Rollover to Vanguard requires brokerage account?

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flamesabers
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Rollover to Vanguard requires brokerage account?

Post by flamesabers » Thu Mar 29, 2018 11:11 am

Hello all,

Next month I'm planning on rolling over my 401k to an IRA with Vanguard. When I started going through the online process on Vanguard website, I'm being prompted to open a brokerage account. Is this necessary to do the rollover? Or can I bypass this by filling out the paperwork myself?

I'm happy with holding only mutual funds and I'm not going to be rolling my 401k into an ETF account.

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David Jay
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Re: Rollover to Vanguard requires brokerage account?

Post by David Jay » Thu Mar 29, 2018 11:33 am

I believe that all new accounts with Vanguard are brokerage accounts. That has been the case for a while (I moved to VG in about 2014).

What do you perceive as a downside to holding mutual funds inside a brokerage account?
Last edited by David Jay on Thu Mar 29, 2018 11:35 am, edited 1 time in total.
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BL
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Re: Rollover to Vanguard requires brokerage account?

Post by BL » Thu Mar 29, 2018 11:35 am

I think all new accounts at V are brokerage accounts. We just have the old type.

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flamesabers
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Re: Rollover to Vanguard requires brokerage account?

Post by flamesabers » Thu Mar 29, 2018 1:12 pm

David Jay wrote:
Thu Mar 29, 2018 11:33 am
What do you perceive as a downside to holding mutual funds inside a brokerage account?
Having to wait longer for tax forms is the first thing that comes to mind.

The other downside is introducing more complexity with no significant advantages for me. I hold no ETFs, nor do I plan to.
BL wrote:
Thu Mar 29, 2018 11:35 am
I think all new accounts at V are brokerage accounts. We just have the old type.
That's what I suspected is the case, but I am curious to hear others' opinions on it.

Silk McCue
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Re: Rollover to Vanguard requires brokerage account?

Post by Silk McCue » Thu Mar 29, 2018 1:23 pm

I voluntarily switched to the brokerage account over a year ago. It works well for me and I find nothing complex about it. Getting tax forms later has no impact on me because I wait to file just before the due date to make certain I don’t become aware of some unforeseen issue that needs to be addressed.

BigJohn
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Re: Rollover to Vanguard requires brokerage account?

Post by BigJohn » Thu Mar 29, 2018 4:41 pm

I rolled over my 401k to VG in 2015. The only option available for a opening a new account on-line then was the brokerage account. I also had a couple of grandfathered old style mutual fund accounts. Since then I’ve convert those to brokerage accounts in order to transfer/combine a smaller taxable account and to enable on-line Roth conversions (both only possible with brokerage accounts).

If I had my choice, I’d opt for the old MF accounts for the reasons you’ve stated but in the grand scheme of things the difference is minor, at least to me.

balbrec2
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Re: Rollover to Vanguard requires brokerage account?

Post by balbrec2 » Thu Mar 29, 2018 5:33 pm

BigJohn wrote:
Thu Mar 29, 2018 4:41 pm
I rolled over my 401k to VG in 2015. The only option available for a opening a new account on-line then was the brokerage account. I also had a couple of grandfathered old style mutual fund accounts. Since then I’ve convert those to brokerage accounts in order to transfer/combine a smaller taxable account and to enable on-line Roth conversions (both only possible with brokerage accounts).

If I had my choice, I’d opt for the old MF accounts for the reasons you’ve stated but in the grand scheme of things the difference is minor, at least to me.
You do get SIPC protection for your holdings in a brokerage acct.
Otherwise all you had was Vanguard itself, should something go wrong at the firm.

balbrec2

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Oicuryy
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Re: Rollover to Vanguard requires brokerage account?

Post by Oicuryy » Thu Mar 29, 2018 5:56 pm

The prospectus for the S&P 500 fund says you can hold shares directly or through a broker. You will probably have to be insistent and not take no for an answer.
Vanguard fund shares can be held directly with Vanguard or indirectly through an
intermediary, such as a bank, a broker, or an investment advisor. If you hold Vanguard
fund shares directly with Vanguard, you should carefully read each topic within this
section that pertains to your relationship with Vanguard. If you hold Vanguard fund
shares indirectly through an intermediary (including shares held through a Vanguard
brokerage account
), please see Investing With Vanguard Through Other Firms, and also
refer to your account agreement with the intermediary for information about transacting
in that account.
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Money is fungible | Abbreviations and Acronyms

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TheGreyingDuke
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Re: Rollover to Vanguard requires brokerage account?

