American Funds Simple IRA Employer Match

[vetmedbf]

I'm a newly employed grad, so just starting out and never dealt with investing/retirement funding before. My employer does its company Simple IRA match through American funds, 1 to 1 up to 3%. There seem to be a ton of options, but I'm not sure what I should be picking. From reading, American Funds isn't the ideal investor because of its fees, but unfortunately that's what I'm stuck with.

I would post information on the different funds, but I'm not sure what's the important, pertinent information for making a good decision. So I guess if we could start off with what I should be looking at, and then I'll post the necessary info to get help on what my choice should be. One other thing I should mention is that I'll probably be changing jobs, ie probably different investment company, in 2-3 years if that makes any difference on the selection.

Thanks in advance for your help!

Most if not all of the available choices are here: https://americanfunds.com/funds/returns/alphabetically.html

I can try to create a condensed table if I knew what I should include for easier reading.

[Cwadda]

I am a college student and I have a Roth IRA in American Funds. I can tell you it's done really well for me since I started it 1.5 years ago. I have Class A shares. Last statement it had 12% returns for 2013 and I think 10% overall. Yeah I had to pay fees for stock buy-ins and maintenance, but it's already made all that money back and more (pays for my student loan interest payments!) It's not the ideal company but it's not bad either. I'm pretty sure it's just behind The Vanguard.

[chasesfish]

Capital World Growth and Income.  That's the only fund you need.

Simple IRA fees are usually high because the plans tend to be really, really small.  As loaded mutual funds go, American funds are the "cream of the crap".

Put as much as you can into the IRA.  The good thing about a Simple is two years after you've had the account, you can do an in-employment rollover.

I moved 30k out of my wife's crappy simple funds over to a discount brokerage.  I'm waiting on a match before doing it again.

[MustachianAccountant]

If you do as chasefish suggests (and it's a good idea, if a little labor-intensive), you don't want A shares. A shares have high upfront costs that peter out over 10-ish years to 0. C shares (I think) have a constant, but lower, expense. A shares only make sense if you'll be holding them for 10 years or more.

DISCLAIMER: It's been a few years since I've invested with American Funds (same situation as you - stuck with an employer's choices), so I may be mis-remembering details. PLEASE fact check the above before choosing funds. :-)

[nyxst]

Capital World Growth and Income.  That's the only fund you need.

Simple IRA fees are usually high because the plans tend to be really, really small.  As loaded mutual funds go, American funds are the "cream of the crap".

Put as much as you can into the IRA.  The good thing about a Simple is two years after you've had the account, you can do an in-employment rollover.

I moved 30k out of my wife's crappy simple funds over to a discount brokerage.  I'm waiting on a match before doing it again.

I had no idea I could do that!!!  Wow.. I need to make some phone calls today then.... I can roll it into an account with Schwab or Vanguard or something?  I started my Roth at Schwab because I didn't have a lot to put in.. but the amount in my Simple IRA is bigger, i can roll this into Vanguard because I have 12k in there.... wow!  this is like a whole new world! Thank you Thank you!

[wudged]

The good thing about a Simple is two years after you've had the account, you can do an in-employment rollover.

I moved 30k out of my wife's crappy simple funds over to a discount brokerage.  I'm waiting on a match before doing it again.

Can you provide more details on this?  Specifically, do you continue to contribute to your employer sponsored Simple IRA and just once a year (or whenever you feel like it) roll it over to a traditional IRA at a different investment company?

The reason I ask is the cheapest expense ratio I can find for any fund available at the investment company for my current Simple IRA is over 2%.  All I see on the IRS website is information about moving the funds from one Simple IRA to another, or from a dormant one to any other type of account.

[LowER]

AF is a time-tested and respected firm and has been around for many decades.  My weak understanding is that they do not advertise - and I respect that a lot.

When I was in your shoes (employer only offered AF with similar fees), I was so appalled that I invested next to nothing, only enough to get the match and when I left that employer, I breathed a sigh of relief and transferred it to Fidelity (where I was enrolled in a plan through my new employer).

