Author Topic: Any Benefit to Starting a New Traditional IRA Account  (Read 3946 times)

dirby

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Any Benefit to Starting a New Traditional IRA Account
« on: June 30, 2015, 06:36:15 PM »
I'm looking to fund my wife's traditional IRA this year.  She already has a traditional rollover account with Vanguard, but it looks like I could start a new traditional IRA account with them.  Is there any benefit to starting a new account separate from the rollover account?  I'm funding her traditional account vs. the ROTH because it will get us more if not all of the child tax credit this year by lowering our taxable income.  Thanks for your input!

forummm

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #1 on: June 30, 2015, 06:55:30 PM »
I can't think of any reason to start a new account instead of just adding to the old one. It would actually increase your expense ratio a little if you start a new one and can't invest in admiral funds due to not having $10k in the account.

dirby

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #2 on: June 30, 2015, 07:01:10 PM »
That's a great point.   Just been learning about backend Roth contributions and want to make sure I'm not missing any nuances with this situation.

forummm

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #3 on: June 30, 2015, 07:45:05 PM »
Backdoor Roth is for people who make so much money that they exceed the contribution limit for a Roth.

From your post, it sounded like your income was low enough that you could take the full traditional IRA deduction. If so, you are well below the Roth contribution limit.

terran

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #4 on: June 30, 2015, 07:49:24 PM »
I don't know if this is true or not, but it might be worth looking into your state's laws for rollover IRA's. I think they may maintain some of the protection from creditors as the original 401k in some states, and I don't know what would happen to that if you intermingle. I could be totally wrong about all of this though.

dirby

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #5 on: July 01, 2015, 03:35:19 AM »
Thanks for the help.   You are correct in assuming that I don't need a backdoor roth, but since I'd never heard of them until yesterday,  I wanted to be sure there wasn't anything I'm missing with funding this account.   I will look into the state treatment of rollovers as well.

forummm

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #6 on: July 01, 2015, 05:47:37 AM »
I don't know if this is true or not, but it might be worth looking into your state's laws for rollover IRA's. I think they may maintain some of the protection from creditors as the original 401k in some states, and I don't know what would happen to that if you intermingle. I could be totally wrong about all of this though.

You can avoid this risk by just paying your bills and having homeowners and umbrella insurance.

Aphalite

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #7 on: July 01, 2015, 09:37:40 AM »
Two reasons, one would be if you eventually wanted to play conversion games (convert a few different IRAs with different holdings to Roth, wait til end of the year and recharacterize the ones that didn't do that well)

Second is brokerage exposure risk, I don't think Vanguard has it, but if you have an account with Fidelity, you have up to $500k protection in case they mismanage their money (by using yours) and go under. If you have more than say 250k in an IRA, I would start one with a different brokerage because that money will eventually grow to be above the 500k threshold

johnny847

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #8 on: July 01, 2015, 09:59:31 AM »
Two reasons, one would be if you eventually wanted to play conversion games (convert a few different IRAs with different holdings to Roth, wait til end of the year and recharacterize the ones that didn't do that well)

Second is brokerage exposure risk, I don't think Vanguard has it, but if you have an account with Fidelity, you have up to $500k protection in case they mismanage their money (by using yours) and go under. If you have more than say 250k in an IRA, I would start one with a different brokerage because that money will eventually grow to be above the 500k threshold
This is SPIC insurance. Vanguard has this too.
I hardly think this is a risk for you to worry about.

Cathy

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #9 on: July 01, 2015, 11:13:59 AM »
SIPC insurance refers to the scheme created by the Securities Investor Protection Act of 1970, codified at 15 USC § 78aaa et seq. In 15 USC § 78ccc, the statute creates a corporation called the Securities Investor Protection Corporation ("SIPC"), whose members are to be exactly all registered broker-dealers, with a few exceptions. According to the text of the statute, the SIPC is "not ... an agency or establishment of the United States Government" (15 USC § 78ccc(a)(1)(A)), but instead its members are required (by law) to contribute certain funds to the SIPC to maintain a "SIPC Fund" to be used for fulfilling the obligations of the law (15 USC § 78ddd).

According to 15 USC § 78eee(a)(3), if a member of the SIPC "has failed or is in danger of failing to meet its obligations to customers" or meets some other conditions, then the SIPC "may" file an application for a "protective decree" with a Court in respect of the failing member. If the Court grants the application, then the Court "shall forthwith appoint" a trustee chosen by the SIPC to administer the liquidation of the failing member: 15 USC § 78eee(b)(3).

The appointed trustee is then empowered and required to use the assets of the failing or failed member to "deliver securities to or on behalf of customers to the maximum extent practicable in satisfaction of customer claims for securities of the same class and series of an issuer": 15 USC § 78fff–1(b)(1).

Here's where the "insurance" aspect of this comes in. The problem at this point is that the failing or failed member may not have enough assets for the trustee to deliver the securities that the member was holding on behalf of its customer. To solve that problem, 15 USC § 78fff–3 provides that the SIPC "shall advance to the trustee such moneys, not to exceed $500,000 for each customer, as may be required to pay or otherwise satisfy claims for the amount by which the net equity of each customer exceeds his ratable share of customer property", subject to a few exceptions.

To step back a bit, this process only applies if the SIPC first seeks a "protective order" in Court in respect of one its members. As we discussed, its members are registered broker-deals. Mutual funds purchased at the Vanguard website are held by the The Vanguard Group, Inc., which is not a registered broker-dealer (the list of registered broker-dealer is available here). The SIPC scheme does not have any application to your dealings with The Vanguard Group, Inc.

If, however, you obtain a Vanguard brokerage account and use it to purchase securities, then you are dealing instead with "Vanguard Marketing Corporation", which is actually a registered broker-dealer and a member of SIPC (and in the list).

Also in the list is "Vanguard Capital", but a Google search suggests that this is a company that "is not affiliated with the Vanguard Group of mutual funds" and merely has a similar name. It may even be out of business because its website is currently down.
« Last Edit: July 01, 2015, 11:29:09 AM by Cathy »

Aphalite

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #10 on: July 01, 2015, 11:16:42 AM »
This is SPIC insurance. Vanguard has this too.
I hardly think this is a risk for you to worry about.

I think you misunderstand me - I was pointing out that I don't think Vanguard has the risk at all - since fund holders are also owners under Vanguard's system - but as Cathy pointed out, if you are using Vanguard as a brokerage to buy non vanguard stocks and securities, you do have SPIC protection

johnny847

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #11 on: July 01, 2015, 11:20:49 AM »
This is SPIC insurance. Vanguard has this too.
I hardly think this is a risk for you to worry about.

I think you misunderstand me - I was pointing out that I don't think Vanguard has the risk at all - since fund holders are also owners under Vanguard's system - but as Cathy pointed out, if you are using Vanguard as a brokerage to buy non vanguard stocks and securities, you do have SPIC protection

Oh sorry totally misread what you said.

Cathy, do you by any chance know how SIPC insurance applies to Vanguard's new scheme of combing brokerage and mutual fund accounts into one new account? Vanguard is planning to move all members to this combined account structure, and I'm not sure who the legal entity that manages those accounts is.

Cathy

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Re: Any Benefit to Starting a New Traditional IRA Account
« Reply #12 on: July 01, 2015, 11:33:45 AM »
Cathy, do you by any chance know how SIPC insurance applies to Vanguard's new scheme of combing brokerage and mutual fund accounts into one new account? Vanguard is planning to move all members to this combined account structure, and I'm not sure who the legal entity that manages those accounts is.

According to a page on Vanguard's website, the new combined account will be a brokerage account "held by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation, member FINRA and SIPC".