Going into 6th Contribution year for Roth IRA - help with where to go

[Drew664]

Hi,

Been lurking for a while and enjoy much of the topics here. Thought I'd ask a few questions in regards to my own situation.

I am discovering that potentially the Target Mutual Fund that I have has a higher cost associated with keeping money in it vs what else is readily available.

I've contributed the Max for a Roth IRA since 2010 - and currently have a value of $36k invested into one Mutual Fund - T. Rowe Price Retirement 2055 Fund Advisor (PAROX). PAROX has an Expense Ratio of 1.01% and a Max Admin Fee of .15% (not sure what this is). I use Scottrade for what it's worth if that matters.

Vanguard mutual funds are very popular here due to low expenses, and I like the 'set it and forget it' idea, especially on retirement items.

So, I'd like to ask a few questions.

1.) Which mutual funds should I get? I like the targeted funds that already come balanced and are 'set it and forget it'. Are any of the targeted Vanguard Funds better than what I have now? (VTIVX, VFIFX - any other options?)

2.) How can Vanguard have such low fees compared to everyone else? Does this make them suspect in anyway?

3.) Can I take my current holdings in PAROX and move them to another mutual fund i.e. Vanguard targeted retirement fund 20XX? Does this come with a penalty or fee?

4.) At what point should I start buying other  mutual funds to diversify - or do I since the targeted funds already do that?


As for additional information, I'm turning 31 this year, so I have a ways to go before retirement.

Any advice here is appreciated.

Thanks in advance!

[MoneyCat]

I'm split evenly between two Vanguard funds and one American Fund.  The Vanguard funds are Vanguard Dividend Growth Fund (VDIGX) and the Vanguard STAR Fund (VGSTX).  The American Fund is American Funds World Capital Growth Income Fund (CWGFX).  It works for me.

[pdxvandal]

Congrats on building up the Roth. However, are you already maxing out traditional 401k or IRA for the tax advantages? If not, I'd look into that on top of your Roth contributions, if possible.

[GGNoob]

You should roll your IRA over to Vanguard ASAP. You can do a direct rollover or indirect. I've done indirect in the past because it was just easier for me. To do that, withdraw all of your money from your T. Rowe Price Roth IRA. Hopefully they can withdraw it quick to your bank account. Otherwise maybe they will send you a check in the mail. Once you have that money, open up a Roth IRA at Vanguard. When you are funding the account and Vanguard asks "Is this a rollover from an employer-sponsored plan or IRA?" make sure you choose yes and then choose that it is from another Roth IRA.

There will be no fees when you do a rollover, unless T. Rowe Price charges you fees to withdraw or close your account. The IRS says you have 60 days from the time you withdraw to deposit it back into another account. But you'll probably want to deposit it ASAP so that you are not out of the market for long.

If you want another target retirement fund, the Vanguard Target Retirement 2055 is probably what you want. It's fees are 0.18%. Then you'll have your easy "set it and forget it" portfolio. You have enough money in your Roth IRA that you could start buying individual mutual funds if you choose. By doing so, you might be able to get your expenses down to around 0.08%, an annual savings of about $10 per $10,000 you have invested. You could buy the Admiral shares mutual funds or ETFs, both have the same costs. But if you are fine with the extra cost, feel free to stay invested in the Target Retirement Date fund, as it already has the underlying funds you need.

This is what Vanguard says about their low fees:

We're owned by our clients, so our profits go directly back to you.

[Drew664]

Congrats on building up the Roth. However, are you already maxing out traditional 401k or IRA for the tax advantages? If not, I'd look into that on top of your Roth contributions, if possible.

Currently, I am meeting my employers match @ 5% with my 401k.

Haven't given it much though to do any more honestly.

[Drew664]

You should roll your IRA over to Vanguard ASAP. You can do a direct rollover or indirect. I've done indirect in the past because it was just easier for me. To do that, withdraw all of your money from your T. Rowe Price Roth IRA. Hopefully they can withdraw it quick to your bank account. Otherwise maybe they will send you a check in the mail. Once you have that money, open up a Roth IRA at Vanguard. When you are funding the account and Vanguard asks "Is this a rollover from an employer-sponsored plan or IRA?" make sure you choose yes and then choose that it is from another Roth IRA.

There will be no fees when you do a rollover, unless T. Rowe Price charges you fees to withdraw or close your account. The IRS says you have 60 days from the time you withdraw to deposit it back into another account. But you'll probably want to deposit it ASAP so that you are not out of the market for long.

