What to do with T. Rowe Price funds

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focusedonwhatmatters
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What to do with T. Rowe Price funds

Post by focusedonwhatmatters » Fri Dec 15, 2017 12:05 pm

I opened an account at TRP in the mid-1990s before I knew anything about expense ratios or index funds. Approximately half of the money is in a taxable account, half in retirement.

In the taxable account, I hold several different mutual funds that have appreciated substantially, but also have high capital gains distributions (reinvested, but still taxed annually). The expense ratios range from .21-.8% on these mostly managed funds. If I were to move these funds, I would incur substantial tax on the gains. My annualized return since 1994 is almost 11%, which I think is probably higher than I would have gotten had there been an index fund to invest in back then. I won't need these funds anytime in the foreseeable future. Should I bite the bullet and move them to a VG Indexed ETF, or just continue holding them?

The retirement account is also invested in TRP's mutual funds with similar expense ratios and returns.

I would appreciate some feedback as to what to do with the money in both the taxable and retirement accounts.

Thanks in advance!

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nedsaid
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Re: What to do with T. Rowe Price funds

Post by nedsaid » Fri Dec 15, 2017 12:26 pm

Larry Swedroe had a lot of nice things to say about T Rowe Price. They are a very good fund group.

Here is a link:

https://www4.troweprice.com/gis/content ... eFinal.pdf

This is posted at the T Rowe Price website though I have seen this article in different places. Larry has no relationship with TRP. He says that TRP funds perform about the same as DFA funds but have outperformed Vanguard. I wouldn't just sell the funds.
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livesoft
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Re: What to do with T. Rowe Price funds

Post by livesoft » Fri Dec 15, 2017 12:30 pm

I surmise that your 11% annuallized return does not include the taxes you paid. I suspect you didn't withdraw from the funds to pay the taxes, so in effect you actually invested more money in the funds than you really think you did, namely, all those additional taxes.

So what to do?

The tax-advantaged accounts can be switched without tax consequences. You know that already.

For the taxable assets:

1. Stop digging a hole. Do not reinvest distributions, but take them in cash and use them to pay the taxes and invest the excess in things you would rather invest in now.

2.a. You can start giving away your old shares to charity if you don't want to pay the taxes, or
2.b. You can pay the taxes to switch, or
2.c. You can just do nothing about it. Eventually, you will die and it will be someone else's decision. But I would tell my future heirs "I have no sentimental attachment to these funds, so you all should sell them when they get a step-up basis and invest them tax-efficiently in the asset allocation and funds of your choice. I suggest index funds from Vanguard."

See also
https://www.bogleheads.org/wiki/Paying_ ... itch_funds
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ruralavalon
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Re: What to do with T. Rowe Price funds

Post by ruralavalon » Fri Dec 15, 2017 12:37 pm

focusedonwhatmatters wrote:
Fri Dec 15, 2017 12:05 pm
I opened an account at TRP in the mid-1990s before I knew anything about expense ratios or index funds. Approximately half of the money is in a taxable account, half in retirement.

In the taxable account, I hold several different mutual funds that have appreciated substantially, but also have high capital gains distributions (reinvested, but still taxed annually). The expense ratios range from .21-.8% on these mostly managed funds If I were to move these funds, I would incur substantial tax on the gains. My annualized return since 1994 is almost 11%, which I think is probably higher than I would have gotten had there been an index fund to invest in back then. I won't need these funds anytime in the foreseeable future. Should I bite the bullet and move them to a VG Indexed ETF, or just continue holding them?

The retirement account is also invested in TRP's mutual funds with similar expense ratios and returns.

I would appreciate some feedback as to what to do with the money in both the taxable and retirement accounts.

Thanks in advance!
What are the funds you have in the taxable account? Please give fund names, tickers and expense ratios. Also what is the unrealized capital gain loss status of each fund? An expense ratio of 0.21% is not bad at all. It may be that you can do well keeping some of the T. Rowe Price funds, perhaps, just the index funds with lower expense ratios.

What is your tax bracket, both federal and state?

livesoft has given you good advice to stop any automatic reinvestment of dividends that you may have set up, and to consider donating highly appreciated shares to charities you otherwise contribute cash to.

If you keep some of the better T. Rowe Price funds you could transfer them to Vanguard "in kind" and so incur no tax liability on them, and cash out the other T Rowe Price funds and so move the entire taxable account to Vanguard if you wish.

. . . . .

What sort of retirement account is that? A traditional IRA, Roth IRA, 401k, 403b 457 , etc. ?

. . . . .

