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IRA is flatlining. How to switch?

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  • IRA is flatlining. How to switch?

    Long-story short I was able to work in high-school and contribute about 4k to a Roth IRA. Being a teenager, I didn't know too much about what I was doing, so I went down to the local Morgan-Stanley branch and was "advised" to put it in 3 mutual funds, all 5.75% loading with about 1-2.5% expense ratios. Put investing on the back burner and 8 years later it shows. One of these funds has had an APR of 2%!

    I know the 4k is small potatoes, so I haven't lost tons of money, but it's a good wake-up call. I also realized I have no idea how much in fees I am paying to Morgan-Stanley each year for these accounts. So now that I will soon be contributing 5500/year to my IRA I want to have a better grasp on my finances.

    My questions are these:

    1) How can I determine my annual fees to MS? They send me reports but only of my mutual funds, nothing regarding their expenses that I can find. I have found a PDF online of general fees but unsure which apply to me.

    2) If I decide to keep my MS account open, can I purchase Vanguard index funds through MS? Or should I transfer the Roth IRA account over to Vanguard? Can I do that now that it is already opened?


    All advice and criticism welcome,



  • #2
    You can absolutely transfer the money into a new Vanguard Roth account (or Fidelity or Schwab). All have low fees.

    I don't know about Morgan Stanley's fees -- if you really wanted to know, you could call. You're probably better off transferring the money to a new account and buying into a Total Stock Market fund. Schwab has the cheapest one (0.03) with no minimum. Vanguard's is 0.05 with a $10,000 minimum for the admiral fund (ETF does not have that minimum requirement).





    • #3
      I don't know that anyone on this forum is going to waste spend much time calculating MS's fees for you when what you need is to simply move your account. Your costs are water under the bridge now and you need to focus on making good decisions for the future. $4k was big potatoes to you, of course, but for that amount you need to be with a company that has very low fees and transaction charges. I'd probably go with E*Trade for your IRA contribution and roll your MS account over.
      My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
      Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


      • #4
        call Vanguard

        tell them to transfer your IRA

        it's that easy.

        (not quite: you probably have to tell MS to redeem your mutual funds into their sweep account first. that way you will be transferring cash equivalents rather than proprietary MS mutual funds).


        • #5
          I would move to Vanguard.


          • #6
            I'm a big Schwab fan and have my/wife's accounts (IRAs, taxable brokerage) there.  I use mostly Schwab index ETFs like SCHB, SCHA, SCHH, SCHZ, etc.  They have ones that cover most major asset classes/subclasses.  All of them are extremely low fee, lower than even Vanguard, and have zero commission/transaction costs for both buying and selling.  That makes things like tax loss harvesting, allocation rebalancing, and dollar cost averaging FREE.  It's a killer deal.

            I know you know this now but, NEVER NEVER pay loads on mutual funds or expense ratios over 25 basis points.  There's simply no advantage and plenty of alternatives.


            • #7
              Ya, don't even bother checking Morgan Stanely's fee, it's not going to beat Vanguard, not even close. I'd say between Vanguard and Schwab, go with Schwab if you don't have enough money to buy Vanguard's Admiral shares. If you do have enough, Vanguard's fees are about as low as Schwab.


              • #8
                ETFs through Schwab or Vanguard are the way to go.  Low expense ratios, no trade-fees if traded on-line and less turn-over = less taxable events.


                Here's a quick explanation if you have the time...

                Mutual funds are great vehicles but fundamentally are taxed differently than ETFs due to structural differences.  Both a mutual fund and ETF are taxed on capital gains or any dividends produced (sans any holdings within an IRA, employer retirement account, etc).

                ETFs are traded like a stock on exchanges and, therefore, can be traded throughout the day.  Therefore, if someone needs to sell their ETF to generate cash, the sell doesn't affect you, hence, no capital gain tax within the fund passed onto you.

                However, investing in a mutual fund is a different story.  By owning a mutual fund, you are taxed twice.  If someone needs to generate cash, they sell the fund back to the fund company directly and the fund company pays them.  Fund managers can be forced to sell a substantial amount of holdings to have cash on hand.  The capital gains experienced within the fund to generate cash is taxed.  Those taxes are passed onto those still holding the fund (shareholders).

                Assumptions made:  ETF is indexed in this example.