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Roth IRA help

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  • Roth IRA help

    Graduating MS4. I have a small Roth IRA (~$6k) that has been managed by a financial advisor at what I consider a mid-cost firm. I have not contributed during med school. The IRA account costs $29 a year. The FA likes to choose from americanfunds. Specific funds I'm in now are CAPITAL WORLD GROWTH & INCOME FUND CL A, GROWTH FUND OF AMERICA CL A, NEW WORLD FUND CL A. I've read WCI and now reading Bogleheads Guide to Investing. Now that I am becoming more literate thanks to WCI, I am not thrilled about the fees: 5% load plus  .77% ER, .65% ER, and 1.04% ER respectively. In addition to the fees, they have all underperformed relative to comparable index funds in the last 3 years and as long as I have owned them.

    All that to ask, what should I do with the Roth during residency since I hope to start contributing once again?

    • Should I keep contributing to that Roth and those recommended funds?

    • Should I keep contributing to that Roth, but ask for lower cost funds, maybe specific ones?

    • Is it possible to leave that Roth there and start another one with a lower cost company as long as I only contribute to the new one?

    • Some other option I haven't thought of?

    • Any companies you like best for Roth IRA specifically?

    • Any different diversification strategy in a Roth vs. larger retirement accts (401k, 403b ...)

    I realize this will not be my main source of retirement, but I want to make the most of it, especially early in my career.

    Also, my wife has a Roth in the same situation. She just started working as a nurse, so we hope to contribute to hers as well (if there is money left after putting enough in 401k to get all of employer match). I'm hoping the same advice would apply to her account as well. Sorry for the lengthy post.



  • #2
    You are in commission-based "A" funds. Every contribution gets a % lopped off in the beginning. This is just what your broker does, so I doubt you will be accommodated if you request lower-cost funds - but it never hurts to ask. imo, you could do better on your own with a simple, balanced portfolio of equity index funds. It is not costing you $29/year - that is only what is stuck in front of your nose. It is costing you the A-fund fees + other fees that are not so obvious (paid from the fund to the broker).

    I don't know why you would stay with this particular company. Go ahead and roll over your Roths to Schwab, e*Trade, Vanguard, or whatever company you like. They'll all have basically the same selection of funds and ETFs available. For future financial advice, you should look for a fee-only CFP who focuses on planning before investing.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      I am between Schwab and Vanguard for the new accts. When I have them take over the accounts, will they liquidate the funds that the money is in now and reinvest it or is this something I will do myself? I didn't know if there were any limitations on who can broker certain mutual funds.


      • #4
        You can choose to transfer "in kind" which means the funds will transfer without liquidating. You just need to make sure the company you choose offers the same funds that you now own.
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


        • #5
          If you want to transfer the Roth, pick a firm ( you could also use Fidelity.)  Tell the new firm you want to transfer a Roth over to them.  They will tell you what forms to fill out, and they will take if from there, and they do the work to get the money transferred over to them.  They might need you to sell the funds first, but most likely can transfer them over directly. However, if you keep the money in those funds,   you'll still be paying the high ER fees.  So at some point soon, you should sell them and buy index or target date funds.  If you wait to sell until your money has been transferred then you won't have to out of the market.  Even if you sell first, it's not a big deal, as there's not a lot of money in that account.

          Stop dealing with that firm.  if you use an adviser in the future, make sure that they are fee only.  Of course, given what most advisers would charge you, you probably paid a lot less to these people than you would have paid to a fee only planner.  On the other hand, you got no planning from these guys, just someone "managing" your Roth badly.


          • #6
            Be glad you're getting out early.  Of course the "advisor" likes to choose American Funds.  That's how he gets paid.  I like Vanguard but they're not the only low cost fund provider.

            Set yourself a simple portfolio.  If you want REIT (real estate investment trust), the Roth is a good place for it.