'Zero-Fee' IRAs Can Cost Savers $1,400 a Year, PensionBee Finds

Accounts marketed as "zero-fee" IRAs can cost savers up to $1,400 a year on a $107,000 balance through six hidden charges, a PensionBee white paper finds.

"'Zero-fee' does not necessarily mean free," said Romi Savova, founder and CEO of PensionBee. "It's basically a catchy marketing term that refers to the removal of certain flat fees, like account opening fees, but it does not necessarily apply to other costs within the account."

PensionBee modeled the costs on a $107,000 account, roughly the median retirement savings for millennials and Gen X. Even a cost-conscious saver pays 0.16 percent to 0.32 percent of the balance a year, or $160 to $340. Under common investor behavior, such as unknowingly choosing pricier funds, that climbs to about 1.3 percent, or $1,400 a year.

The findings carry weight as IRA assets hit a record $18 trillion in 2026, up from $5 trillion in 2010, while a 2019 survey found two-thirds of Americans lack confidence in their IRA knowledge. With more money flowing into these accounts, the gap between what savers think they pay and what they actually pay is widening.

The six charges the paper identifies can cost retirement savers without ever appearing on a statement. Fee structures vary by provider and change over time, so savers should verify current terms against the latest disclosures from their custodian.

Idle Cash and Securities Lending Drain Returns Quietly

When a saver opens or rolls over an IRA, the money arrives as cash and does not invest itself. Providers often sweep it into a low-yield account while keeping most of the interest, a practice known as a cash sweep. A Vanguard study found 28 percent of rollover assets and 55 percent of direct contributions still sit in cash a year later, with nearly 30 percent of rollovers remaining uninvested for up to seven years. "The biggest hidden tax in a 'zero-fee' IRA is the interest rate you don't earn on your idle cash," said Sean Lovison, CFP and founder of Purpose Built. Leave $10,000 parked, he noted, and a saver could forfeit $400 to $500 a year.

Securities lending works similarly. The stocks and bonds in an account can be loaned to large institutions that pay to borrow them, with providers typically keeping most of the fee while the account holder carries the risk. Some programs pay the customer as little as 15 percent of the proceeds, PensionBee's analysis found.

Payment for order flow adds a third layer. When a saver buys or sells, the order may be routed through a middleman who pays the provider, leaving the customer with a slightly worse price than the market offers. Sticking to well-known, high-volume funds and trading rarely keeps the cost small, according to Savova.

Fund Choice Can Cost $171,000 in Lost Growth

An actively managed fund can charge nearly nine times what a comparable index fund does — 0.98 percent versus 0.11 percent — and the two can sit side by side with nearly identical names. That gap of about 0.87 percent a year, compounded over 30 years at a 7 percent annual return, can quietly cost a saver around $171,000 in lost growth, PensionBee estimates. "The most overlooked cost is the expense ratio buried inside the funds themselves," said Jeff Judge, CFP and managing partner of Chesapeake Financial Planners. "A platform can charge zero dollars to open an account and still bleed a client 0.5 percent to 1 percent a year through the funds it defaults them into."

Waiving account fees also does not rule out charges for specific actions, such as wire transfers, moving money to another firm or foreign-exchange conversions. And "zero-fee" sometimes applies only below a balance limit, or a small advisory fee — often 0.25 percent to 0.27 percent — kicks in once a saver crosses a threshold.

The fixes are largely behavioral. Choosing investments once money lands, reading the prospectus rather than the landing page, and avoiding frequent trading can cut most of the hidden costs. "Just because you don't see a cost doesn't mean you aren't paying for it," Savova said.

Professional help can also pay for itself. A 2026 TIAA Institute report found people who work with a financial adviser reported a 14- to 19-percentage-point edge in financial confidence and preparedness, and were far more likely to invest consistently rather than let money sit. "I'd rather you know what that is than have you think you're paying $0.00 and then actually pay 3X what's normal," said Marianela Collado, CFP and financial adviser at Tobias Financial Advisors.

This article is for informational purposes only and does not constitute investment advice.