If you want another target retirement fund, the Vanguard Target Retirement 2055 is probably what you want. It's fees are 0.18%. Then you'll have your easy "set it and forget it" portfolio. You have enough money in your Roth IRA that you could start buying individual mutual funds if you choose. By doing so, you might be able to get your expenses down to around 0.08%, an annual savings of about $10 per $10,000 you have invested. You could buy the Admiral shares mutual funds or ETFs, both have the same costs. But if you are fine with the extra cost, feel free to stay invested in the Target Retirement Date fund, as it already has the underlying funds you need.

This is what Vanguard says about their low fees:

We're owned by our clients, so our profits go directly back to you.

Thanks

It sounds very easy to convert all of PAROX into the Vanguard mutual fund then. I'll have to go into Scottrade soon and get the required paperwork if it's needed.

Is there a preference to diversify outside of just one mutual fund company? Is there another low expense provider that does similar but balances well with Vanguard targeted retirement accounts?

[RyeWhiskey]

Call Vanguard. Tell them you want to roll your Roth over to them and invest in the equivalent Target fund. Then follow their directions.

There is an article somewhere about 'what if vanguard goes under' which explains why you really only need Vanguard unless you have special needs. Schwab is the only other brokerage which offers so many low-cost ETFs.

[Drew664]

Just thought I'd update what I've done on the ROTH front.

I still have my PAROX funds (haven't had time to convert) but bought the max amount of VFFVX for the 2015 contribution year.

I am now starting to wonder if my target fund dates are off since I'll be 72 when these funds hit here target date. Should I let them ride out or convert all to something that matures when I'm 60?

[seattlecyclone]

I just transferred a Roth IRA from Scottrade to Vanguard last year. It was super easy. I just typed my Scottrade account info into a form on Vanguard's website to initiate the rollover and they took it from there. Scottrade did charge a fee ($75?) to close the account and transfer assets out, but that's equivalent to just a few months' worth of the fee you're paying on your current funds, so don't sweat that too much. Good luck!

[Drew664]

I just transferred a Roth IRA from Scottrade to Vanguard last year. It was super easy. I just typed my Scottrade account info into a form on Vanguard's website to initiate the rollover and they took it from there. Scottrade did charge a fee ($75?) to close the account and transfer assets out, but that's equivalent to just a few months' worth of the fee you're paying on your current funds, so don't sweat that too much. Good luck!

Good to know, but I don't think I'm being charged any expenses by going throuh Scottrade though? I did have to pay a $17 fee to purchase the Vanguard fund - is that the cost you are describing?

[Fatmouse]

I am now starting to wonder if my target fund dates are off since I'll be 72 when these funds hit here target date. Should I let them ride out or convert all to something that matures when I'm 60?

Personally, I find it more helpful to think about the asset allocation of these "target date" funds, instead of the actual date.  Yes, the asset allocation will change over time to be more conservative, but you want to have the "right" mix as a starting point today.

You will find that many people on the MMM boards prefer an asset allocation of 80% stocks, 20% bonds, or even riskier.  Your target date 2055 is probably at or near this mix, which is usually appropriate for your age.  This risk profile means the balance of your Roth will swing, maybe by a lot.  You could lose 30% of your investments in a bad year.  If this doesn't bother you, since you figure you aren't touching the money for decades, then you are already in the right place!

But if a 30% drop will make you do something rash, like sell all of your investments, find something more conservative.  A target date fund with a closer retirement target date would achieve this.

Good luck!  I just recently got comfortable with investing.  We are the same age.  I have found the Dough Roller podcasts to be very helpful.  My advice above is pretty much taken directly from one of those podcasts.

Go slow.  You don't need to change anything until you have done all your homework and you're really comfortable!  That said, do keep actively thinking about it, since your fees on your existing PAROX investment are high.

[Drew664]

The balance of the target date funds now doesn't phase me - loss or gain, so I'm comfortable there. I'm just looking ahead and wondering if the mix of that fund when I'm retired is the right allocation. (Probably near 60)

Appreciate the advice on the investing portion, and its exactly what I believe - the go slow until comfortable approach. I had read an article advising not to switch funds before the end of the year due to taxes (not sure how it applied to my case, but I could wait another month or so before switching and it would allow for feel good vibes about the whole thing)

I listen to a lot of Dave Ramsey, but he doesn't touch much on the granual details of mutual funds and investing, so this board as well as bogleheads has filled that void. I'll have to give that pod cast a chance soon.

