Author Topic: Moving to Vanguard, Waving Bye to Edward Jones and American Funds  (Read 13793 times)

hadabeardonce

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Before:
Code: [Select]
403b American Funds - $23,600 - 5.75 avg load & .66% expenses
   AMCPX $3,500
   ANCFX $5,900
   AGTHX $3,500
   AIBAX $3,500
   AIVSX $5,000
   SMCWX $2,200
$300/mo contribution

IRA  American Funds -  $4,900 - 5.75 avg load & .74% avg expenses
   AIVSX $2,100
   SMCWX $1,000
   ANWPX $1,800
$0/mo contribution
Code: [Select]
"Investment Account" Edward Jones - $27,400 - 5.75 avg load & 1.16% avg expenses
   FKDNX $2,400
   FKCGX $1,300
   FKGRX $4,200
   TEDIX $4,300
   FRDPX $3,200
   FKBAX $5,700
   TEMFX $2,100
   TEMGX $2,100
   TEPLX $2,100
$500/mo contribution


After:
Code: [Select]
403b Vanguard - $23,600 - 0 load & .17% avg expenses
   VTIVX $23,600
$1458/mo contribution

IRA Vanguard -   $4,900 - 0 load & .16% avg expenses
   VTSMX $4,900
$0/mo contribution

I took a leap and called it quits with Edward Jones yesterday. My advisor sold all shares from my investment account. The $ should be automatically transferred to my bank account soon. I submitted the paperwork for my 403b with American Funds to be transferred to a target date fund with Vanguard and I'm transferring my small IRA too...

Last July(way back when I was 33 years old) I had gone into Edward Jones with a plan to maximize my contribution to my 403b and try to get a better return than I had gotten with my previous advisor over the previous 8 years(~1% return.) The Edward Jones advisor said there would be no problem getting a better return, but that I was young and had a lot ahead of me, so I should probably open up a taxable investment account instead of maxing my 403b contributions. It sounded good, I would get a return on my money and have access to it. I understood there would be an initial hit from the fees, but that it should gain over time. Looking back I certainly didn't invest at a great time. The market was high and then immediately dropped, but in hindsight it was a good trigger that caused me to take a closer look at front loads and expenses. I was also told not to pay down my mortgage prematurely due to the tax advantages of the mortgage deduction and I have a MCC(mortgage credit certificate). The more I looked at the funds I was in and where my money was going, the more I felt like I had been given bad advice. I pointed out to my advisor that all but two of the funds she had enrolled me in outperformed the VTSMX index fund. She responded by saying that my risk tolerance survey said I was too conservative for her to have recommended that to me... so I could be in underperforming funds with high fees, but an index fund was too risky? That idea really bugged me and it started to feel like I was beginning another experience like I had with American Funds: saving money and giving all my earnings to an advisor/fund manager. Now I know a little more and am sticking to my original plan:

1) Maintain a bank account balance of around $20K
2) Max annual 403b Vanguard account contributions
3) Split the remainder of the money 50/50 between a taxable investment account(Vanguard) and paying down my mortgage @ 4.12% interest

I will say that deciding to managing your own retirement and investment money is a scary experience. Especially when you haven't been taught much about it. I will miss my scapegoat advisors, but I'm sure my overall returns will be better.

Food for thought:
http://www.bloombergview.com/articles/2016-04-11/those-tiny-fees-make-your-financial-adviser-rich
http://www.investopedia.com/articles/personal-finance/040416/7-ways-identify-weak-mutual-funds-401k.asp

Back to reading more about bonds, bogleheads, Vanguard funds, Morningstar reports, Warren Buffett...