Post by TheGreyingDuke » Thu Mar 29, 2018 6:00 pm

The only snafus with the brokerage accounts that I have experienced, came about as a result of the transition from the old-style mutual fund accounts to the new style brokerage. Things like where the dividends were directed needed to be reset.

Oh, one continuing hassle is that there is no using the app to deposit checks. forces me to go through a dance of using my credit union app to deposit them and then moving it electronically.

I have heard that if your employment forbids you from having a brokerage account, Vanguard will relent and offer you a mutual fund only account.
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flamesabers
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Re: Rollover to Vanguard requires brokerage account?

Post by flamesabers » Thu Mar 29, 2018 6:17 pm

I've decided to go ahead and open a brokerage account. I really want to do the rollover and the only other option would be rolling the 401k into the TSP, which I don't want to do at this time due to the lack of flexibility of converting it to Roth in the future.

talzara
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Re: Rollover to Vanguard requires brokerage account?

Post by talzara » Thu Mar 29, 2018 6:30 pm

balbrec2 wrote:
Thu Mar 29, 2018 5:33 pm
You do get SIPC protection for your holdings in a brokerage acct.
Otherwise all you had was Vanguard itself, should something go wrong at the firm.
This is a common misunderstanding. A brokerage account exposes you to more risk than a mutual fund account.

In a mutual fund account, you are exposed only to the risk of the mutual fund.

In a brokerage account, you are exposed to the risk of the mutual fund, plus the risk of the brokerage. SIPC only protects you against the first $500k of brokerage risk. You still have all of the mutual fund risk, plus the uninsured brokerage risk above $500k.

Broken Man 1999
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Re: Rollover to Vanguard requires brokerage account?

Post by Broken Man 1999 » Thu Mar 29, 2018 6:33 pm

One plus for the brokerage platform is being able to purchase individual bonds and brokered CDs. You might find that helpful in the future.

Personally I like the ability to hold all my Vanguard investments in one platform, so I was happy to move to the brokerage platform as it cut down the number of accounts for wife and I.

Simpler works for me.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

carruthers209
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Re: Rollover to Vanguard requires brokerage account?

Post by carruthers209 » Thu Mar 29, 2018 6:54 pm

What exactly does SIPC insurance cover? If it's like FDIC insurance for the banks, it insures our funds should the bank default and close its doors. If there is fraud involved with our accounts, I was told that the bank (in this case B of A) would cover the fraud even if were a million dollars. I would rather have the SIPC insurance which the brokerage firms maintain-I think. It sounds way better than no insurance and only the that mutual fund company to cover the loss. If someone could explain it, I would appreciate it since this is where the bulk of our assets are kept and the current CEO of Vanguard said it was the issue that kept him up nights (he was in charge of technology and security if I remember reading correctly).

rkhusky
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Re: Rollover to Vanguard requires brokerage account?

Post by rkhusky » Thu Mar 29, 2018 7:34 pm

Below is an example screen for the transactions from a mutual fund account:
Image

Here are transactions for a brokerage account:
Image

Having the Quantity times the Price not equal the Amount, as in the brokerage listing, is irritating. And when I buy, why is the Amount negative? I presume all the signs switch when I sell.

I just find the mutual fund listing more intuitive. Perhaps it is just what I am used to.
Last edited by rkhusky on Mon May 07, 2018 6:26 pm, edited 1 time in total.

talzara
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Re: Rollover to Vanguard requires brokerage account?

Post by talzara » Thu Mar 29, 2018 8:16 pm

carruthers209 wrote:
Thu Mar 29, 2018 6:54 pm
What exactly does SIPC insurance cover? If it's like FDIC insurance for the banks, it insures our funds should the bank default and close its doors. If there is fraud involved with our accounts, I was told that the bank (in this case B of A) would cover the fraud even if were a million dollars. I would rather have the SIPC insurance which the brokerage firms maintain-I think. It sounds way better than no insurance and only the that mutual fund company to cover the loss. If someone could explain it, I would appreciate it since this is where the bulk of our assets are kept and the current CEO of Vanguard said it was the issue that kept him up nights (he was in charge of technology and security if I remember reading correctly).
The Wiki has a detailed explanation of SIPC protection: https://www.bogleheads.org/wiki/SIPC_pr ... tual_funds

SIPC coverage does not give you any additional protection. The SIPC will not step in if something goes wrong at the mutual fund. It will only step in if something goes wrong at the brokerage, and only for the first $500k.

