Author Topic: Starting to Manage Wife's IRAs - Advice?  (Read 4005 times)

PimpMyBankAccount

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Starting to Manage Wife's IRAs - Advice?
« on: December 01, 2014, 05:03:55 PM »
This is cross-posted from our case study as it looks like it's not going to get any more replies, and this is a better forum for it anyway.

My wife has two IRAs currently.  They were previously managed by her dad; we are only beginning to look at them now.  I'm kind of new with investments so please bear with me.

The first (a Roth IRA) is from a settlement from a dog bite as a child, and is actively managed by a financial advisor (to whom I have never talked).  The account is at Schwab.

The financial advisor is charging what appears to be 1%.  We are invested in:

DIISX - ~15% - International Stock Index - Net expense ratio 0.60%
HLEMX - ~65% - Emerging Markets - Net expense ratio 1.46%
PTTDX - ~20% - Intermediate Term Bond - Net expense ratio 0.75%

This seems like an odd mix to me, and the expense ratios are concerning.  I can trade directly through Schwab but it does tell me to "contact my financial advisor" before I do.  This is my wife's IRA and only holds ~$1000.

Would it make sense to do any or all of the following?

- Fire the financial advisor and convert accounts to straight Schwab accounts
- Alternatively, call the financial advisor and seek advice
- Sell out of existing mutual funds
- Switch to something like MMM's asset allocation recommendation (but using equivalent low-cost Schwab funds as they have no trade cost) or a variation on a Couch Potato portfolio, rebalancing every few months

The second account (traditional IRA) is a Principal Bank Safe Harbor IRA, which apparently was an automatic rollover from a previous 401k that she left at an employer.  It appears to have no investments and looks to be a straight savings account, and is apparently being charged $30 / year in fees.

Do these sound like decent plans for the account?

- Transfer account to Schwab (or possibly Vanguard?  It only has ~$1400 in it)
- Combine the IRA with her other Schwab IRA
- Invest as above

I'd love to hear any other suggestions you had as well.  She does have a 401k; is it possible to roll an IRA into the 401k account at her current employer?
« Last Edit: December 03, 2014, 09:08:55 AM by PimpMyBankAccount »

PimpMyBankAccount

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #1 on: December 03, 2014, 07:34:44 AM »
Are there any more details needed?  Is this not a good place for these types of questions?  Are my assets just too small potatoes?

I'd really like just a "sounds good" or a "you're an idiot", preferably with an explanation but either way.

I won't bump this again.

WillPen

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #2 on: December 03, 2014, 07:51:04 AM »
I'm not expert but I will jump in.

That is a peculiar asset allocation, and those expenses and fees are concerning. I don't think I would call the advisor and ask for advice. At the end of that conversation they will probably have you convinced that you need their help and come up with a new asset allocation to pacify you for the time being.

Let me ask: Is there a reason for your wife needs two IRAs right now? Sometimes people may do this as part of their estate planning; there are a ton of reasons. If not, I would cut the chord with your advisor and combine both into a traditional IRA with Vangaurd (or whoever floats your boat). I would not roll that money into your wife's current 401k.

As for the asset allocation -- You you can make it as complicated or simple as you'd like. This might be a good place to start: http://www.bogleheads.org/wiki/Lazy_portfolios

If you're venturing out and wanting to take control of your family's finances then I would definitely recommend investing some time into some good finance books.

Another Reader

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #3 on: December 03, 2014, 08:02:20 AM »
If some of the money is from a settlement of a dog bite case, that money should not be in an IRA.  An IRA requires you to have earned income to use it.  A settlement is not earned income. 

I don't understand why a financial advisor or more likely an account manager would be involved with such a small amount of money.  Does your wife's father have a lot of money at Schwab and your wife's account is still managed as part of that?

Schwab has very low cost index funds.  For small amounts of money, they are better than ETF's because you can buy fractional shares.  In your shoes, I would just buy their total market index mutual fund and let it ride until the IRA portion has grown large enough to diversify.  If you want to change investment companies, Fidelity has a better website and offers a wide variety of low cost funds and no-commission ETF's.  Vanguard is also popular, so compare the two if you decide to switch.

PimpMyBankAccount

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #4 on: December 03, 2014, 09:08:14 AM »
If some of the money is from a settlement of a dog bite case, that money should not be in an IRA.  An IRA requires you to have earned income to use it.  A settlement is not earned income. 

OK, I should have been more clear: The first account is a Roth IRA.  I'll edit the original post.

I don't understand why a financial advisor or more likely an account manager would be involved with such a small amount of money.  Does your wife's father have a lot of money at Schwab and your wife's account is still managed as part of that?

The reason an advisor is involved is because this used to be more money (something like $7-8K if I remember correctly); we liquidated most of it when we bought our house around three years ago.  And yes, likely the reason it's attached to a financial advisor is because my father in law was doing just about everything financial for my wife until I came into the picture.  Pretty much all taxes and retirement planning.  She has dyscalculia (i.e. dyslexia for numbers) so they must have figured it was for the best.

