There’s no such thing as a free lunch, or so goes the saying. Even in the context of saving money for retirement, you’re going to have to pay for the various services provided by your account custodian. Even if you have a “free” account at a discount brokerage, you’ll still pay transaction based fees for buying and selling investments.
All other things being equal, the more you spend on fees, the smaller your retirement nest egg will be. With that in mind, here are some suggestions for saving on investment and management expenses next year in your self-directed IRA.
Understand Your Baseline. The first step to reducing the fees you pay is to understand what you are paying now. Take a look at your prior account statements and identify all the fees and expenses you paid. It may be helpful to separate them out by investment type, so that you can compare appropriate categories going forward.
It’s important to acknowledge and understand that when it comes to fees and expenses, you’ll need to pay more in order to get a higher level of involvement and service. The fees and commissions applicable to buying a few hundred shares of a publicly traded stock are always going to be significantly less than those for purchasing a piece of real estate or for custodial services relating to precious metals investments.
Leverage Your Own Investment Experience. The next step is to examine those areas in which you have substantive investing experience, and consider cutting back on the professional management. For example, if you’ve accumulated years of experience investing in real estate with your taxable accounts, then you may be able to use that knowledge and expertise to make real estate investments with your self-directed IRA.
Professional Management. On the other side of the equation (and this might seem a bit counterintuitive), bringing in outside help in the form of professional active management might end up being a positive for your account. A professional may be able to identify areas in which your investment is underperforming and thereby increase your overall net return even once their fees are taken into account.
Evaluate Your Options. You may have more options available to you when it comes to structuring the fees you pay than you realize. For example, some custodians let you choose how your annual account maintenance fee is structured, whether that’s based on a percentage of your total account value, an asset by asset calculation, or even a flat fee that covers your account as well as the accounts of your immediate family members. You may be able to save a significant amount of money next year simply by going back to your custodian’s fee schedule and taking another look.