So back in the fall of 2011 I knew I needed to save more for retirement, I just didn’t know how much and what to do. So my wife and I setup a ROTH IRA in her name with Edward Jones. We have made more money than we would have if we sat out of the market, but it is clear that this isn’t the best thing for us going forward (and we have stopped contributing to it in June of this year as my wife just became eligible to contribute to her 401(K)).
What isn’t clear is, when is the right time to EXIT or rollover the Roth? Here are the facts:
$4,835 is invested in MFS Aggressive Growth (MBAGX).
- This fund class share has a 4% deferred sales charge, meaning we will lose $193 at the time of rolling over
- The annual fees of the fund are 1.95% (!!!)
Sometime since we started investing our her retirement savings, they changed which shares were being purchased for this fund. So we also have $2,500 in the MFS Agressive Growth Class A (MAAGX).
- This fund class had an immediate sales charge load of 5.75% (!!!)
- If I liquidate within 18 months of purchase the fund, it also has a 1% deferred sales charge (I THINK THIS IS COMPLETE CRAP, GLAD WE STOPPED CONTRIBUTING) so another $25 in costs to liquidate today
- Annual fees in this fund class are 1.20%
So basically if I were to roll these funds over today, I would lose about $218 but would also be avoiding annual fees of $124 (based on current values).
My second option would be to wait 18 months to rollover to avoid the 1% fee on just over a third of the money. This would result in a $193 deferred fee and $186 in annual fees during this time for a total cost of $379.
In addition it appears that I will also be slapped with a $95.00 fee for transferring out of the brokerage (seems to be common to have a fee at places for leaving, though other ones appear to be about $50). The only situation where it may be better to wait to rollover is if a market correction comes during sometime in the next 18 months. I can then take less of a hit on the deferred charges, but with almost double the amount of fees between now and 18 months the correction would need to come quickly to make this the better option as a later correction may still end up costing me more money. As I feel that I cannot time the market, an immediate roll over may be the best option.
On the plus side I may be able to recoup some of the lost funds by using promotions for whichever broker we decide to use. Options House, which I am seeing a lot of dividend investors using, seems to have a referral program where we could get $150 with $5,000 invested. Many companies also run promotions for opening with a balance over $5,000 so we can hopefully be able to recoup a slight amount and I will have to check those out before transferring to find the best deal.
What about you, what would your course of action be? What brokerage would you recommend transferring to?
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Dang! Those are some hefty fees. I would get out of there ASAP. My wife and I both contribute to our 401k accounts, but we also have IRAs through sharebuilder. I think it’s about $7 per trade, but there are no annual fees, and if you trade a lot, you can get 12 trades per month for $12. Either way, it’s great if you want minimal expenses. I think they also have (or had) something where you got $600 for signing up with a $5000 or more deposit. Definitely worth checking out.
Good luck, and let us know what you end up doing!
Oh yea, I know we have to get out of it. I need to research as to where it will go. It looks like share builder is $600 if you have $125,000. Only $50 if you have $5,000-10,000.
I plan on looking at least 4-5 brokers, but I think my top two choices right now are Options House (because of the low trade fees) and Merrill Edge (depends on if the 401(k) balance works towards getting the free 30 trades with $25,000 invested). Sure a $50-$100 rollover bonus is nice, but need to look at the long term costs as well.
Well, at least you know you have to get out of what you’re currently in. Personally I would just rip it off like a Band-Aid and be done with it, no more thinking about it or worrying.
As to where to roll it over to….. I have an account with Fidelity that my parents setup for me a long time ago that I still have most of my stuff with. It’s not bad with the trade fees or anything like that but they aren’t free either. I really like their reporting tools though, it’s easy to see my cost basis and when I made each purchase and different cost basis’ for each purchase. As far as how my investments are displayed I’ve never seen anything I like better than fidelity.
I do have a Scottrade account that I setup earlier this year for a friendly investing competition with some other bloggers and while the trades might be a little cheaper (I actually think they are the same) the reporting tools make it difficult to figure out my initial purchase price on things or even when I purchased it. Luckily I know I purchased it in January for my blog and I only put in $1,000 and have never added or removed money from it. Personally, not a fan of Scottrade.
Vanguard – I moved a large chunk of money to them because of this post:
http://jlcollinsnh.com/2012/05/12/stocks-part-vi-portfolio-ideas-to-build-and-keep-your-wealth/
I literally just set it and forget it. It has insanely low fees so I don’t really have to think of a chunk of money and I can just let it do it’s own thing. I don’t know if they have the best trading platform if you plan to buy and sell a lot but for index funds I think Vanguard is king in my book.
I’m sure there’s better trading platforms out there than what I use but I try not to make more than 1 purchase a month and I sell things less often than that so I don’t worry too much about the trading fees.
My ROTH is with fidelity and I do love their cost basis and history they provide at your finger tips. Although that isn’t as big of a deal inside of a ROTH it is still nice to know!
I do believe that index funds are statically the best, and that is what our 401(k)s are going into to, so the majority of our retirement savings. But once you reach financial independence dividends provides a steady stream of income where you do not need to worry about a fluctuating stock price or if you will have enough money to cover the bills. So I am just getting a head start in the ROTH accounts on the dividend stocks while the pre-taxes are building the index funds.
Also it is clear that this thing needs to move, just need to decide to where (and figure out that process).
Been there! My husband had an old 401K at Edward Jones with the same ridiculous front-loaded fees you mentioned. We rolled it into his SEP IRA at Vanguard because, like you mentioned, the lower ongoing fees make it well worth the hassle.
Yea it is painful to look at, but I wouldn’t say we were screwed because if we hadn’t put money in from 2011 til now our savings would be worse as the market has done very well. So it was a better than nothing decision that was ok at the time, but reading more (such as A Random Walk Down Wall Street) and learning from blogs I feel comfortably sailing my own ship from here. I could go the easiest investing way and get an Index Fund, or go the dividend investing route (which I plan to do in ROTH’s).
Whew! Those are huge fees! I would get out as quick as possible! It’s going to suck, but I would do it as soon as possible and just take the cost. But, this is an awesome analysis! As far as where to roll it, check out Vanguard (they can’t really be beat) or Betterment (if you want easier access to your money). Both are great options!
Yea, no disagreement here, I hope to next week analyze the options (in a method such as this) and make a decision. This Friday we are going to meet with my wife’s 401(k) dude and that is when I hope to find out if the balance between the 401(k) and a ROTH will count towards the 30 free trades deal. If not, then probably won’t roll it over there. Vanguard is always a good choice, hard to go wrong there. I don’t think I have heard of Betterment, will need to check that out.
On a side note, I like to analysis’ such as this, I think the more it is broken out the easier it is for other people to see why I come to conclusions that I do and help them when trying to see what works best for themselves.
Hey, can’t you just sell this fund and reinvest money into dividend stocks you like without closing your Roth? I have Roth IRA and I use this account for my stocks transactions all the time. Or you can just buy dividend stocks and leave it there to grow? why do you want to close or transfer?
I have different accounts with Fidelity and Sharebuilder plus Scottrade. I mostly use Sharebuilder and Fidelity though.
Hey HH&WG,
That thought crossed my mind, but Edward Jones isn’t like a regular online broker where you can just buy and sell to your content. And the mutual funds we are in has some hefty fees as I mentioned above. Fidelity is where my ROTH is at, so I was thinking about looking at someone else to compare the services.