Getting Wife on board with Changes--Her IRA/expense ratios

[uwbadgers19]

Hi Everyone!

Thanks in advance for any help/tips you can give!  I have posted in the past (https://forum.mrmoneymustache.com/investor-alley/my-roth-ira-fees-expense-ratios-stress-etc/) and have learned lots since then!  Basically all my retirement knowledge has come in the last year.  Will try to keep this all as simple as possible for you all!

Combined Income:  115k
Ages 29 and 30
Baby on the way
110k total in retirement accounts
Very minimal debt besides house (~5k left of car payments, done in 12 months)

My Roth:  15k
5k Vanguard 2045 (VTIVX) ER 0.19
10k Total Stock Market Admiral (VTSAX) ER .05

Not really any questions on mine.  I recently converted 10k of the 2045 into the VTSAX.  I like it's super low, 0.05, expense ratio.

My main questions are how to get my wife on board with switching to Vanguard

Her 401k: 
~40k in VTIVX 2045 Retirement Fund, same as mine above.  A plus they offer this

Her Roth: 45k
The majority of it is in FAAGX, Nuveen Strategy Aggressive Growth Allocation Fund Class A.....ER is 1.34%.  This fund also has front load of 5.75%, however, she works for US Bank and they are partnered or something with Nuveen so that load is waived, but the ER is still high.



I have suggested recently we look into moving HER ROTH into a simple Vanguard Fund, probably the 2045 Retirement Fund.  It's a 1.34 vs 0.19 ER.  I did pull up a few calculators/graphs that show what that difference means each year and over the long term, it's a CRAZY difference.  This is a big thing I learned this year!

To simplify my questions now!

1.  Anything I'm missing here?  The smartest move long term is to get into a simple fund with low fees, right?  While she isn't charged a fee in real terms, it's built into the fund price each day kind of, right?

2.  Her main concern/argument is what if her fund FAAGX outperforms the 2045, then the ER difference doesn't matter.  While yes, this would be true, we can't just look at past performance to predict the future, right? Otherwise we would all be billionaires?  Even with this argument, the 2045 has outperformed her FAAGX in all time frames!  Anything I'm missing here?

3.  What would be a simple way to break this down/explain the WHY'S and WHAT IF'S of all this to her?

***I will say one thing that makes this is a bit complicated is she is good friends/co-workers with the financial advisor in her branch, I know him well too.  He gave me a little grief when I went to the Vanguard 2045 from the Franklin Templeton 2045...I WAS PAYING a front load and a high ER...I NOW understand why that is ridiculous for a 2045 type fund!!!

I also want to do this as nicely as possible.  While yes, we are married, it's a lot of money that she has saved and it has grown since 2007.  She had some large purchases of FAAGX in 2007/2008 that have grown nicely.  I know it would be difficult for me as well if someone was telling me to make this big $ move

4.  Anyone went though something similar to this?

As I said earlier, I am still very new to understanding a lot of this, but from what I've learned I know the focus for us should be smart, long term investments with low fees.

Thanks and let me know if any other info would be beneficial!

[Another Reader]

This is probably more about keeping a positive business relationship with a co-worker than an expense ratio.  Perhaps she would be open to putting future investments into a better choice.  She could tell her co-worker that her husband is to blame for the change, as he wants to coordinate all the family money in one place.  The co-worker keeps managing the existing money for now, and you consider it a cost of her job.

[fodder69]

I think you know the arguments. Just lay out a 10 or 20 plot of the numbers to show her. If the numbers are big enough that might be enough. I'd actually look at the last 10 years performance and lay it out that way (X dollars would be Y at this point). See what she has to say.

And then DROP it :-). My .02c. It does sound more like she doesn't want to rock the boat at work. But this is more of a relationship thing and as a husband you need to acknowledge that it is her money. Sure it would be great if you were both on the same page, but you are both young so I think the returns will be all right in the long run even if they aren't ideal.

Probably not the advice you were looking for so maybe others will be more helpful.

[RootofGood]

So wait, your wife has a friend at work that has her stuck in a fund that's costing her an extra $500 per year in unnecessary fees (a loss that will only rise as the fund value rises with investment returns and new contributions)? 

