How To start your own ROTH IRA

[aceyou]

Hi Everyone,  here's the situation:

1.  earlier this year my wife and I each put $5500 into a Roth IRA, the first time we've ever done this.  We went through a brokerage firm that I believe is overcharging me....I want to do it myself.

2.  Last night I called Vanguard, here's what they said: 

Step 1: go online and create an account with vanguard.
Step 2: use their website to have our funds transferred over to vanguard
step 3: pick the funds we want them to be in
step 4: around tax time, Vanguard will send us documents for when we do our taxes. 

QUESTION #1: IS IT REALLY THAT EASY

Now, onto costs.  They said there are absolutely no costs other than the fund cost.  So, for example, VTSAX is 0.05% and I can buy it if I combine last years contributions with a match for this year, pushing us over the $10,000 threshold for admiral shares. 

QUESTION #2: IS THAT TRUE THAT THERE LITERALLY ARE NO ADDITIONAL COSTS OTHER THAN THAT 0.05%?  THAT SEEMS UNBELIEVABLE. 

QUESTION #3: WHAT KIND OF THINGS TO I HAVE TO BE CAREFUL OF TO IF I AM GOING TO DO THIS ON MY OWN?  I WANT TO MAKE SURE THAT IT'S SET UP AS A ROTH IRA AND THAT I'M COMPLYING WITH THE IRS SO I DON'T HAVE ISSUES YEARS DOWN THE ROAD!!!  SO BASICALLY, WHAT QUESTIONS SHOULD I BE ASKING THAT I'M NOT, DUE TO MY OWN IGNORANCE?

Thanks so much!

[shotgunwilly]

#1: Yes.
#2: Yes.
#3: Vanguard categorizes your investment as a "Roth IRA" when you designate it on signup.  Just don't go over the yearly contribution limit, and fund it with earned wages and you will not have any problems with the IRS.

It's incredibly easy.

[Paul der Krake]

Please go easy on the caps lock key. On the internet, it is like screaming in someone's face. :)

You really can't go wrong with a Roth IRA. As long as you don't overcontribute (and all providers have very clear warning signs to prevent you from doing so), and you only stick paper assets in there, it is as idiot-proof as a financial vehicle can be.

[aceyou]

#1: Yes.
#2: Yes.
#3: Vanguard categorizes your investment as a "Roth IRA" when you designate it on signup.  Just don't go over the yearly contribution limit, and fund it with earned wages and you will not have any problems with the IRS.

It's incredibly easy.

Wow, that's awesome.  I'm excited. 

Please go easy on the caps lock key. On the internet, it is like screaming in someone's face. :)

You really can't go wrong with a Roth IRA. As long as you don't overcontribute (and all providers have very clear warning signs to prevent you from doing so), and you only stick paper assets in there, it is as idiot-proof as a financial vehicle can be.

That's what I was hoping to hear, thank you Paul.  Also, I apologize for raising my internet voice:) 

[Heckler]

I'm curious - what will his costs be to sell and cash out?

[Scandium]

#1: Yes.
#2: Yes.
#3: Vanguard categorizes your investment as a "Roth IRA" when you designate it on signup.  Just don't go over the yearly contribution limit, and fund it with earned wages and you will not have any problems with the IRS.

It's incredibly easy.

Not totally correct. The IRS has an income cap to contribute to a Roth. Don't remember off the top of my head but something like $120k/$180k for single/married? If OP make more than this limit he's not allowed to contribute to a Roth directly. Would have to use the back door Roth.

[aceyou]

#1: Yes.
#2: Yes.
#3: Vanguard categorizes your investment as a "Roth IRA" when you designate it on signup.  Just don't go over the yearly contribution limit, and fund it with earned wages and you will not have any problems with the IRS.

It's incredibly easy.

Not totally correct. The IRS has an income cap to contribute to a Roth. Don't remember off the top of my head but something like $120k/$180k for single/married? If OP make more than this limit he's not allowed to contribute to a Roth directly. Would have to use the back door Roth.

My wife and I are teachers, plus I play Daily Fantasy sports as an income.  Here's where I'm at for the year:

My teaching: 57000
my coaching: 10000
wife teaching: 57000
my DFS: 25000
total: $149,000

However, I bought 5 years, that cost me $20,000 out of my paycheck, and my wife will have about 30,000 taken out, and I think that reduces our AGI below $100,000.  So, I think I'm good. 