I am grateful to AF though for motivating me to find better investment alternatives - and for that, I owe AF a lot and am eternally grateful.  The rep I dealt with was top notch: warm, friendly, super helpful - until I decided to not purchase life and disability insurance through them (NWM) - then radio silence.

As alluded to in an earlier post about 10% returns last year, that's great, but low-cost funds at Vanguard last year earned me 24 to 33% with expense ratios averaging around 0.10.  Beware of my declaration here because past performance has no reflection on future performance and I have given only an internet anecdote, but it's something to ponder.

If you sense that I am being diplomatic, it is only because I do not want this site, or its owner, to become embroiled in yet another potential lawsuit about unfounded claims by posters.

For endless advice about your situation, I highly recommend checking out bogleheads.org.  First, do a search there on AF then open your mind to a whole new set of possibilities.

[Another Reader]

Verify which class of shares you are offered.  You probably won't have any choice, but it's good to know how much you are paying.  If you are getting Class A shares, the front end load (sales commission) may be waived.  This is usually true in large 401k and similar plans, but may not be true in small plans with low administrative fees.

I had American Funds in various defined contribution plans over the years.  Several of the funds were very well managed and produced consistently excellent returns, even after management fees were considered.  Having to pay a load to buy them on top of the high management fees is offensive to the point where I would have to spend time doing the math to see if participating beyond the match was really worth the expense.

[TomTX]

I am a college student and I have a Roth IRA in American Funds. I can tell you it's done really well for me since I started it 1.5 years ago. I have Class A shares. Last statement it had 12% returns for 2013 and I think 10% overall. Yeah I had to pay fees for stock buy-ins and maintenance, but it's already made all that money back and more (pays for my student loan interest payments!) It's not the ideal company but it's not bad either. I'm pretty sure it's just behind The Vanguard.

"just behind The Vanguard."

Oh. My. God.

NO.

It's not. Based on a brief look, those funds are WAY WAY WAY more expensive. Very old-school.

Even if they weren't - your returns were utter shit. The markets had a huge runup in 2013. S&P 500 was up 30% for 2013.  You got 12%. And lost most of it to fees and inflated expenses. A quick look seems to be that it cost you 7% or so. Depends on the exact fund, but:Your actual return looks like ~5%, when you could have been up 30% in Vanguard for 0.05% in expenses. That is not a typo. One twentieth of one percent in expenses. 
Never pay load/buy-in/other bullshit fees when you have any choice.

Total expenses should be under 0.50%, preferably under 0.25% ideally under 0.10%

Again NO LOAD/buy-in/etc. if you can possibly avoid it.

OP: Can you talk to your employer about moving the SIMPLE to Vanguard? I set one up for a small business I worked for (and had no prior experience doing so) - Vanguard made it pretty darn easy. No fees to the employer.

[wudged]

The good thing about a Simple is two years after you've had the account, you can do an in-employment rollover.

I moved 30k out of my wife's crappy simple funds over to a discount brokerage.  I'm waiting on a match before doing it again.

Can you provide more details on this?  Specifically, do you continue to contribute to your employer sponsored Simple IRA and just once a year (or whenever you feel like it) roll it over to a traditional IRA at a different investment company?

The reason I ask is the cheapest expense ratio I can find for any fund available at the investment company for my current Simple IRA is over 2%.  All I see on the IRS website is information about moving the funds from one Simple IRA to another, or from a dormant one to any other type of account.

For anybody else who may wonder, I just contacted Vanguard and basically it's like any other IRA rollover.  You initiate the request with Vanguard and they will contact the other company.  The Simple IRA must have been opened for at least 2 years.  Sometimes there may be an expense involved (with either party, in the case of transferring into Vanguard, there is no expense.)  I asked about how often this may be done, and the representative from Vanguard said "as often as you want, every year or every other year."  I didn't ask if it can be done more often or not, because really once a year should be enough for my purposes.

[chasesfish]

Sorry I was slow in catching this and responding.  I use Fidelity and my wife already had a Rollover IRA, so we just submitted the request like any other rollover and the funds were there in about two weeks.  We were maxing out the IRA and would roll it over every time it hit $10,000.


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[TomTX]

Poor Cwadda.