Is it normal for a bank to charge 5.5% service fee for Roth IRA?

Question

I know someone who just bought Roth IRA with a bank, and got charged a service fee PLUS extra the 5.5% of the principal. So for $5000 they got charged $275. Is that normal, as the customer now barely get anything from the IRA? I really don't know much about those at all so anything explaination would help.

Answer 1

It really depends on what bank you use. I used to work for a bank and we charged nothing for an IRA as long as the person did not take the money out before the term was up. This specific type of IRA is a CD IRA, which means you can get a better interest rate, at the time around 5%, that accrues into the account, or you can open up a Savings IRA, which means you can withdraw at any time, but you get a much lower interest rate. The bank may also have taken the fee out to pay the federal fees for early withdrawal, although this is quite unusual. I'd shop around as that is something that is definitely avoidable. Also, just a reminder, check the minimum balance requirements for the account as this may explain some of the fees they were charged.

Answer 2

Different banks charge different amounts. These days, where many people have their IRAs through their employer and where you can go online and compare prices instantly, most places do not charge anything, especially if you are already a customer there with other accounts. Some banks still do charge a nominal fee, but it should say it right up front in the contracts that he signed (If not, fight the fees).
Your friend needs to see if they will continue to charge an annual service charge, in which case he may want to review other banks and consider rolling it over to another 401k/Roth at another bank.
Check out http://www.bankrate.com for comparasions of interest rates, service charges and fees.

Answer 3

I've never heard of a 5.5% service fee for a Roth IRA.
However, your friend may have invested in an "front loaded mutual fund", which charges you a percentage (5.5% is expensive, but not unheard of) of your assets to enter the fund.
Tell your friend to ask what the fee represents.

Answer 4

A 5.5% fee is pricey, but most institutions are going to attempt to make money on their transactions. You shouldn't expect to unconditionally avoid a fee unless you have at least $10,000 in the account. If you have less than $10,000, you should be able to find an institution which will minimize or eliminate the fee by setting up an automatic deposit to the account (as little as $25/month) . Good luck!

Answer 5

The bank should not be charging you a fee. Interest does not mean fee. A bank shall give you interest(money the bank owes you for depositing the money in the bank) because you gave the bank money. Go to another bank or credit union when the bank wants to charge you for everything!

Answer 6

Not unless you take the money out before it's term. roth IRA's have terms and the charge may be from early withdrawl or something like that

tell her to ask the bank about it and find out why there is this charge and make them explain it.

Answer 7

Most banks do not charge for a IRA if you carry a minimum balance of $20,000. This would include savings, checking, IRA, investment account, mortgage, HELOC, etc.

Answer 8

No.