Eurotexan

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #1 on: April 27, 2016, 08:04:46 AM »
I moved all my retirement (except current 401K) and money market accounts to vanguard about 2 years ago. I have about 90% in VTSMX, the rest in bonds. I look at it twice a year and rebalance if necessary. Otherwise I forget about it. Vanguard is a great company with some of the lowest expense ratios out there. It's not easy making the break on your own but your future self will thank you.

rubybeth

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #2 on: April 27, 2016, 08:36:06 AM »
I am curious if you actually sold the stock and are taking possession of the funds before moving to Vanguard. This seems like it could have serious tax implications. I am hoping you mean that you did transfer paperwork. Was Edward Jones the employer's choice for the 403b and they are letting you switch to Vanguard?

forummm

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #3 on: April 27, 2016, 08:41:31 AM »
Congratulations on all that money you'll be saving in fees!

dandarc

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #4 on: April 27, 2016, 08:44:48 AM »
1.  Good Move!

2.  No IRAs in your plan?

3.  Do you also have access to a 457B?  A lot of folks with 403B's do, and all things being equal, 457B is better due to being able to withdraw penalty free after separating from your employer, regardless of age.  Plus it is in addition to the 403B/401K limit, so another $18K of tax-deferral at your disposal.

hadabeardonce

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #5 on: April 27, 2016, 10:44:40 AM »
I moved all my retirement (except current 401K) and money market accounts to vanguard about 2 years ago. I have about 90% in VTSMX, the rest in bonds. I look at it twice a year and rebalance if necessary. Otherwise I forget about it. Vanguard is a great company with some of the lowest expense ratios out there. It's not easy making the break on your own but your future self will thank you.
My current self is already kind of upset with my past self, but I just can't stay mad at that guy for some reason :P

I am curious if you actually sold the stock and are taking possession of the funds before moving to Vanguard. This seems like it could have serious tax implications. I am hoping you mean that you did transfer paperwork. Was Edward Jones the employer's choice for the 403b and they are letting you switch to Vanguard?
I had three accounts that Edward Jones was managing: 403b w/American Funds, IRA w/Edward Jones, Taxable Account w/Edward Jones. The 403b and IRA are being transferred directly to Vanguard and the taxable account is going into my bank account. My Edward Jones advisor didn't know the tax implications of selling it(which made me nervous, but I convinced myself that I had to get away.) She had never really been able to give me advice about taxes, adjusting withholdings, etc. I lost ~$2,000 in 8 months with Edward Jones, so I'm hoping there won't be a huge hit from just getting my money out of that account. Crossing my fingers probably isn't the best strategy, but that's another reason why I've increased my 403b contribution - just in case of a big tax hit.

Congratulations on all that money you'll be saving in fees!
Yup, I'm trying to spread the word to others about the downsides of front loads and high expenses.

1.  Good Move!

2.  No IRAs in your plan?

3.  Do you also have access to a 457B?  A lot of folks with 403B's do, and all things being equal, 457B is better due to being able to withdraw penalty free after separating from your employer, regardless of age.  Plus it is in addition to the 403B/401K limit, so another $18K of tax-deferral at your disposal.
1. I finally got one right!

2. I have a small IRA I started before I began working as a gov't employee. I thought there wasn't a tax advantage to contributing to a 403b and an IRA?

3. I do have access to a 457. The differences were probably explained to me 8 years ago, so I'll need to take a refresher course. I'll do some homework on it. Contributing to both at some point in the future sounds like a good idea. I was thinking about using the money I pulled out of my taxable account as a cushion for increasing tax-deferred contributions. $36K with be close to half my annual salary.

Here's what's on my employer's website: (and I also have a pension plan through CalPers)

Quote
What is the 403(b) withdrawal regulation?

Once you withdraw funds from your retirement plan, your distribution is subject to ordinary income taxes. If you have a 403(b) account and you withdraw money from your account before you reach age 59 1/2, there may be a 10% early-withdrawal penalty payable to the IRS on any pre-tax amount withdrawn. In addition, your distribution will be subject to mandatory 20% federal income tax withholding unless the entire withdrawal is rolled over directly to another qualified retirement plan or IRA.

Are there exceptions to the distribution penalty?

