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I have a couple of IRAs (one roth, one traditional), at a local credit union for state employees where I live. I'm fairly young, so the money has simply been in interest-bearing accounts to date. However, I've gotten to the point where I have enough money built up in there that I can move it over to an investment account instead of a simple interest-bearing account.

If I stick with the credit union and turn my IRAs into investment accounts, they essentially repackage mutual fund products from Fidelity. So, I'd be investing in mutual funds, and they seem to have a pretty reasonable selection of portfolio options so I'm fine with that.

My question is this: The credit union can charge .25% per year of the total amount invested as an administrative fee. In addition, Fidelity can charge an additional .25% on top of that, for a total of .5%. Given expected rates of return of, say, 7%, that's like losing 7 or 8% of my investment earnings to admin fees. Is that reasonable? Are there cheaper options out there that I'd be missing out on?

UPDATE: To be clear, the .5% administration fees are the ONLY fees I would be paying - no load fees, etc.

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    Many IRA custodians, not just credit unions, charge a flat administrative fee (perhaps as "little" as $25) for IRAs whose value is relatively small (usually $10K or less). So, if your account is less than $10K (0.25% of which is coincidentally $25), you are getting a "bargain" from your credit union when it charges 0.25% as an administrative fee. But, @CraigW's advice of moving your account to Fidelity or Vanguard (directly to them, not through a brokerage, not even a discount brokerage) is good. Vanguard even waives the administrative fee if you elect to go paperless. – Dilip Sarwate Dec 30 '14 at 14:44
  • Thanks for the help... presumably, if I go through Vanguard and they waive their admin fees, they have to be making money somehow, right? So are there other sorts of fees they'd be making it up with? As I've added as an update to the post, the .5% admin fee is the ONLY fee I'd be paying through the credit union. – John Chrysostom Dec 30 '14 at 14:49
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    @JohnChrysostom - no, the funds or investments would have an expense as well. Unless you mean that the Fidelity funds have a .25% expense, and that's it. Even so, .5% is high, about 10X too high. IMHO. – JTP - Apologise to Monica Dec 30 '14 at 15:03
  • That's right. The Fidelity funds have a .25% expense, and that is it as far as I understand. So it's a flat .5% fee. Which, as you've already pointed out is high. – John Chrysostom Dec 30 '14 at 18:55
  • Does your credit union restrict which Fidelity funds you can buy? If so, another benefit of rolling over would be to remove that restriction, so you can invest in cheaper Fidelity funds like FUSEX. – Craig W Dec 31 '14 at 2:42
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Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong.

  • Sharebuilder (soon to be Capital One something or other) also offers this. When they did charge a fee, it was $10/year. They currently only charge for buys and sells. You can buy portions of a stock or mutual fund (funds require an initial high minimum, then lower subsequent minimums) without worrying about having enough money to purchase whole numbers of stock. This may not be wise for numerous small investments, but it's decent for larger trades. – ps2goat Dec 30 '14 at 19:58
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Whether or not it's reasonable is a matter of opinion, but there are certainly cheaper options out there. It does seem strange to me that your credit union charges a percentage of your assets rather than a flat fee since they shouldn't have to do any more work based on how much money you have invested.

I would look into rolling over your IRA to Vanguard or Fidelity. Neither charge administrative fees, and they offer no-load and no-transaction fee funds with low expenses. If you went with Fidelity directly, you'd be bypassing the middle man (your credit union) and their additional administrative fees. Vanguard tends to offer even cheaper funds.

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