Please simply add any new information to your original post using the edit button, so that all of your information is in one place.
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livesoft
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Re: What to do with T. Rowe Price funds

Post by livesoft » Fri Dec 15, 2017 12:55 pm

We have seen people think that their shares have a high amount of unrealized capital gains, but then when they looked closely, they discovered that they had been paying taxes on distributions each year, so that there were minimal unrealized gains as all the gains had been realized and taxed along the way.
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Tramper Al
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Re: What to do with T. Rowe Price funds

Post by Tramper Al » Fri Dec 15, 2017 1:07 pm

What I have done in this situation (years ago) is make a little spreadsheet. For each year starting now, compute the after tax value of your current position (column 1) vs. what the appropriate index fund position (column 2) would be after selling the mutual fund and paying the CG tax. Give them both the same (reasonable) annual "performance", and charge each the respective ER. It is surprising how quickly such a sale might pay for itself, and especially telling when you look several years out.

SrGrumpy
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Re: What to do with T. Rowe Price funds

Post by SrGrumpy » Fri Dec 15, 2017 1:24 pm

Inertia is your best friend. My holdings (mostly rollover IRA) are at T. Rowe Price and I am a very happy customer. I haven't given a thought to tax issues. TRP is a superior operation.

JimmyJammy
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Re: What to do with T. Rowe Price funds

Post by JimmyJammy » Fri Dec 15, 2017 1:29 pm

I love T. Rowe Price funds.

I have 4, and they've outperformed their indexes to a significant degree over the past decade.

focusedonwhatmatters
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Re: What to do with T. Rowe Price funds

Post by focusedonwhatmatters » Fri Dec 15, 2017 1:43 pm

Thank you all for the excellent advice and reassurance. On the taxable side, I just changed my settings so that capital gains and dividends will no longer be reinvested into the funds that are underperforming or returning approximate to their index. I shall keep reinvestment set into those funds which have had consistently high returns for all these years. And I shall write that letter to my future heirs as livesoft has suggested. :happy

Miriam2
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Re: What to do with T. Rowe Price funds

Post by Miriam2 » Fri Dec 15, 2017 3:39 pm

We have our 401k's at T Rowe Price. Good service and good funds. But higher expense ratios than Vanguard, though still low for industry average.
Jack Bogle says he respects T Rowe Price.

Our funds across the accounts are:

Capital Appreciation (PRWCX)
Health Sciences (PRHSX)
Blue Chip Growth (TRBCX)
Mid-Cap Growth (RPMGX)
Mid-Cap Value (TRMCX)
Retirement 2005 (TRRFX)

DetroitRick
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Re: What to do with T. Rowe Price funds

Post by DetroitRick » Fri Dec 15, 2017 4:17 pm

You could break this down into 2 separate decisions: 1)do you want to keep some or all these current fund holdings at T Rowe Price specifically?, and 2)do you want to keep these fund holdings at all?

You can easily move the funds elsewhere if you want (and then liquidate some or all, sooner or later, as needed): an in-kind transfer between IRA custodians (Roth to Roth, TIRA to TIRA, etc.), or a transfer of non-retirement assets to another brokerage. These transfers are quite easy to do (arrange via the recipient brokerage). Just check first to see if your broker accepts T Rowe funds (most will), and whether they then later charge any fees for trading in them (some do, some don't). Schwab, for example, dropped their transaction fees on T Rowe funds earlier this year.

I do think TRP is a decent house, and have one of my oldest funds still parked there. I also intend to modestly expand holdings there somewhat in a few years because I like what they do. Anyway, I've been there in a small way since 1997 with no issues. Ironically that holding is both my oldest and most consistently profitable fund investment.

Should you choose to move them, you can always liquidate as your needs, market conditions, and yearly tax situations (for the taxable account) dictate. Should taxes on capital gains be a big issue on that account, you can weigh the pluses and minuses of multi-year liquidations.

Should you opt to move some funds, but leave others at T Rowe Price, just mind that you stay over their minimums (but they are low anyway). Best of luck.

