checkup. If you would like that info again please checkout, “”. There is one thing that is way overlooked that you really need to worry about because it truly affects your retirement nest egg. You need to worry about the fees you pay in regards to your IRA.
Fees may not seem to have a huge impact on your account when looking at one year but looking at how fees affect your account over the course of decades starts to show just big of an impact the fees you pay make.
So how do fees add up? There are so many different ways that fees are charged and it really depends on your brokerage as to how you are charged. You may be charged in one or more of the following ways: Inactivity fees, transfer fees, account maintenance fees, minimum equity fees, trading fees, commissions and the list goes on. While you may have more ways you are being charged, the real question here is, “Do you even know what you are being charged?” If you do not know for what you are being charged and how much then now is a great time to figure it out.
One of the biggest ways brokerages charge is through a fee based on percentage of assets. Plenty charge trading fees and plenty don’t, again it depends on your brokerage. The average advisory fee is 1.24% but what does that get you? You need to know because it varies greatly by brokerage. That is only the advisory fee. It doesn’t count the fee to actually be invested in what you are invested in. Since the most common types of investments inside an IRA are stocks, mutual funds and bonds. Most of these investment options actually have a cost associated with them. For instance, those of you who have advisers who have invested your funds in mutual funds are costing you an average 2.02% (that is adding up all fees you pay including the advisory fee and fund fees.)
A 2.02% is a significant cost. This is especially significant when there are far cheaper options out there. That is where we come in. While there are plenty of other ways to lower your fees there are few options that are as low as a self-directed IRA. One reason a self-directed IRA is so much cheaper is because you are the adviser. You are the one deciding what investments you want in your portfolio. If you want to invest in real estate, gold, private placements or any other sort of investments then you can.
The fees we charge for a self-directed IRA are a simple $275 a year. It doesn’t matter how much your account is worth, it is charged a yearly fee of $275. Checkout our fee breakdown for a more indepth look at our fees. To give you an idea of how much fees can affect your account Below are two an account that starts out with $50,000 and is invested for estimate I decided to show you what the difference is between an account that pays the average adviser and mutual fund fee vs one that pays a significantly lower fee of say, .3%, almost a 1/3 a percent.
- IRA Account with a $50,000 initial investment making 7% a year for 20 years with a 2% fee for adviser and funds will have roughly $132,665 after 20 years.
- IRA Account with a $50,000 initial investment making 7% a year for 20 years with a .3% fee for adviser and funds will have roughly $182,919 after 20 years.
What do we learn from this? The account with a significantly lower fee ends up having a significantly higher dollar amount after 20 years. This is the obvious and the extra umph that you should hopefully realize is, the amount you are paying in fees really does matter and it can have a huge long-term affect.
A self-directed IRA can help to truly minimize your fees and maximize your profits. Learn more about a self-directed IRA or open an account now.
Author: Nick Barker