If you hold a mutual fund directly, you have no brokerage risk. You don't need insurance if there's no risk.

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KlingKlang
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Re: Rollover to Vanguard requires brokerage account?

Post by KlingKlang » Thu Mar 29, 2018 9:08 pm

I just did a direct rollover from an old 401(k) at Fidelity to my Vanguard old-style mutual fund tIRA account 2 weeks ago. Like the OP when I tried to do it through the Vanguard website I kept running into the open a new brokerage account dialog. Finally I called Vanguard and they told me that there isn't even a form for this anymore. I had to write a letter of instruction and mail that and my check from Fidelity payable to VFTC TR IRA FBO: KlingKlang to Vanguard, P.O. Box 1103, Valley Forge, PA 19482.

talzara
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Re: Rollover to Vanguard requires brokerage account?

Post by talzara » Thu Mar 29, 2018 9:25 pm

rkhusky wrote:
Thu Mar 29, 2018 7:34 pm
Having the Quantity times the Price not equal the Amount, as in the brokerage listing, is irritating.
Your brokerage account shows purchases of mutual funds with non-integer share prices, so the quantity will have some round-off error. For some reason, Vanguard is reporting to 4 digits even though it's rounding to 3 digits. The fourth digit is always zero, so it looks wrong.

Your mutual fund account only shows money market purchases. Since the share price is exactly $1, there is no round-off error. If there were any rounding, then it would look right because the quantity is only reported to 3 digits.
rkhusky wrote:
Thu Mar 29, 2018 7:34 pm
And when I buy, why is the Amount negative? I presume all the signs switch when I sell.
The brokerage account is shown from the perspective of the settlement fund, so the amount is negative when you buy.

The mutual fund account is shown from the perspective of the mutual fund, so the amount is positive when you buy. If it were shown from the perspective of your bank account, then the amount would be negative.

rkhusky
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Re: Rollover to Vanguard requires brokerage account?

Post by rkhusky » Fri Mar 30, 2018 5:45 am

talzara wrote:
Thu Mar 29, 2018 9:25 pm
rkhusky wrote:
Thu Mar 29, 2018 7:34 pm
Having the Quantity times the Price not equal the Amount, as in the brokerage listing, is irritating.
Your brokerage account shows purchases of mutual funds with non-integer share prices, so the quantity will have some round-off error. For some reason, Vanguard is reporting to 4 digits even though it's rounding to 3 digits. The fourth digit is always zero, so it looks wrong.
I was actually also referring to the negative sign in the Amount column here as well. It is an odd formatting choice where the Quantity and Price columns correspond to the fund and the Amount column corresponds to the settlement account, even though they are on the same line. That turned me off from switching over to brokerage accounts. Plus the prediction that tax forms would be delayed. And the pressure from Vanguard to sign up for the ability to trade. Fortunately, after a month or so of refusal, they stopped the latter messages on the one brokerage account I have.

MO MAN
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Re: Rollover to Vanguard requires brokerage account?

Post by MO MAN » Fri Mar 30, 2018 6:46 am

I don't know anything about the old accounts at Vanguard. We switched last year to several brokerage accounts at Vanguard for SEP, Roth, Traditional and a Joint Brokerage for my wife and myself. It is all on one page and simple to look at. I have no problems with the brokerage account, but never seen the old style account either to compare either.

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goingup
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Re: Rollover to Vanguard requires brokerage account?

Post by goingup » Fri Mar 30, 2018 10:05 am

KlingKlang wrote:
Thu Mar 29, 2018 9:08 pm
I just did a direct rollover from an old 401(k) at Fidelity to my Vanguard old-style mutual fund tIRA account 2 weeks ago. Like the OP when I tried to do it through the Vanguard website I kept running into the open a new brokerage account dialog. Finally I called Vanguard and they told me that there isn't even a form for this anymore. I had to write a letter of instruction and mail that and my check from Fidelity payable to VFTC TR IRA FBO: KlingKlang to Vanguard, P.O. Box 1103, Valley Forge, PA 19482.
KlingKlang-
Thanks for posting this. I've been an "upgrade" holdout, not wanting to transition to a brokerage account. I figured we'd have to when it came time to rollover a 401K. Your post gives me hope that there's a way to remain a holdout.

talzara
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Re: Rollover to Vanguard requires brokerage account?

