Roth help

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twees52
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Joined: Thu Nov 21, 2013 9:37 am

Roth help

Post by twees52 »

I have a small issue, my wife is considering turning her IRA into a Roth over 3-4 years (she has about 25k) This looks like a good choice for us. We already have a American funds Roth which we would like to put it in, However our financial advisor claims we will have to pay a load of 5.75% on top of the taxes, does this make sense?
Mark
Johm221122
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Re: Roth help

Post by Johm221122 »

Welcome to forum
Paying load is not needed
http://www.bogleheads.org/blog/boglehea ... costs-low/
You can avoid sales commissions by avoiding broker sold load funds.  You can invest in a no-load mutual fund  directly from a no-load  investment management company.

Are you sure Roth is right choice
http://www.bogleheads.org/wiki/Traditional_versus_Roth

Welcome to forum

John
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retiredjg
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Re: Roth help

Post by retiredjg »

There are different issues brought up in your post.

Should she convert to Roth IRA? Maybe, maybe not. If you are in a very low tax bracket, it might be a good plan. If not....more information is needed.

Buying American Funds means that you pay a front end load, as mentioned by your advisor. This has nothing to do with converting tiRA to Roth IRA. It has to do with buying the American Funds. The way to avoid this is to buy funds that don't have a front end load. Once you learn about this, you might want to move all your investments away from wherever you have them.

I think this might be a good place for you to start learning about these things.

http://www.bogleheads.org/wiki/Getting_started
barnaclebob
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Re: Roth help

Post by barnaclebob »

Buying an American Fund (or any loaded fund) is no better than burning your money. I'm guessing you bought the fund through a salesman like Edward Jones? If so he is required to put you into these high load funds so he and the company get a kickback.
placeholder
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Re: Roth help

Post by placeholder »

Converting a TIRA to Roth doesn't require buying new funds as the current assets can be transferred in kind.
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elgob.bogle
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Re: Roth help

Post by elgob.bogle »

New IRS Rules worth reviewing to see if they apply http://www.irs.gov/Retirement-Plans/IRA ... -Year-Rule

best regards
elgob
placeholder
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Re: Roth help

Post by placeholder »

elgob.bogle wrote:New IRS Rules worth reviewing to see if they apply
What in particular are you thinking might apply?
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retiredjg
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Re: Roth help

Post by retiredjg »

placeholder wrote:Converting a TIRA to Roth doesn't require buying new funds as the current assets can be transferred in kind.
I wondered about this myself.

But the poster does not say that the old IRA is in the American Fund they want to purchase in the Roth IRA. Doesn't say it isn't either. Based on what the advisor said, I'm guessing the old tIRA is not in the fund they want to end up in.
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FelixTheCat
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Re: Roth help

Post by FelixTheCat »

twees52 wrote:financial advisor claims we will have to pay a load of 5.75% on top of the taxes, does this make sense? Mark
Run Forrest Run!

Move the account to Vanguard. Start buying index funds at no cost.
Felix is a wonderful, wonderful cat.
Topic Author
twees52
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Joined: Thu Nov 21, 2013 9:37 am

Re: Roth help

Post by twees52 »

Thank you all, you are most helpful. In answer to your question(s) the current TIRA is split into 4 different funds. The plan is to liquidate all of them (1 at a time). The other part that I believe you answered is that even my current American fund is loaded and there is no going around it.
2 additional questions.
If I have the ability to move this money into a ROTH/401k offering at her current employer would that make more sense?
Should I move my Roth and hers to no load funds? We both have separate ROTHs's through American

Thanks again
barnaclebob
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Re: Roth help

Post by barnaclebob »

twees52 wrote:Thank you all, you are most helpful. In answer to your question(s) the current TIRA is split into 4 different funds. The plan is to liquidate all of them (1 at a time). The other part that I believe you answered is that even my current American fund is loaded and there is no going around it.
2 additional questions.
If I have the ability to move this money into a ROTH/401k offering at her current employer would that make more sense?
Should I move my Roth and hers to no load funds? We both have separate ROTHs's through American

Thanks again
At this point it would be good to give your current picture using the standard format for this message board. See here:
http://www.bogleheads.org/forum/viewtop ... f=1&t=6212

We would need to know more about the employers offerings, fees, funds, etc. Also what broker holds the roth IRA now? There may be fees to close the account if you move. Also why do you want to convert to a roth?

