Vanguard's $10 fee

[a]

Recently I looked at an IRA I've had with Vanguard for several years. I noticed that there were $10.00 fees being deducted each year, but read the literature and saw that this was due to the account being less than $5,000. Then I looked at the dividend reinvestment transactions (occuring four per year) and noticed that $2.50 was being deducted on each dividend reinvestment (the number of shares that were being purchased were worth almost exactly $2.50 less than the face dividend payment amount). I was wondering if anyone knew what this was about.

 

[REWahoo]

You don't say what fund(s) your IRA is invested in but if it is in an index fund there could be a quarterly maintenance fee. From the Vanguard website:

Index fund maintenance fees

Index fund accounts with balances below $10,000 are charged either a quarterly maintenance fee of $2.50 or an annual fee of $10. The fee ensures that lower-balance accounts pay their fair share of the fixed costs of maintaining the accounts. Vanguard doesn't charge the maintenance fee when a fund account has a balance of $10,000 or greater.

 

[a]

It is being invested in an index fund. However, it seems to be getting deducted twice. Here's a sample:

12/23/2004 500 Index Fund Inv Dividend 0.067 $111.45 $9.97
09/24/2004 500 Index Fund Inv Dividend 0.024 $102.55 $4.92
06/25/2004 500 Index Fund Inv Dividend 0.016 $104.78 $4.19
06/04/2004 500 Index Fund Inv Sell –0.096 $103.97 –$10.00
03/26/2004 500 Index Fund Inv Dividend 0.018 $102.30 $4.34

If you multiply the price of the share by the amount of shares transacted, you see that for each dividend reinvestment, about $2.50 of dividends are disappearing. I'd be curious to see if anyone with a similar Vanguard account has similar deductions.

 

[samclem]

Why not ask Vanguard what this is about?

 

[Linney]

I am currently doing research on Roth IRA options for my stepdaughters. Part of that research includes understanding the costs for small accounts.

There are 2 fees charged for Vanguard accounts:
$10/year account fee when balance at Vanguard is less than 10K
$10/year per fund fee when fund balance is less than 5K

Are you getting hit by both of these fees?

 

[Nords]

Why not ask Vanguard what this is about?

In these situations it seems prudent to know the answer before Vanguard takes a random stab in the dark answers it...

 

[renferme]

Index fund Fees:
"Each Vanguard index fund (except the REIT Index Fund) charges a maintenance fee if the balance is below $10,000. The fee of $10 is deducted annually, or $2.50 per quarter for funds that distribute dividends more than once a year. If your distribution is less than the fee, a fraction of a share may be redeemed to make up the difference. Note that this fee applies to each fund account. For example, if you have an account with two index funds, each with less than $10,000, you will be charged a total of $20 a year. Similarly, if you have the same index fund in two different accounts (e.g., individual account, joint account, traditional IRA, Roth IRA, or any two accounts under different registrations or account numbers), each with less than $10,000, you will be charged a total of $20 a year."
.
Low balance fee:
"An annual $10 fee is generally deducted for each nonretirement fund account with a balance of less than $2,500. In addition, the fund account may be liquidated if the balance falls below $500. If your Vanguard account assets (including IRAs, employer-sponsored plans, brokerage accounts, annuities, as well as nonretirement fund accounts) total $50,000 or more, the low-balance fee may not apply."
.
"Vanguard charges the following custodial fees:

Traditional, Roth, and SEP IRAs. $10 a year for each fund account with a balance of less than $5,000. This fee may not apply if the IRA owner’s Vanguard account assets (including IRAs, employer-sponsored plans, brokerage accounts, annuities, and nonretirement accounts) total $50,000 or more."

Clear as mud ?
.

 

[cute fuzzy bunny]

Laymans translation: We dont want small accounts, so we're going to keep sticking pins into you.

You're getting hit by the small account and small fund holdings fees.

Sort of like when the bank smacks you with little fees for being under your minimum balance or a mortgage company charging you PMI because you didnt have enough money to put down. "We're concerned about how little money you have, so we're going to charge you extra".

Falls into the same category as the truck stop waitress who told me "The fries are a little cold, so I gave you extra".