[Scandium]

#1: Yes.
#2: Yes.
#3: Vanguard categorizes your investment as a "Roth IRA" when you designate it on signup.  Just don't go over the yearly contribution limit, and fund it with earned wages and you will not have any problems with the IRS.

It's incredibly easy.

Not totally correct. The IRS has an income cap to contribute to a Roth. Don't remember off the top of my head but something like $120k/$180k for single/married? If OP make more than this limit he's not allowed to contribute to a Roth directly. Would have to use the back door Roth.

My wife and I are teachers, plus I play Daily Fantasy sports as an income.  Here's where I'm at for the year:

My teaching: 57000
my coaching: 10000
wife teaching: 57000
my DFS: 25000
total: $149,000

However, I bought 5 years, that cost me $20,000 out of my paycheck, and my wife will have about 30,000 taken out, and I think that reduces our AGI below $100,000.  So, I think I'm good.

Yes you should be. It's MAGI though, not AGI.

Also, you make $25k playing D & D for jocks?! Impressive.

[aceyou]

Ok, I just got some emails back from my ROTH IRA guy and it appears my costs to invest with him are currently around 2.15% !!!!! Here's some of the dialogue below.  Someone please confirm that my math is correct and that I need to get out of this:) 

I just pulled the account information on the fee structure at FTJ.  Your total fee is a combination of the following:
 
1.       TD Ameritrade IRA custodial fee = $25 yr for being paperless statements.  Paid as part of the monthly deduction or $25/12 months = $2.08 month

2.       FTJ Fundchoice platform fee.  Your two accounts are linked and if the balance is under $50,000 then the platform fee is 0.45% annually.  If the account was $5,500 x 0.0045 = $24.75 yr/ 12 months = $2.06 month

3.       Investment Centers management fee (I see about ½ of this amount in my office).  We are using a flat 0.70% annually fee.  If the account was $5,500 x 0.007 = $38.50 yr/ 12 month = $3.20 month

 
So if you total the monthly amounts $2.08 + $2.06 + $3.20 = $7.34 month billed to each account.  When I look in the transaction history, there is a monthly deduction for a similar amount depending on the account balance.
 
The total amount of 0.45% +0.7% is 1.15% total.  After we reach the $50,000 amount that would drop to 0.35% +0.7% = 1.05%.... at $100,000 it drops to 0.20% + 0.7% = 0.90%.,etc.   We can review that further during the review process.
 
I hope that helps explain the total fee amounts a little better.
Have a great week,

And I responded with:  Does this include the fund costs for the specific funds I own?  I know that the fund costs don't go to you, but is that included in this 1.15%, or do I need to tack that on as well on my end.  And he replied...

Good question... I forgot to clarify the fund costs in those examples.  The internal fund costs are in addition to those fees.  I would say the average fund cost right now is around 1.0 to 1.1%.

[aceyou]

Update  Today I opened a Vanguard account and have started the process of transferring my Roth IRA from the high cost financial advisor over to Vanguard.  The funds should transfer in about a week ($5,000).  As soon as the funds transfer, I will make my Roth IRA contribution of $5500 for 2015.  This will put me over $10,000, which will allow me to purchase VTSAX as my first Vanguard investment.  Cool huh!!!

After I successfully go through all the steps and verify that the transfer works out, my wife is going to do the same. 

Thanks everyone for your guidance!!!

[wienerdog]

1.  earlier this year my wife and I each put $5500 into a Roth IRA, the first time we've ever done this.  We went through a brokerage firm that I believe is overcharging me....I want to do it myself.

From your earlier statement you already made the $5500 contribution to the Roth for the year but you say you are transferring $5000.  If you already made $5000 contribution this year to another provider then you can only make another $500 more for the year of 2015.

[Goldielocks]

I'm curious - what will his costs be to sell and cash out?

+1

Watchout
Often there is a fee (such as $50 to $150) to close out a registered account, that does not include any rear load fees, or short duration holding penalties..
Wire transfer fee can be hit, too, so ask.

Vanguard as described, though.

[Petunia 100]

1.  earlier this year my wife and I each put $5500 into a Roth IRA, the first time we've ever done this.  We went through a brokerage firm that I believe is overcharging me....I want to do it myself.

From your earlier statement you already made the $5500 contribution to the Roth for the year but you say you are transferring $5000.  If you already made $5000 contribution this year to another provider then you can only make another $500 more for the year of 2015.

He might have made a 2014 contribution earlier this year.