Before you roll overWhat a retirement account costs, and what it forbids

Where the money actually goes

A retirement account is not expensive in one place. It is expensive in five, and they are discovered in a fixed order: the headline percentage first, the disclosure documents second, and the tax and procedural costs only when something has already gone wrong. This page names all five, cites the official document behind each, and gives the question to put to the provider in writing.

Checked 20 August 2026

Five things take money out of a retirement account. Four of them are avoidable because they follow from a decision the holder makes; one of them, the annual charge, is unavoidable and compounds. They are set out below in the order most holders meet them, each with the official document that governs it and the exact question that produces a number rather than a reassurance.

1. The annual charge on the balance

The annual percentage charge is the only one of the five that compounds, because it is taken from the whole balance every year including the part that previous years' charges have already reduced. On this site's worked example — a $50,000 starting balance, $10,000 a year for 25 years and a 6% gross annual return — the balance ends at $762,500 at a 0.25% annual charge and at $616,000 at a 1.50% charge. The difference is $146,500. That is an illustration with an assumed constant return, not a forecast, not a typical outcome and not a quotation from any provider. The arithmetic, and the recurrence that rebuilds it in a spreadsheet, is in what a 1% annual charge actually costs and is not repeated here.

The US Department of Labor makes the same point on its own figures in A Look at 401(k) Plan Fees: "Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000... The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent." Its example runs at an assumed 7% average annual return and compares 0.5% with 1.5% in fees and expenses, ending at $227,000 and $163,000 respectively.

Only a provider's own published fee document turns any of this into a real number: Read one large provider's own fee disclosure. The provider is named because its disclosure is an example of a document to read, not as a recommendation; the point is to compare it line by line with the disclosure the reader's own provider is already required to give them.

Ending balance after 25 years at three annual charge levels

0200,000400,000600,000800,000762,5000.25%670,5001.00%616,0001.50%

This site's own arithmetic on an assumed constant 6% gross return, from a $50,000 starting balance plus $10,000 a year for 25 years. It is not a forecast and not a quotation from any provider.

Source: This site's own calculation, as set out in the fee guide.

Ask in writing: what are the total annual operating expenses on this account, expressed both as a percentage of assets and as a dollar amount for each $1,000 invested?

2. What you are not told without asking

The disclosures exist, but not all of them arrive unprompted. In the United States, the participant-level disclosure under ERISA rule 404(a)(5) requires "the total annual operating expenses expressed as both a percentage of assets and as a dollar amount for each $1,000 invested... in a chart or similar format designed to facilitate a comparison", plus quarterly "statements showing the dollar amount of the plan-related fees and expenses...actually charged to or deducted from their individual accounts". At plan level, ERISA rule 408(b)(2) requires disclosure of "all direct and indirect compensation to be received by a CSP, its affiliates, or subcontractors" before the plan's fiduciaries enter into the service arrangement, with changes disclosed no later than 60 days after the provider learns of them.

No US rule sets a maximum. Neither the Department of Labor, the Securities and Exchange Commission nor the Internal Revenue Service sets a ceiling on what a retirement plan or its providers may charge. The controls are ERISA fiduciary duty — somebody with a legal obligation must find the fees reasonable — plus the two disclosure rules above. The protection is that the number must be shown and judged, not that it is bounded.

The United Kingdom bounds it in one place. Default arrangements in qualifying workplace schemes are subject to a charge cap of 0.75% a year of funds under management, and The Pensions Regulator attaches a condition that summaries routinely drop: "If your scheme charges aren't calculated in this way, but are made up of a charge on members' funds plus a charge on contributions or a flat fee, the regulations specify how the cap applies to each element." A combination structure is therefore capped by a different mechanism, and a scheme outside the default arrangement is a separate question again.

Self-directed administrators publish their own schedules, which is where account, transaction and asset-holding charges are actually written down: Read a self-directed administrator's own fee schedule. The administrator is named because its schedule is an example of a document to read, not as a recommendation; compare it against the disclosure the reader's own provider must give, item by item.

Ask in writing: what flat annual account fee, transaction charges and transfer-out charges apply to this account, in currency, for a full year?

3. Tax paid by the account itself

An account that is exempt from tax on investment income is not exempt in every case. Where an IRA receives unrelated business income, the account becomes the taxpayer and the tax comes out of its own assets, whether or not anything has been distributed. Publication 598 requires a Form 990-T from "an IRA (including a traditional, SEP, SIMPLE, Roth, or Coverdell IRA)" once gross unrelated business income reaches $1,000 for the tax year, filed "by the 15th day of the 4th month after the end of its tax year". The rate basis is not the owner's: "All exempt trusts subject to the tax on unrelated business income that, if not exempt, would be taxable as trusts are taxable at trust rates on that income." When this arises, and what it does not reach, is set out in when does a tax-exempt IRA end up filing a tax return.

Ask in writing: what does the custodian charge, in currency, to prepare and file a Form 990-T, and who signs it?

4. Money lost to procedure

Three procedural rules turn a movement of money into a cost. An employer plan paying an eligible rollover distribution to the participant must withhold 20%: "A retirement plan distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll it over later." The window is fixed — "You have 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA" — and the frequency is fixed too: "you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own." Where an amount is not rolled over and the taxpayer is under 59½, the Internal Revenue Service adds that "you'll be assessed a 10% additional tax on early distributions from traditional and Roth IRAs, unless an exception applies". The three failures, and the arithmetic of the 20%, are worked through in what actually breaks a rollover.

Ask in writing: will the plan pay an eligible rollover distribution direct to the receiving institution, and if not, what percentage is withheld before it leaves?

5. Money lost to a missed deadline

The last cost is a date. The Internal Revenue Service states that "you generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73", and that is not the whole rule: the Federal Register records that "in the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75". Anyone young enough to be caught by the later provision has a different date. Miss the distribution and the charge is an excise tax: "you may have to pay a 25% excise tax on the amount not distributed as required", reduced to "10% if withdrawn within 2 years" where the shortfall is corrected inside that window.

Ask in writing: which required beginning age applies to this account holder's date of birth, and what is charged, in currency, to calculate and pay the annual distribution?

What to ask, in writing

Each question below has a number as its answer, which is what makes two providers comparable. A reply that is a sentence rather than a figure is not an answer to any of them.

  1. What are the total annual operating expenses on this account, as a percentage of assets and as a dollar amount for each $1,000 invested?
  2. What flat annual account or administration fee applies, in currency, for a full year?
  3. What is charged, in currency, for a full transfer out or an account closure?
  4. What direct and indirect compensation do the service providers receive in connection with this account for the year, in currency?
  5. If an eligible rollover distribution is paid to the participant rather than to the receiving institution, what percentage is withheld?
  6. What is charged, in currency, to calculate and pay a required minimum distribution, and to prepare a Form 990-T if one becomes due?

Put the six answers from two providers side by side and the comparison makes itself. Any of the percentages can be run through the fee calculator against a real balance, which converts a 0.25% or a 1.50% figure into the same units as the $146,500 above.

What this page will not do

It will not state a typical or average charge, because none of the official sources listed below publishes one, and a number invented to fill that gap would be worse than the gap. It will not rank providers, name a cheapest option or score anything. And it will not say whether the reader should move an account, stay put or consolidate: that turns on facts about a specific person, a specific plan and a specific set of documents, none of which a page can see. What it does is name the five places the money leaves and the document each of them is written in.

Sources

Open the fee calculator