If your wife is okay throwing away $500 every year, then I'd say don't push it too much.  Ask her if throwing away $1000 per year or $2000 per year is worth it to not make this friend somewhat unhappy? 

No, seriously, get your wife on board with the switch to a low cost vanguard fund (like the one you mention).  Right now her "friend" is holding her emotionally hostage.  Just initiate the custodian to custodian "in kind" transfer at vanguard and they'll be the bad guys to pull the money out of the high expense Roth.  Once it gets to Vanguard, sell it and use the proceeds to buy the low cost vanguard fund.  She might not have to explain anything to the emotional blackmailer until it's all said and done. 

In the grand scheme of things, high fees on $45k won't derail your financial plans.  But it's pure nonsense to leave the money where it is.  The IRA will continue to grow in value and you'll waste more and more each year. 

Good luck with your wife.  :)

[wtjbatman]

It's been said. Lay it out, point out the facts (not just opinion or feelings), then drop it and move on. In a couple weeks/months she will either change her mind and come to you on her terms, or she will ignore it and continue on her current path. It's not the worst outcome in the world, at least she is saving (and quite a lot it seems).

[uwbadgers19]

Thanks all for the responses! 

When we were chatting the other day she brought up the idea of contributing MORE to her 401k, which is in already low fee VTIVX 2045 fund and contributing less towards her IRA.  Is that a smart move?

I am a little "fuzzy" on the IRA vs 401k.  While I understand Roth is after tax and 401k is before tax, would that option make any sense?  It would also prevent "rocking the boat" at work, which I don't want to understate, is an important thing with her working there :)

It's actually kind of funny, she has worked at the bank since college ~8 years and currently is a mortgage originator, but none of this retirement number stuff interests her :)

Again, thanks for any other thoughts, whatever happens, I will continue my maxing of ROTH at .05 ER!

[Saverocity]

Thanks all for the responses! 

When we were chatting the other day she brought up the idea of contributing MORE to her 401k, which is in already low fee VTIVX 2045 fund and contributing less towards her IRA.  Is that a smart move?

I am a little "fuzzy" on the IRA vs 401k.  While I understand Roth is after tax and 401k is before tax, would that option make any sense?  It would also prevent "rocking the boat" at work, which I don't want to understate, is an important thing with her working there :)

It's actually kind of funny, she has worked at the bank since college ~8 years and currently is a mortgage originator, but none of this retirement number stuff interests her :)

Again, thanks for any other thoughts, whatever happens, I will continue my maxing of ROTH at .05 ER!

I gotta say, I am still wrapping my head around you crazy mustachians and your desire to retire at 30, but here is what I would say.

Max out your tax deferred accounts during your earning phase of life - then use partial rollovers through your Financial independence years to roll into the roth.  It is unlikely (I presume) that you will retire young and be able to maintain that 115K income level - so by funding the 401(k) now you are deferring your income until those years where you earn less and you would pay less tax in the process rather than funding the Roth directly.

Also- if she plans to quit to stay at home your salary will drop significantly next year, which means you could start using rollovers/partial rollovers to the Roth from then which would save you a nice amount of money.

[teen persuasion]

Thanks all for the responses! 

When we were chatting the other day she brought up the idea of contributing MORE to her 401k, which is in already low fee VTIVX 2045 fund and contributing less towards her IRA.  Is that a smart move?

I am a little "fuzzy" on the IRA vs 401k.  While I understand Roth is after tax and 401k is before tax, would that option make any sense?  It would also prevent "rocking the boat" at work, which I don't want to understate, is an important thing with her working there :)

It's actually kind of funny, she has worked at the bank since college ~8 years and currently is a mortgage originator, but none of this retirement number stuff interests her :)

Again, thanks for any other thoughts, whatever happens, I will continue my maxing of ROTH at .05 ER!

I don't think you mentioned how much she was contributing to her 401k.  Increasing that, and the new baby will change the amount of taxes you owe next year.  You might find that she can do both (increase 401k and max Roth) with the savings.  I have DH max his 401k (I don't have access to one), and use our tax refunds to fund our Roths.

Another thought on not rocking the boat.  DW can open another Roth account w/ Vanguard, and direct her new contributions to that, leaving the current one alone.  Friend need never know.  You can have multiple IRAs, so long as the total you contribute among them in a given year doesn't exceed the max.