Update: You can easily get a free IRA account almost anywhere these days. If you are paying a custodial or maintenance fee, consider switching IRA custodians.
Free IRA Companies:
If you do still have an annual IRA fee…
Here it comes, the annual fee on your IRA account.
Many brokerages charge their yearly IRA fee, or custodial fee, on their customer’s IRA account during the third quarter. If you take a positive view of the industry, they do it then because there are many other things that have to happen during the fourth quarter, tax reporting is at the top of that list, so the third quarter is less busy. If you take a less a less charitable view of the financial industry, then they do it in the third quarter because that is when financial clients are the least likely to be paying attention. It’s summer, you aren’t really thinking about rebalancing your investments, or closely reviewing your paperwork for taxes, and so on. In other words, the third quarter is the best time to slip in an annual fee unnoticed.
Why Is There an Annual Fee on IRA Accounts?
An IRA account actually comes with a lot of overhead. Companies that offer IRAs are called custodians and have certain duties that they must perform. For example, all IRA accounts, contributions, and withdrawals must be reported to the IRS. Furthermore, regulations require statement delivery to IRA account holders at least once per quarter.
All of this would be fine, except that IRA accounts can earn very little money for banks and brokerages. Consider that many IRAs are not active. That is, no one is making contributions or withdrawals. No activity, means no commissions or transaction fees. No fees and commissions means no revenue, and yet, those reporting expenses are still there.
The truth is that automation and e-statements means that it costs the major financial firms very little to hold your IRA account for you. In fact, the cost is so low that many brokerage firms don’t charge an annual custodial fee on IRAs at all. Most of the others only charge a yearly IRA fee on small accounts, those with low activity, or on those that do not sign up for e-statements. For a list of typical IRA account fees, check here. (It’s a little out of date.) For a look at average IRA custodial fees, check here.
Avoid IRA Account Fees
There are several ways to avoid annual fees on your IRA account. First, check with any of the discount brokers. Almost all of them offer a free IRA option. Second, be sure your accounts are householded properly. Householding is where the brokerage puts all of your individual accounts under a single grouping for you, your spouse, and your dependent children. Since many brokerages offer free IRA accounts to clients with a certain minimum asset threshold, be sure that all of your accounts are counting toward that minimum.
If you don’t have enough assets to get a free IRA account, consider switching financial companies. You obviously aren’t important enough to them to get the “good” treatment, anyway. Better to save the money, and get first-class customer service somewhere else, than let a bigger player nickel and dime you to death.
You used to be able to deduct your IRA yearly fee, but you cannot deduct your IRA custodial fee this year. The Trump tax law (Tax Cuts and Jobs Act) took away this tax deduction.