In addition to the outrageous loads, American funds also have ER's around .6-.7%. There is no evidence of these extra fees turning into extra money for you. Index funds have 1/10 those fees for the same performance. The probable recommendation is that you call vanguard and have them initiate the transfer after you find out about what fees you would be hit with from your current broker. For a 25k balance put it into a target retirement fund while you learn about DIY investing.
Topic Author
twees52
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Joined: Thu Nov 21, 2013 9:37 am

Re: Roth help

Post by twees52 »

Thank you, I will review the responses and the form. Been reading about having too much money in all tax deferred accounts. I'll post again when I have researched against your good advice. Wish I knew some of this 10 years ago.
M
Austintatious
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Re: Roth help

Post by Austintatious »

twees52,

the importance of minimizing the costs of investing simply cannot be emphasized enough. One way a mutual fund investor pays costs is a fund's expense ratio, and paying inordinately high expense ratios is something to avoid if practical. Another way investors can get tagged with unnecessary costs is to pay front and back loads. It should never be done, in my opinion. Low cost index funds have become readily available to investors, in no small part due to the life's work of this forum's namesake and mentor, Jack Bogle. Even when one is stuck with a high cost 401(k), there are strategies one can utilize to make the best of that situation and then further invest in low cost, broadly diversified mutual funds.

You and your wife must educate yourselves about how much costs really will matter over one's investing career, and how much more one could end up with by following that Boglehead investment philosophy. You both need to study the wiki, the investment philosophy and the other learning materials to be found on this web site, and read a few of the books included on the site's book list. Discuss it all between yourselves and with others on this forum. You'll be amazed at how much you will learn with a bit of commitment, and it's all available to you at no costs. Good luck!
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retiredjg
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Re: Roth help

Post by retiredjg »

twees52 wrote:Thank you all, you are most helpful. In answer to your question(s) the current TIRA is split into 4 different funds. The plan is to liquidate all of them (1 at a time). The other part that I believe you answered is that even my current American fund is loaded and there is no going around it.
Your current American fund had a "load" (a commission for the salesperson and/or the company) when you bought it. So yes it was loaded, but no it is not costing you any more in "loads" now that you own it. If you bought $100 worth of a fund, $5.75 went to the salesperson/company and $94.25 went into your account. That part is done and over and there is nothing to be gained by worrying over it.

If you continue reading some of the links suggested, you will learn about on-going costs - the expense ratio. This is what it costs the company to run the fund. This may include a lot of different kinds of fees, some of which are not necessary if you invest in index funds. So your American Fund is not costing you more in loads, but it is costing you more every day than an index fund would cost.

For example, your American Fund may have an ER (expense ratio) of .7% while an index fund may have an ER of .1% or even .05%. This does not look like a lot, but it adds up to a great deal over time. This is one of the reasons that people here invest mostly in index funds - costs.

2 additional questions.
If I have the ability to move this money into a ROTH/401k offering at her current employer would that make more sense?
Should I move my Roth and hers to no load funds? We both have separate ROTHs's through American
These are certainly moves to consider. Or your IRAs could be moved to another company that does not charge these extra fees. Vanguard and Fidelity (Spartan Funds) are only two examples.

Without knowing more about your whole picture, it is not possible to give you reasonable answers to these questions.

Been reading about having too much money in all tax deferred accounts.
Not sure what you read, but you may have misunderstood. Most people benefit a lot from using all the tax-deferred space they have available.
YDNAL
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Re: Roth help

Post by YDNAL »

twees52 » Wed Sep 17, 2014 8:25 am wrote:I have a small issue, my wife is considering turning her IRA into a Roth over 3-4 years (she has about 25k) This looks like a good choice for us. We already have a American funds Roth which we would like to put it in, However our financial advisor claims we will have to pay a load of 5.75% on top of the taxes, does this make sense?
twees52 » Wed Sep 17, 2014 2:22 pm wrote:2 additional questions.
If I have the ability to move this money into a ROTH/401k offering at her current employer would that make more sense?
Should I move my Roth and hers to no load funds? We both have separate ROTHs' through American
Last question first. I see no reason to have a Roth IRA - that you can have anywhere of your choosing - with American Funds.

Now, the first question. A load is a sunken cost and there is nothing you can do. Whether front-end or back-end load, it's all the same, they got you!

Converting an IRA to a Roth IRA means that you must pay income taxes on the conversion. Each *person* should carefully evaluate this decision based on *person[al]* circumstances.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
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