[seattlecyclone]

I just transferred a Roth IRA from Scottrade to Vanguard last year. It was super easy. I just typed my Scottrade account info into a form on Vanguard's website to initiate the rollover and they took it from there. Scottrade did charge a fee ($75?) to close the account and transfer assets out, but that's equivalent to just a few months' worth of the fee you're paying on your current funds, so don't sweat that too much. Good luck!

Good to know, but I don't think I'm being charged any expenses by going throuh Scottrade though? I did have to pay a $17 fee to purchase the Vanguard fund - is that the cost you are describing?

The cost I'm describing is the 1% expense ratio on your T. Rowe Price fund. With $36k invested, T. Rowe Price is taking about $30/month out of your account behind the scenes. This fee will be the same whether you hold the fund through Scottrade or Vanguard. But if you switch to a Vanguard fund, your $30/month expense ratio may go down to $5/month or less.

As a reminder, if you have your money in an account with Vanguard directly, you pay no transaction fees when you buy or sell shares of Vanguard funds. So if you do decide you want to invest in Vanguard funds in the future, it would be in your best interest to invest directly so that you don't spend $17 every time.

[Drew664]

I just transferred a Roth IRA from Scottrade to Vanguard last year. It was super easy. I just typed my Scottrade account info into a form on Vanguard's website to initiate the rollover and they took it from there. Scottrade did charge a fee ($75?) to close the account and transfer assets out, but that's equivalent to just a few months' worth of the fee you're paying on your current funds, so don't sweat that too much. Good luck!

Good to know, but I don't think I'm being charged any expenses by going throuh Scottrade though? I did have to pay a $17 fee to purchase the Vanguard fund - is that the cost you are describing?

Ah, love it. Thanks for the explanation.

Just have to carve out time to do this then!

The cost I'm describing is the 1% expense ratio on your T. Rowe Price fund. With $36k invested, T. Rowe Price is taking about $30/month out of your account behind the scenes. This fee will be the same whether you hold the fund through Scottrade or Vanguard. But if you switch to a Vanguard fund, your $30/month expense ratio may go down to $5/month or less.

As a reminder, if you have your money in an account with Vanguard directly, you pay no transaction fees when you buy or sell shares of Vanguard funds. So if you do decide you want to invest in Vanguard funds in the future, it would be in your best interest to invest directly so that you don't spend $17 every time.

Ah, love it. Thanks for the explanation.

Just have to carve out time to do this then!

[Drew664]

Well, I sold all of my PAROX for shares of VTIVX. Still with Scottrade at the moment but may change that up as well to reduce future expenses. Feeling confident that the ROTH is good to go long term now.

Anyone else have a mix of target retirement date funds in their portfolio?  Currently carrying the 2045 and 2055 versions from Vanguard.

[GGNoob]

Well, I sold all of my PAROX for shares of VTIVX. Still with Scottrade at the moment but may change that up as well to reduce future expenses. Feeling confident that the ROTH is good to go long term now.

Anyone else have a mix of target retirement date funds in their portfolio?  Currently carrying the 2045 and 2055 versions from Vanguard.

If thats the case, once you move to Vanguard, you may just want to purchase the 2050 fund. Most of us here manage stock/bond allocation ourselves with a minimum of 3 funds...Total US Stock, Total International Stock, and Total US Bond. If you want to stick with a Vanguard target date fund, go ahead. They are still very cheap compared to most funds and it's very easy for you. Just look at the fund's timeline and make sure you are happy with the stock/bond allocation as it changes. But as long as you pick the one closest to your estimated retirement year, you should be good to go.

Just as a reminder, if you don't want to call Vanguard or fill out any forms, you can honestly just withdraw the money from Scottrade and then you have 60 days to deposit it into Vanguard. Your Vanguard account can be created in like 10 minutes and you just have to choose the source of your funds as a Roth IRA rollover. Withdrawing the money to your bank account and then depositing it into a new IRA is called an indirect rollover. Just need to make sure that Scottrade doesn't hold any money for early withdrawal penalties or anything. Otherwise you can call Vanguard for the direct rollover or transfer and they will handle everything.

[seattlecyclone]

As I said before, I didn't even need to call Vanguard to initiate the direct rollover. They have a form on the web when signing up for an account where you can input your Scottrade account info and they'll magically take care of it. Scottrade called me just to confirm I really wanted to leave, but that was it. No paperwork or waiting on hold required!