Why do trading commissions come out of my IRA?

Question

Is there some kind of federal law that says that I have to pay my trading commissions out of my IRA? Why did E*TRADE tell me that everybody does that? Is there an online broker, that I can trade stocks frequently through my IRA, that is worth it?

I'm asking if I can pay commissions out of a separate account, here. Lot's of people get rich from day-trading. I am new to the jargon, but I thought "active" trading was day trading. I want to make a few trades a week, and I don't want to blow my retirement on fees. Any helpful suggestions would be appreciated.

Answer 1

In many companies, if you hold an IRA there, they will charge an annual custodial fee. They are providing a service to you, so you will pay a service fee. It shouldn't be much, maybe $20-$40/year?

In IRAs, when you sell a share, you are withdrawing money. If you make withdrawals before age 59 1/2, you will pay a 10% penalty on earnings (the gains and dividends). If its in a Traditional IRA, you will owe income tax as well. So, it is NOT WORTH IT to keep trading your stocks in your IRA!

I don't know what you have in your IRA or what type you have (Roth or Traditional?). If you have mutual funds, I don't know if its a load fund or a no-load fund. If it was a loaded fund, there are two share classes, which are Class A and Class B (there are three more share classes, but most people own either A shares or B shares). If you bought Class A shares, you will an upfront sales charge, but your expense ratio is less than 1%.

If you bought Class B shares, you don't pay upfront sales charge, but you pay back-end sales charge, which goes down by 1% every year. What I mean by back-end is that you sell you share. For example, if you sell the B share in the first year, you will pay a 5% sales charge. In second year, it goes to 4% and so on. B shares become A shares in the 8th year. Class B shares usually have expense ratio of around 1.5%.

There there are the no-load mutual funds where you don't pay any sales charge when you buy or sell. There is no agent, so no commissions. But if there is an agent or a company selling you no-load funds, they will get you in 12b-1 fees, which are higher than loaded mutual funds. For example, a company may charge you a fee of 1.5% of your total assets by the end of the year. Over time, this fee will be more costly than a loaded fund. Most no-load funds tend to have higher expense ratios than loaded funds.

You should carefully read the prospectus before investing in a mutual fund.

Answer 2

It is a shop before you buy approach. The organizations you buy or have your ira with are going to charge you for the service they are providing. If they charge you up front in commissions it is a front load, some will charge you a flat fee per year to "manage" your account, some will charge a percentage. My IRA is a service charge with no front load, that way the investment has more going in initially. I also do a 401 through work which is better yet.

Answer 3

Where do you want them to come out? You want to dance, you have to play the music. Put your money in a bank, they won't charge you, or most of them, for savings accounts. Bank of America has a program for 30 free trades a month if you have a certain minimum on account, but I don't know if the IRA counts. Call and see.

Answer 4

In short, no. Because they have to make their money somehow. They aren't going to let you do whatever you want, whenever you want for free. You got to pay the piper, plus day-trading and wanting to "trade stocks frequently" is generally a poor strategy. A lot of time day-trading gains get eaten in commissions.