Preparing for your eventual retirement by opening a Roth individual retirement account (Roth IRA) can be a great way to set some money aside for your golden years. However, just because you’ve contributed money out of pocket doesn’t mean that you’ll get every penny back. Most retirement plans come with fees attached, and your Roth IRA is no different.

Knowing which fees you’ll be responsible for—and how they’ll affect your bottom line—is an important step to take today to ensure that your future is comfortable.

Why Roth IRA Fees Affect Your Return on Investment

Generally speaking, Roth IRAs are a great way to save up for your retirement. Created through the Taxpayer Relief Act of 1997, this alternative to traditional IRAs lets you make post-tax contributions today so you can take tax-free withdrawals from your account in the future. While a Roth IRA paves the way for easy money later, that doesn’t mean it’s free.

Over time, a Roth IRA is subject to a number of fees. Just as your investments can compound over time, so too can your costs from fees. That’s because even though the fees levied today may seem tiny, that lost money never gets to appreciate over time. All of that growth vanishes once you pay a fee.

For example, if you have $150,000 invested with an annual 6% return, the account would have grown to approximately $643,781 over 25 years. Now, let’s say you pay 2% in fees each year, leaving you with a 4% return. Your account would then grow to $399,875. That’s still a nice amount to fall back on, but it represents a nearly $244,000 reduction.

The idea is to keep as much money in your Roth IRA for as long as possible before you start dipping into those funds. Even seemingly miniscule fees can siphon your account balance over time and hinder your return on investment.

“All fees have the same impact on investment returns,” says Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners. “The higher the fee, the less the return.”

How You Can Manage Your Roth IRA Fees

Roughly 80% of Americans lack any real retirement planning knowledge, according to a 2020 survey by The American College of Financial Services. A lack of knowledge about saving for retirement can lead to some major financial losses just from fees alone. Though Roth IRA fees are inevitable, you can mitigate their damage by optimizing your portfolio while investing for your future.

Think of your investment portfolio as a living financial account that ebbs and flows along with the market. By paying attention to the market and adjusting your portfolio accordingly, McClanahan explains that you can actively nudge your investments to help reduce your fees. “You can use a portfolio of low-cost investments such as index funds instead of actively managed accounts,” she says.

If you would rather have your Roth IRA handled by a broker or investment manager, you’re going to be charged a specific fee called a wrap fee. These fees are based on a percentage of the total assets under management and pays for any services rendered by those handling your investments for you.

Thanks to a 2010 Internal Revenue Service (IRS) ruling, these wrap funds can be deducted from your account balance or paid out of pocket. Though it may be easier to just let that fee come out of your total balance, McClanahan says the latter is often the better option, since “paying for fees out of pocket allows more of your Roth to grow tax free for retirement.”

Types of Roth IRA Fees to Expect

Aside from any fees that a financial institution or account manager may charge, such as an early termination fee, a Roth IRA comes with some inherent fees. These are largely unavoidable and common across most Roth IRA offerings.

Account Maintenance Fees

Maintaining a Roth IRA can be time consuming for the provider. One way to compensate for the effort is to charge an account maintenance fee. This fee is outlined clearly in the initial account paperwork and can be paid either monthly or annually, though many Roth IRA providers tend to waive this charge.

Transaction Fees

One area where you can make your money work for you in a Roth IRA is to invest in exchange-traded funds (ETFs). Each time you make an investment, you may end up having to pay a transaction fee. Depending on what you’re trading, the costs may vary, so pay special attention to your IRA provider’s terms and conditions before taking this step.

Mutual Fund Expense Ratios and Sales Loads

Mutual funds can contain a mini-portfolio of securities or stocks, but they can end up costing you twice. First, there’s the expense ratio, which covers the operational costs of maintaining the mutual fund. Meanwhile, a sales load can be described—albeit overly simplistically—as a fee for every transaction of shares.

The Bottom Line

Roth IRAs are a great way to set yourself up for a great retirement. As well as making consistent contributions and starting as early as possible, you’ll want to keep an eye on the fees that you pay for the account. Pay careful attention, because even fees that seem small add up to large sums over decades—which cut into your account balance and impact your returns.

Some strategies include choosing low-cost investments such as index funds instead of actively managed funds; understanding terms such as expense ratio and sales load; and learning as much as you can about fees for maintaining the account or making transactions.