It's easy to get confused by all the rules around IRAs. But your investment retirement account is like any other mutual fund -the money you invest is used to purchase a wide range of stocks (and sometimes bonds). This is supposed to be a safer investment because your money is spread across a lot of different investment vehicles that have all been carefully chosen by an expert. Unfortunately, that expert needs to be paid, and his salary is a small fee that's taken directly out of your IRA.
It's no secret. Management fees are always disclosed when you open your IRA. The Securities Exchange Commission even has a definition on their web site: "fees that are paid out of fund assets to the fund’s investment adviser (or its affiliates) for managing the fund’s investment portfolio..." The only real way to reduce management fees is to shop around before you purchase your IRA, to try to find one where the fees aren't too high!
I've seen finance magazines which acknowledge the importance of management fees by calculating a fund's performance only after the management fees had been subtracted from the final return. But this all leads to a very interesting question. Management fees are a cost that weighs down the total return on your investment. So would the Internal Revenue Service let you deduce the cost of those management fees when you're preparing your taxes?
Surprisingly, the answer may be yes - but only in theory. "The key to securing the deduction is getting the large national financial firm that manages your IRA to bill you separately for the fees and pay them with personal funds," explains one tax advice site. Most funds, obviously, have thousands of customers, and prefer to use the same method for collecting everybody's fees. But if you can convince your IRA to let you send them a separate check to cover the cost of managing your investment retirement account - it seems possible that the amount of that check could be used for a tax deduction. (Though the tax advice site notes that "The amount you pay would be a miscellaneous itemized deduction, not an IRA contribution deduction.")
But usually management fees are a tiny portion of your overall portfolio. It's still annoying to see it disappearing from your fund each year. Just remember that for the money, your investment is being cared for on a day-to-day basis by a professional stock manager - who often has a large staff to research the best investment opportunities. Some people simply sink their retirement savings into a hodgepodge of stocks that they've picked themselves. For a small management fee, you're getting the full-time services of a professional stock-picker instead!