JimmyJammy
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Re: What to do with T. Rowe Price funds

Post by JimmyJammy » Fri Dec 15, 2017 4:23 pm

By the way, TD Ameritrade offers most of the T Rowe Price funds with NO transaction fees. I have them in my 401(k) there.

stw
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Re: What to do with T. Rowe Price funds

Post by stw » Fri Dec 15, 2017 5:23 pm

livesoft wrote:
Fri Dec 15, 2017 12:55 pm
We have seen people think that their shares have a high amount of unrealized capital gains, but then when they looked closely, they discovered that they had been paying taxes on distributions each year, so that there were minimal unrealized gains as all the gains had been realized and taxed along the way.
Livesoft, this is interesting. I am in a similar position right now (wanting to move a taxable from a high fee account to Vanguard). I know we pay taxes on those distributions every year. How do you figure out how much capital gains tax you might owe when taking into account the taxes you've already payed on distributions along the way? Thanks!

livesoft
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Re: What to do with T. Rowe Price funds

Post by livesoft » Fri Dec 15, 2017 5:28 pm

You don't take any previous taxes that you paid into account. You simply look up the cost basis of your shares and see what the unrealized gains or losses are. Many people believe erroneously that the cost basis of their shares are the original purchase price of the first shares and do not include the purchase prices of the subsequent shares. That's not correct.

I don't have an account at TRPrice, so I don't know how they present their information, but this thread has screen captures of how Vanguard.com presents the information needed: viewtopic.php?t=179414
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samsmith
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Re: What to do with T. Rowe Price funds

Post by samsmith » Fri Dec 15, 2017 5:58 pm

I have a similar issue as OP with some stocks (at least they don't have an ER) and stock funds.
I also had TRP in one retirement account. On the whole I think they do a nice job and have had good results

Anyway, for your retirement accounts - I would move towards transitioning to the more bogelhead "approved" low cost index fund approach.

For your taxable account, I would, as livesoft suggested, turn off re-investment, but I would likely leave the rest in TRP. In my mind, they are a reputable company and the ER are not terrible.

ThePrince
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Re: What to do with T. Rowe Price funds

Post by ThePrince » Fri Dec 15, 2017 8:22 pm

Keep them if they are performing above average. T. Rowe Price has some great funds and is run very well.

DrGoogle2017
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Re: What to do with T. Rowe Price funds

Post by DrGoogle2017 » Sat Dec 16, 2017 11:05 am

I transferred in kind my TR Price fund to Vanguard, but it was a retirement account so not a problem. I wouldn’t transfer any after tax money to Vanguard. I think there is some problem with beneficiaries with after tax account.

pingo
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Re: What to do with T. Rowe Price funds

Post by pingo » Fri Apr 20, 2018 6:00 pm

Have you asked for help per the recommended format for asking portfolio questions??

I don't any money invested with TRP, and I'm a huge Vanguard fan, but I consider TRP to be one of the good guys. Your overall financial picture might not necessitate the change though purists may encourage it.

CedarWaxWing
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Re: What to do with T. Rowe Price funds

Post by CedarWaxWing » Fri Apr 20, 2018 6:38 pm

stw wrote:
Fri Dec 15, 2017 5:23 pm
livesoft wrote:
Fri Dec 15, 2017 12:55 pm
We have seen people think that their shares have a high amount of unrealized capital gains, but then when they looked closely, they discovered that they had been paying taxes on distributions each year, so that there were minimal unrealized gains as all the gains had been realized and taxed along the way.
Livesoft, this is interesting. I am in a similar position right now (wanting to move a taxable from a high fee account to Vanguard). I know we pay taxes on those distributions every year. How do you figure out how much capital gains tax you might owe when taking into account the taxes you've already payed on distributions along the way? Thanks!
It is right on their website. It is actually a nice website that is not too hard to navigate after checking it out.

IF you have trouble.. give them a call and they will lead you through it.

I do have TRP which I got a long time before I found VG and started indexing. I also have two active funds at VG.
I started my tIRAs at TRP using one Target Date fund years ago (but later moved those funds to VG) ... until I educated my self a bit.

Also had 3 TRP funds in my taxable stuff. I have very high LTCGains unrealized, and being retired I stopped re investing years ago... and use that for some of my living expenses. Over the last 15 years annualized returns on everything I have has done well compared to the indexes on an after tax basis... so I find it hard to want to cash it all in. Most of my harvests are LTerm CGains and while putting off my SS until 70, and my tIRAs to roths for these relatively low income years. When years are good I harvest some sell offs to take care of occasional expenses...like improvements on the home.

I have no regrets about buying into TRP... It has done as well as my VG I think. (Based on my M* 15 yrs and same indexes in VG over that time.)
Would I do it again? Not so sure... as I like the simplicity of VG and indexing.

I do like having free access to M* premier which I get via TRP.

My over all impression is that the fees of TRP over my long haul of about 20 yrs has paid off for me. I guess that means I cannot prove it was better than VG...but it was good enough even if that was all I had owned.

My guess would be that in bear markets...the indexes are better.

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