According to the IRS, a 10% premature withdrawal penalty can be waived if employee:

Reaches age 59 1/2
Separates from service
Dies
Becomes disabled
In the case of salary reduction contributions, encounters financial hardship

403(b) Vendor List
American Funds
Fidelity Investments
Foresters Financial
Metropolitan Life
Midland National
Voya Financial
T-Rowe Price
CalSTRS Pension2
VALIC
Vanguard Fiducairy Trust

Roth 403(b) Vendor List
Foresters Financial
Fidelity Investments
Voya Financial
CalSTRS Pension2
VALIC

---

What is the 457 plan withdrawal regulation?

Once you withdraw funds from your retirement plan, your distribution is subject to ordinary income taxes. If you withdraw money from your account before you retire (at age 55), there may be a 10% early-withdrawal penalty payable to the IRS on any amount withdrawn. Please check your vendor's Web site for detailed regulations.

Are there exceptions to the distribution penalty?

According to the IRS, a 10% premature withdrawal penalty can be waived if the employee:

Reaches age 55 and is retired or no longer works for the District
Is at least 59 1/2 years old regardless of your retirement status
Has died
Becomes disabled
Encounters financial hardship

457(b) and Roth 457(b) Vendor List
EBSG
VALIC
CalSTRS Pension2

EDIT:

Pension2 has access to some Vanguard funds, but with higher expenses(around .30%): http://www.calstrs.com/sites/main/files/file-attachments/p2_fee.pdf
Pension2 also has some "easy choice" portfolios, with higher expenses(around .40%): http://www.calstrs.com/sites/main/files/file-attachments/easy_choice_portfolios.pdf

My wife and I are working on our expenses, budget and desired income during retirement. After we figure that out I'll have a better idea of when I can retire. I'm thinking 55, so I can collect from my CalPers pension. It seems like that would work well with a 457b.

Suggestions welcome :)
« Last Edit: April 27, 2016, 12:07:57 PM by hadabeardonce »

dandarc

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #6 on: April 27, 2016, 12:22:31 PM »
That's odd - the "Separate from Service" exception to the penalty usually belongs on the 457b list and not on the 403b list.

Might want to triple or quadruple check that - really looks like the rules for the 403b and 457b are backwards in that list.  Pull up UCLA's 403 and 457 summary descriptions as an example - 457 says pretty clearly that withdrawals "are generally not subject to early-distribution penalties".

dandarc

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #7 on: April 27, 2016, 12:28:09 PM »
Also, be sure to look at the investments available in the 457, and check on the fees - sometimes there are fees in addition to the ERs of the funds.

hadabeardonce

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #8 on: April 27, 2016, 12:48:11 PM »
That's odd - the "Separate from Service" exception to the penalty usually belongs on the 457b list and not on the 403b list.

Might want to triple or quadruple check that - really looks like the rules for the 403b and 457b are backwards in that list.  Pull up UCLA's 403 and 457 summary descriptions as an example - 457 says pretty clearly that withdrawals "are generally not subject to early-distribution penalties".
It wouldn't be the first time my district has made a mistake when it comes to documentation. The info is verbatim from their "What is a 403(b)/405b(b)?" links: http://business.fhda.edu/payroll/d-tax-shelter-annuities-403b-and-deferred-compensation-plans-457b/




dandarc

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #9 on: April 27, 2016, 01:04:19 PM »
I suppose it is possible they have something in your 457b that isn't standard - do you have a copy of the plan documents?  You generally should review those before investing anyway - learn about all of your options and fees and such.

https://www.irs.gov/pub/irs-pdf/p4484.pdf pretty clearly states the IRS rules for 403b and 457b.  That is even linked on the page you sent.

That age 55 rule would normally only apply to the 403B or to funds transferred into the 457 from a 401K/403B.  While you can roll your 401K money into a 457B usually, that does not magically give it the key 457B feature - Early penalty-free withdrawals.

hadabeardonce

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #10 on: April 28, 2016, 03:27:29 PM »
I suppose it is possible they have something in your 457b that isn't standard - do you have a copy of the plan documents?  You generally should review those before investing anyway - learn about all of your options and fees and such.

https://www.irs.gov/pub/irs-pdf/p4484.pdf pretty clearly states the IRS rules for 403b and 457b.  That is even linked on the page you sent.

