Vanguard Brokerage Account

[netskyblue]

I recently got a mailing from Vanguard saying that since my Rollover IRA crossed the $50k mark, I'd be asked to update some things.

Logged in today, and it's trying to get me to do this... is this what I should be doing?  I had everything from an old 401k rolled into an index fund, and I may very shortly be changing jobs and rolling another 401k over.

Vanguard Brokerage Account information
Account selected   XXX My Name XXX —Rollover IRA
New account type   Vanguard Brokerage Account

Money market settlement fund   
Settlement fund   Federal Money Market Fund
The money market settlement fund will be used to pay for and receive proceeds from brokerage transactions.
All requests to buy, sell or exchange Vanguard funds—other than the settlement fund—within Vanguard Brokerage Accounts must be made online or by phone. All check purchases will be applied to your settlement fund. You'll then be able to place trades online or by phone to purchase Vanguard funds, ETFs, or other securities like stocks and bonds.

Dividends and capital gains   
Transfer to money market settlement fund

Your mutual fund assets and most account options will be transferred to the new brokerage account automatically. However, some account options will work differently. We've listed them below.  (E-delivery of documents is what's listed as changed, which is fine.)

Can someone more savvy tell me what this is meaning?  I don't want a taxable brokerage account, I want to keep an open IRA which I can roll into again and contribute to when I get my income high enough that I need to decrease taxable after I've already maxed out a 401k.

[bortman]

First, you should call Vanguard and ask for clarification. Their CSRs are top-notch.

This is my take:
The settlement fund exists inside your Rollover IRA. It is where where dividends will go if you don't set up direct re-investment, where transaction fees will come from, and where you would deposit new money (from your bank account) that you want to invest into your IRA.

I could be wrong on this, so call Vanguard to confirm.

[appleshampooid]

Vanguard offers 2 types of accounts that are orthogonal to the tax treatment (IRA/Roth/Taxable). One is their traditional mutual fund accounts, which allow you to buy their own mutual funds but nothing else (no stocks, no ETFs). This is the simplest account to manage but it does come with some limitations, e.g. your dividends can either be re-invested or deposited into a separate bank account, there is no cash or "settlement" account. If you sell a mutual fund, you have to use the proceeds to either buy another fund or withdraw them. All this stuff is usually fine for buy-and-hold investors like the majority of MMM folks.

The brokerage account which they are describing to you has all the same features, but also allows trading in ETFs and stocks, and has a settlement fund as noted. So when you transfer money in, it hits the settlement fund and then you use those funds to buy the investments, as opposed to making the decision as to which fund to purchase when you set up the transfer (as you would with the first kind of account). You can collect dividends for a while if you're not sure what you want to do with them. Etc.

I have not heard of being forced to convert one to another, but it shouldn't affect anything and I wouldn't worry about it. Your investments will transfer over just fine, and it's not a taxable event or anything.

[appleshampooid]

More from Vanguard:
https://investor.vanguard.com/info/account-upgrade

I guess all new accounts are brokerage accounts anyway. I didn't know that. I still have a few of each between my wife and I.

Bogleheads complaining about them, heh:
https://www.bogleheads.org/forum/viewtopic.php?t=217437

[GOFU]

You can have a taxable brokerage account, traditional IRA, as well as a traditional IRA brokerage account with Vanguard. I have all three with Vanguard. The taxable brokerage and IRA brokerage operate in the exact same way except for the tax treatment. They are not trying to convert your IRA to a taxable account, and there is no risk of that when you upgrade your traditional IRA to an IRA brokerage account.

The settlement fund is used to hold your money on account with Vanguard until you decide what to do with it. If you have dividends set to automatic reinvest then you will automatically purchase shares of the fund that is paying the dividend, just like always. If you are not set to automatic reinvest then dividends and gains will be paid to your settlement fund and you can go in and move the money as you like. If you send a check to Vanguard to buy funds (does anyone still do that?) they will not use those funds to buy assets (mutual funds or ETFs), they will credit your settlement account with the amount of the check and you must go in and buy the funds or shares you want by transferring funds from your settlement account (or you could do that by phone too).

In the brokerage account (IRA or taxable) you are able to buy other assets like individual stocks or non-Vanguard funds or ETFs. For non-Vanguard assets Vanguard charges $8 per trade, much like TD Ameritrade and all the others where one might hold a brokerage account. No commissions to purchase Vanguard assets.

[Indexer]

Vanguard old school = all new accounts were mutual fund only. No stocks, ETFs, etc. These were NOT brokerage accounts. This applied to taxable, IRA, Roth, etc. If you wanted brokerage capabilities you had to make a special request.

Vanguard now = all new accounts are brokerage accounts. You can trade mutual funds, stocks, ETFs, etc. This applies to taxable, IRA, Roth, etc. If you want a mutual fund only account you need to make a special request.*

You likely have an IRA brokerage account. No biggie. It's still an IRA, but you can buy stocks and ETFs.


* The only reason I can see requesting a mutual fund only account would be if you worked in the investment industry and your employer[or the SEC] didn't want you trading individual stocks in an account they couldn't monitor[insider trading concerns]. Having a Vanguard mutual fund account would let you buy Vanguard index funds, but you wouldn't be able to trade individual stocks.

[grantmeaname]

* The only reason I can see requesting a mutual fund only account would be if you worked in the investment industry and your employer[or the SEC] didn't want you trading individual stocks in an account they couldn't monitor[insider trading concerns]. Having a Vanguard mutual fund account would let you buy Vanguard index funds, but you wouldn't be able to trade individual stocks.

This describes me perfectly. While in theory they only are opening new brokerage accounts, Vanguard was happy to downgrade SWMBO's Roth IRA to be non-brokerage when they learned that they could downgrade it or have the money moved elsewhere.

[Sonya65]

* The only reason I can see requesting a mutual fund only account would be if you worked in the investment industry and your employer[or the SEC] didn't want you trading individual stocks in an account they couldn't monitor[insider trading concerns]. Having a Vanguard mutual fund account would let you buy Vanguard index funds, but you wouldn't be able to trade individual stocks.

This describes me perfectly. While in theory they only are opening new brokerage accounts, Vanguard was happy to downgrade SWMBO's Roth IRA to be non-brokerage when they learned that they could downgrade it or have the money moved elsewhere.

How involved was the downgrading process?
Did they create new mutual fund account numbers, or did they move the investments back into the mutual fund accounts they were in before the upgrade?

[grantmeaname]

They did it effortlessly and painlessly in about a day once they found out that I was going to close the accounts if they couldn't.

No idea if the account numbers changed or not. The transaction history is intact for what that's worth.