Schwab has very low cost index funds.  For small amounts of money, they are better than ETF's because you can buy fractional shares.  In your shoes, I would just buy their total market index mutual fund and let it ride until the IRA portion has grown large enough to diversify.  If you want to change investment companies, Fidelity has a better website and offers a wide variety of low cost funds and no-commission ETF's.  Vanguard is also popular, so compare the two if you decide to switch.

Thanks, I thought that would be a good option too.  Something like a 90% total stock index fund and 10% total bond index fund?

I'd go to Vanguard but only their target year funds have a $1k minimum; everything else has a $3k minimum (which I don't currently meet).  We are saving for a taxable Vanguard account.

Edit: Would it make sense to transfer the traditional IRA to Vanguard and invest 100% in VTIVX (i.e. target retirement 2045)?

That is a peculiar asset allocation, and those expenses and fees are concerning. I don't think I would call the advisor and ask for advice. At the end of that conversation they will probably have you convinced that you need their help and come up with a new asset allocation to pacify you for the time being.

I agree; I was mostly looking for some backup since her family is probably not going to like that I'm firing their financial advisor. ;)

Let me ask: Is there a reason for your wife needs two IRAs right now? Sometimes people may do this as part of their estate planning; there are a ton of reasons. If not, I would cut the chord with your advisor and combine both into a traditional IRA with Vangaurd (or whoever floats your boat). I would not roll that money into your wife's current 401k.

So the fact that the first is a Roth should help here.  The other IRA (a traditional) is a rollover from a 401k.  I guess I could roll the traditional IRA into the Roth, but I'd have to pay taxes on the amount in the traditional, right?  Probably a good idea to keep them separate right now until we retire since our tax bracket is almost certain to be higher now.

As for the asset allocation -- You you can make it as complicated or simple as you'd like. This might be a good place to start: http://www.bogleheads.org/wiki/Lazy_portfolios

Thanks, those are useful.  The coward's portfolio looks interesting.  It seems maybe a little conservative with 40% bonds?

If you're venturing out and wanting to take control of your family's finances then I would definitely recommend investing some time into some good finance books.

I'm currently reading Rich Dad, Poor Dad.  I tried to find The Intelligent Asset Allocator but the library didn't have it.  Might get the eBook.  Any other book recommendations?
« Last Edit: December 03, 2014, 09:19:30 AM by PimpMyBankAccount »

FLBiker

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #5 on: December 03, 2014, 09:19:32 AM »
Bogleheads is a great resource.  One book that I got a lot out of is The Only Investment Guide You'll Ever Need by Andrew Tobias.

Here's my personal portfolio (it's pretty aggressive) -- 90/10 stocks to bonds.  In the stocks, I'm about 60/40 US to international, and in the bonds I'm like 90/10 US to international, but I'm building my international bonds.  And I think your plan to move to Vanguard when you've got enough to meet the minimums is a good one.

Scandium

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #6 on: December 03, 2014, 11:24:52 AM »
Roll the 2nd one to Schwab (but not into the other one, since you can't). Get rid of the leech of a FA and use a regular schwab account. In both accounts put everything in SWTSX (ER=0.09). Done.

WillPen

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #7 on: December 04, 2014, 07:31:03 AM »
I don't think I would combine the Roth and the traditional IRA at this point.

The intelligent asset allocator is a good one but I imagine it can be a little overwhelming for people that are brand new to investing. Go ahead and pick it up though. If you're not ready now you will be. I also liked the Bogleheads Guide to Investing.

Both of those books have chapters addressing the importance of keeping your expenses low and talking about (with support) how difficult it is for active money managers to outperform the markets they're trying to beat. It should give you plenty of ammunition to have that discussion with your wife's family.

Another Reader

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #8 on: December 04, 2014, 08:00:54 AM »
Unless your wife had earned income for the year the IRA was funded, she can't have an IRA for that year.  Whether it is a traditional or a Roth IRA does not matter.  If she had earned income that year, an IRA of either type is fine.  At this point, unless the IRS disputes this, it may be a moot point.  The amounts are small, so I would just fire the FA from these accounts and move the money in both accounts to SWTSX.  If the accounts grow, you can add other investments later.

To keep things simple, stay with Schwab and use their very low cost index funds.

wtjbatman

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #9 on: December 04, 2014, 08:46:26 AM »
Unless your wife had earned income for the year the IRA was funded, she can't have an IRA for that year.  Whether it is a traditional or a Roth IRA does not matter.

That is not true if you are married and filing jointly. If you are filing a joint return the IRS looks at your household income to determine your contribution limits.

If you are married but filing separately, then it's a different story. See the IRS website for details.

PimpMyBankAccount

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Re: Starting to Manage Wife's IRAs - Advice?
« Reply #10 on: December 04, 2014, 09:47:13 AM »
Alrighty then.  I'm not sure where the Roth came from.  It looks like the settlement cash was in the taxable money market account (which now only has ~$300 in it).

By the way, I heard from my wife this morning that her parents were under the impression from the financial advisor that they would manage my wife's accounts for free because her parents "were such good clients".  I guess yet another reason.
« Last Edit: December 04, 2014, 09:49:30 AM by PimpMyBankAccount »