Post by talzara » Fri Mar 30, 2018 10:27 am

rkhusky wrote:
Fri Mar 30, 2018 5:45 am
I was actually also referring to the negative sign in the Amount column here as well. It is an odd formatting choice where the Quantity and Price columns correspond to the fund and the Amount column corresponds to the settlement account, even though they are on the same line.
This is just how brokerage accounts work. A Fidelity account also shows the stock details on the same line as the dollar amount.
rkhusky wrote:
Fri Mar 30, 2018 5:45 am
That turned me off from switching over to brokerage accounts. Plus the prediction that tax forms would be delayed. And the pressure from Vanguard to sign up for the ability to trade. Fortunately, after a month or so of refusal, they stopped the latter messages on the one brokerage account I have.
I agree. There's no point to a brokerage account if you only trade Vanguard mutual funds. Many things get worse, and nothing gets better.

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flamesabers
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Re: Rollover to Vanguard requires brokerage account?

Post by flamesabers » Wed May 02, 2018 6:58 pm

OP here.

It looks like everything worked out for me. :happy

Vanguard has received the rollover check and soon the money will be transferred from the settlement account to the mutual fund of my choice.

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Re: Rollover to Vanguard requires brokerage account?

Post by sport » Wed May 02, 2018 8:12 pm

My "old style" MF account gives me a nice annual statement at the end of the year. It shows all the transactions in all of the funds. I understand that the brokerage account does not do this. An annual statement is great for record keeping because it replaces all the confirmations and interim reports. Why would this not be offered for the brokerage account too?

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Re: Rollover to Vanguard requires brokerage account?

Post by jmk » Wed Jun 06, 2018 10:53 am

talzara wrote:
Thu Mar 29, 2018 8:16 pm
carruthers209 wrote:
Thu Mar 29, 2018 6:54 pm
What exactly does SIPC insurance cover? If it's like FDIC insurance for the banks, it insures our funds should the bank default and close its doors. If there is fraud involved with our accounts, I was told that the bank (in this case B of A) would cover the fraud even if were a million dollars. I would rather have the SIPC insurance which the brokerage firms maintain-I think. It sounds way better than no insurance and only the that mutual fund company to cover the loss. If someone could explain it, I would appreciate it since this is where the bulk of our assets are kept and the current CEO of Vanguard said it was the issue that kept him up nights (he was in charge of technology and security if I remember reading correctly).
The Wiki has a detailed explanation of SIPC protection: https://www.bogleheads.org/wiki/SIPC_pr ... tual_funds

SIPC coverage does not give you any additional protection. The SIPC will not step in if something goes wrong at the mutual fund. It will only step in if something goes wrong at the brokerage, and only for the first $500k.

If you hold a mutual fund directly, you have no brokerage risk. You don't need insurance if there's no risk.
Can you please say in a little more detail the nature of the extra risk from Vanguard Brokerage? That the legal entity would go bankrupt independent of the mutual funds? That an employee would commit fraud?

talzara
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Re: Rollover to Vanguard requires brokerage account?

Post by talzara » Wed Jun 06, 2018 1:04 pm

jmk wrote:
Wed Jun 06, 2018 10:53 am
Can you please say in a little more detail the nature of the extra risk from Vanguard Brokerage? That the legal entity would go bankrupt independent of the mutual funds? That an employee would commit fraud?
The SIPC usually gets involved when the brokerage goes bankrupt.

Employee fraud is one possible cause of bankruptcy. Another possible cause would be that margin loans fail to get paid back, or short-sellers fail to return borrowed stocks. For example, when the Swiss franc was revalued in 2015, some brokers had a problem getting their margin loans paid back.

Brokers usually run a stress-test to make sure they have adequate capital to withstand such events. They'll also place limits on how large each bet can be. However, if several events happen simultaneously, it might push them over the limit.

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