That age 55 rule would normally only apply to the 403B or to funds transferred into the 457 from a 401K/403B.  While you can roll your 401K money into a 457B usually, that does not magically give it the key 457B feature - Early penalty-free withdrawals.
Since the expenses on the 403b through Vanguard are lower and I have more options, should I just stick with the 403b for a while and they try to roll it into a 457b later? (if that can really be done.)

The total sum of my retirement investments is currently pretty small. Right now I'm just trying to structure my accounts correctly and contribute as much as I can as early as I can.

---

Short-term loss with Edward Jones added up to $3,231.14... I think the maximum deduction is $3,000.
« Last Edit: April 28, 2016, 04:01:53 PM by hadabeardonce »

rubybeth

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #11 on: April 28, 2016, 04:59:44 PM »
I would honestly stop contributing to the 403b in favor of fully funding the 457b, assuming the investment options are the same, or at least as good as the 403b. The benefit of this type of fund (Deferred Compensation, as it's commonly known), is that you just pay regular income tax on those funds at ANY AGE, no penalty for taking funds out before age 59.5 like with a 401k/403b/IRA. It's the ideal account for those who have plans to retire early.

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #12 on: April 28, 2016, 06:30:06 PM »
I would honestly stop contributing to the 403b in favor of fully funding the 457b, assuming the investment options are the same, or at least as good as the 403b. The benefit of this type of fund (Deferred Compensation, as it's commonly known), is that you just pay regular income tax on those funds at ANY AGE, no penalty for taking funds out before age 59.5 like with a 401k/403b/IRA. It's the ideal account for those who have plans to retire early.

You forgot the clause where you have to have left your employer to withdraw funds from the 457b without penalty.

Generally speaking in the context of early retirement that's not a problem. However it's still important to mention because otherwise it makes it seem like a 457b could be used as an emergency fund.

FrenchStache

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #13 on: April 28, 2016, 07:14:42 PM »
Congratulations on making the move on your own.  I have a recent story with my financial advisor as well.  I am invested in american funds and black rock funds in a taxable account.  I emailed him to find out if there were any other options in the family of funds as I thought the expense ratios were high (1.5%-1.6%).  Especially since I made a move to all vanguard funds inside my 401k and using betterment for a taxable account which also has mostly vanguard.  He promptly answered that I was misinformed and not understanding correctly.  I proceeded with sending a comparison table of the vanguard vs american funds.  After another exchange of emails I was told that his 1% of my portfolio commission was a bargain and that my vanguard fund wouldn't outperform his american funds.  Apparently you can go to another share class of american funds but they have ridiculous front load fees. 

I decided that it was enough and that I was not getting the advice or teaching that I was looking forward and decided to manage on my own.  I will stick to Vanguard funds inside my 401k and betterment for taxable account, Roth IRA and Emergency fund. 

I find it a shame that it's hard to find a good financial advisor without bias advice towards the funds they get the most commission.  I am sure I will wish to have someone by my side especially during market downturns but I will have to resort myself to this forum and to you guys lol.

Cheers to you and FI

Ursus Major

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Re: Moving to Vanguard, Waving Bye to Edward Jones and American Funds
« Reply #14 on: April 28, 2016, 08:01:03 PM »
I find it a shame that it's hard to find a good financial advisor without bias advice towards the funds they get the most commission.  I am sure I will wish to have someone by my side especially during market downturns but I will have to resort myself to this forum and to you guys lol.

I agree that this is a shame. What you need to do is to look for a fee-only financial advisor. I'm guessing that some of them charge an hourly rate and others will want to manage your assets and charge a percentage on AUM (Assets under Management).  And please note that fee-based is not the same as fee-only, you will want the latter.

As far as I know from reading about it, the Garrett Planning Network (http://www.garrettplanningnetwork.com/) is such a network of fee-only advisors and might be a place to start looking. I never had any dealings with any of their members, so I'm just passing the info on.