Individual retirement accounts allow people to save for retirement using pretax income. The bank or brokerage that holds the IRA typically charges a custodial fee, which covers the cost of managing and accounting for the account and any changes made to the IRA. Before you open an IRA, take the time to understand custodial fees and how they are calculated, to ensure you're getting the best deal possible.
What Is a Custodial Fee?
A custodial fee is simply a flat fee charged by a bank or brokerage for administering or managing an IRA. Virtually every type of IRA is associated with some type of custodial fee, regardless of whether you choose a certificate of deposit, a mutual fund or some other type of IRA.
Custodial Fees vs. Sales Commissions
IRA custodial fees are not the same as sales commissions or transaction fees. Some investors want advisers to help them decide the best place to put their money. These advisers charge a sales commission, which can exceed 5 percent. This commission is added to the custodial fee associated with managing the account. If you're looking for a way to lower your expenses and you feel comfortable selecting your own funds, choose a no-load account. No-load accounts are free from sales commissions, so you'll pay only the custodial fee.
Saving on Custodial Fees
Some banks waive custodial fees for preferred customers, particularly those who meet a minimum level of investment, or those who start an account with a specific minimum amount of money. Others waive custodial fees for customers who accept online account statements in place of paper statements, or those who set up automatic transfer of funds from a bank account to the IRA. Banks in particular might waive fees for customers who have other accounts, such as a savings account or a mortgage, with the bank.
Deducting Custodial Fees
Custodial fees are tax-deductible under certain conditions. If you itemize your deductions and your miscellaneous expenses exceed 2 percent of your adjusted gross income, you can deduct your custodial fees. This applies only to investors who pay these fees out of pocket. Those who pay these fees directly out of the IRA cannot deduct this expense.
Emily Beach works in the commercial construction industry in Maryland. She received her LEED accreditation from the U.S. Green Building Council in 2008 and is in the process of working towards an Architectural Hardware Consultant certification from the Door and Hardware Institute. She received a bachelor's degree in economics and management from Goucher College in Towson, Maryland.