New York Attorney General Eliot Spitzer sued H&R Block Co. yesterday, accusing the nation's largest tax preparer of steering clients into individual retirement accounts that Spitzer said "were virtually guaranteed to lose money" because of hidden fees and low returns.

H&R Block has opened nearly 600,000 individual retirement accounts since 2001 for its tax customers. Spitzer's lawsuit alleged that the company assured its clients that they would earn "great rates," but 85 percent of them paid more in fees than they earned in interest.

More than 150,000 customers have closed these "Express IRA" accounts, incurring additional undisclosed fees — and $6 million in tax penalties, Spitzer said.

In a statement, Kansas City, Mo.-based H&R Block said it would "vigorously defend" itself against the charges. It characterized its retirement accounts, which can be opened with as little as $300, as a "powerful first step toward ensuring a secure financial future" for people with modest incomes.

More than 40 percent of the account holders had never set aside any money before, said Mark A. Ernst, H&R Block chairman and chief executive, who called the IRAs "a helpful savings option."

Some H&R Block tax preparers disagreed with that assessment, refusing to open the accounts for clients and criticizing the products in internal memos, according to Spitzer's suit in state court in Manhattan.

Instead of addressing these concerns, the company's management "continued to tout the Express IRA as a good way for lower and moderate income people to save," Spitzer alleged. The company's intent, according to the suit, was to encourage repeat customers for its tax preparation services and to increase its stream of fees.

Last year, an H&R Block employee brought the issue to Spitzer.

The accounts were invested in money-market funds and typically earned just 1 percent to 2 percent a year, according to Juanita Scarlett, a Spitzer spokeswoman. The average U.S. stock mutual fund gained 6.7 percent last year, according to Morningstar Inc.