 

[a]

I see..thanks for the explanations. I was indeed getting hit by both fees. I actually have two IRA accounts with vanguard at the moment, one Roth and one traditional, both in the 500 index fund and under $5000. So I was being charged $40 a year on my total balance of about $6000.

 

[cute fuzzy bunny]

Any chance anyone in your immediate family has substantial assets with vanguard? If someone has 250k or more, then might be able to call vanguard and have them extend their 'voyager' or 'flagship' level service to your account. These fees are waived at that service level.

 

[a]

I don't think that much, but I'll have to check. Thanks for the idea.

 

[Linney]

So, a, are you able to contribute more to either one or both of these IRA accounts and get yourself up above the minimum balance fees?

 

[BigMoneyJim]

These fees are waived if your total balance at VG is over $50k, right? If not I need to go look over my statements more carefully.

 

[justin]

the $10 IRA fee is waived at $50k assets. The $10 index fee - not sure if/when they waive it, but it isn't at $50k in assets with them. Maybe 250k?

switching from sp500 index to lifestrtegy growth (for example) would get you out of $20/yr in fees due to index funds. In the future, the other $20 will go away if you get $50k in assets at VG or more than $5000 in each seperate IRA account.

 

[a]

I am consolidating the traditional with the Roth and also making this year's Roth contribution to push the total above $10000, which should eliminate all the $10 fees. Actually, I also moved a savings account over to a nonretirement account with vanguard too, which should also qualify me for the total $50k assets portion. That may mean I'll never really know if I would have been okay (fee-less) with just the $10000 IRA. But I'm pretty sure that from this point on I won't have any of the $10 fees.

 

[MikeD]

Falls into the same category as the truck stop waitress who told me "The fries are a little cold, so I gave you extra".

Reminds me of one of my favorite jokes:

This food is terrible! And the portions are so small!

Mike D.

 

[cute fuzzy bunny]

Yep, thats the same line of defective thinking.

I just looked at her and said "MMMM...mmm....bad food and plenty of it!". She seemed momentarily confused, shook it out of her head and moved to the next table.

 

[RedHawk]

I have another question about vanguard's $10 fee. Is this the entire anuual expense associated with each fund? Therefore if you have over 10k in all your vanguard funds is your ER 0.0%?

 

[cute fuzzy bunny]

No, there is a separate ER on each fund purchased. This is just an account maintenance fee designed in part to encourage you to put more money into your accounts there and in part to recover costs of their dealing with smaller investors accounts.

 

[NinjaPigeon]

Heh, I have this same problem with my Roth at Vanguard. I funded it in 2005 with the 4k limit. Unfortunately, I wasn't eligible to contribute in 2006, so I got pinged with the fee. I'm watching the market and hoping I can make up that last $90 left before I'm safe from the fee. I have until June 4th, just like you

Although I'll probably buy into another index fund in my other account, which means I'll just be trading one $10 fee for another But Vanguard has been good to me so far. And it just gives me more motivation to hit that $250k limit in 5 or 10 years. 8)

 

[justin]

Another way to deal with paying these little $10 fees is to understand that if you have $10,000 w/ vanguard total, then you're probably saving 0.5% in expense ratios every year, at least, which would equate to a savings of $50 per year. That will cover 5 of those $10 fees. And after a year or two of added contributions, you won't have those $10 fees any more, and you still get to save on very low expense ratios.

 

[WM]

I have some accounts with Vanguard and just took a look at my year-end statements for 2006.

I paid the $10 account maintenance fee on a Roth IRA account that's around 8K. I'm not paying that fee, or any others, on another Roth account that's over 10K or on a taxable account with a 40K balance. All are index funds.

So it looks like I'm paying the index fee for the account that's below 10K, but not the 2.50 fees because my total balance with them is over 50K.

 

[justin]

So it looks like I'm paying the index fee for the account that's below 10K, but not the 2.50 fees because my total balance with them is over 50K.

you also aren't paying the second $10 fee because the IRA account exceeds $5000.

 

[Tracy42]

A few years ago I noticed some of our funds with smaller balances were getting the $10 fund fee. I called and asked them to consider our account in total, and they waived the fees. No quibbling. Give it a try.