Author Topic: I don't understand the best way to move out of Target Retirement Funds  (Read 1452 times)

pianomom

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Right now my husband and I are invested in Target Retirement Funds in our retirement accounts. We're thinking of moving out of them and into total stock and total bond funds so we can better control asset allocation, especially if we add taxable accounts this year. Does selling our target funds in our retirement accounts and buying the other funds cost us money in taxes or other fees? Or is it better to keep the target funds we have and have all our new investments be in the new funds?

One caveat, we each have less than $50K in retirement accounts and so in our SIMPLE IRAs we are charged a $25 fee per fund until we reach $50K in total. We hopefully will each have more than $50K by the end of the year. So if we were to keep our target funds and buy into another fund before hitting $50K we would pay an extra $25 per fund this year.


« Last Edit: January 03, 2018, 01:00:26 PM by pianomom »

Fomerly known as something

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Re: I don't understand the best way to move out of Target Retirement Funds
« Reply #1 on: January 03, 2018, 01:50:50 PM »
No taxes are paid on transactions within tax advantaged retirement accounts. 

As for fees, it will depend on where your accounts are located and what that institutions policies are.  However when it comes to expense ratios, I do know most target date fund ratios are much larger than index funds.

Frankies Girl

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Re: I don't understand the best way to move out of Target Retirement Funds
« Reply #2 on: January 03, 2018, 02:33:40 PM »
Where do you have your accounts? Because it sounds like a terrible company if they're charging you fees just for holding your accounts. You may want to look into shifting the whole accounts out to Vanguard or Fidelity. ETA: missed the Simple IRA reference so none of this is correct.

But if the funds you currently hold are all in tax deferred accounts like Roth/traditional/simple IRA, 401k/403b type things, then you should not create any taxable events by selling off anything held and buying anything else.

neverrun is right tho - the company that holds your account likely could be charging you for any selling or buying as a standard policy. Which is why you should check out with them first to see if they charge you a trading fee, and any other charges that might be incurred by rebalancing.


Any company nowdays that charges you a fee just for having less than 50k is a terrible company. You probably should start looking at how much it will cost you to sell off everything and transfer out to Vanguard or Fidelity. (and shit companies like this likely will hit you with a transfer fee and closing account fee because they are assholes, but it is almost a certainty that you'd do better just to pay the fees and get out). Similar discussion about moving accounts here: https://forum.mrmoneymustache.com/investor-alley/moving-from-wells-fargo-to-vanguard ETA: missed the Simple IRA reference so none of this is correct.






« Last Edit: January 03, 2018, 03:11:00 PM by Frankies Girl »

pianomom

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Re: I don't understand the best way to move out of Target Retirement Funds
« Reply #3 on: January 03, 2018, 02:52:40 PM »
To clarify, our SIMPLE IRA is with Vanguard. Vanguard charges a $25 yearly maintenance fee per fund inside the SIMPLE IRA until you hit $50K in investment between all of your accounts. We have the fee waived for our Roth accounts. Here's the link https://investor.vanguard.com/what-we-offer/small-business/simple-ira. So I'd rather just hold one fund in each account until we hit that amount, which will hopefully be by the end of the year.

I did some more research and found that VTSAX isn't available in our plan, only VTSMX. Fees for VTSMX are .15% while our target retirement fund is only .16%. And it's similar for bond accounts. So as far as fees go, our target retirement funds aren't too bad with what we're offered. Once we hit $10K in our Roth IRAs we will be eligible to have VTSAX in our Roth accounts.

Where do you have your accounts? Because it sounds like a terrible company if they're charging you fees just for holding your accounts. You may want to look into shifting the whole accounts out to Vanguard or Fidelity.

But if the funds you currently hold are all in tax deferred accounts like Roth/traditional/simple IRA, 401k/403b type things, then you should not create any taxable events by selling off anything held and buying anything else.

neverrun is right tho - the company that holds your account likely could be charging you for any selling or buying as a standard policy. Which is why you should check out with them first to see if they charge you a trading fee, and any other charges that might be incurred by rebalancing.

But honestly, any company nowdays that charges you a fee for having less than 50k is a terrible company. You probably should start looking at how much it will cost you to sell off everything and transfer out to Vanguard or Fidelity. (and shit companies like this likely will hit you with a transfer fee and closing account fee because they are assholes, but it is almost a certainty that you'd do better just to pay the fees and get out). Similar discussion about moving accounts here: https://forum.mrmoneymustache.com/investor-alley/moving-from-wells-fargo-to-vanguard


« Last Edit: January 03, 2018, 02:55:48 PM by pianomom »

Frankies Girl

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Re: I don't understand the best way to move out of Target Retirement Funds
« Reply #4 on: January 03, 2018, 03:08:14 PM »
Darn it, missed that it was a simple IRA. So disregard what I said about the fees/terrible company stuff. If you're acting as a small business, you're gonna get charged fees for that; it's the end user side I'm used to.

So yeah, stick with Vanguard, likely stay with the target date funds since they're a good deal for now, wait til you build up more and when you add in a taxable account you should likely pay attention to tax efficiency of any funds you choose to hold in there, but otherwise disregard the other stuff I mentioned since it is based off of my experience of being an individual and not running your own business (which I have no experience/knowledge of).

« Last Edit: January 03, 2018, 03:12:05 PM by Frankies Girl »

Radagast

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Re: I don't understand the best way to move out of Target Retirement Funds
« Reply #5 on: January 03, 2018, 09:06:26 PM »
The target date funds seem fine. Even if you managed the allocation yourself, you wouldn't gain much, if anything. I would leave them alone and work on an independent allocation for the taxable accounts.