Advice on Personal Choice Retirement Account

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Topic Author
warren26
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Joined: Mon Dec 31, 2012 3:02 pm

Advice on Personal Choice Retirement Account

Post by warren26 » Sat Jan 12, 2019 10:50 pm

I recently learned that I have the option to open a PCRA (personal choice retirement account) through Schwab for my 401k investments. I currently am paying 36 basis points in advisor fees for my 401k, which I have invested entirely in the Vanguard 500 Index Fund Admiral Shares (VFIAX, ER 0.05). My fees for 2018 were ~$580 on a year end balance in the low $200k range. While I am told those fees are not too bad for a 401k, the fees will grow with my account balance and over the years are not trivial. I asked my 401k custodian rep what the fees would be if I were to open a PCRA with Schwab and I was told $6.95 per transaction, of which I would basically have 12 per year. Am I missing something, or is it a no-brainer to take advantage of the PCRA? Are there hidden fees within the PCRA that I need to be aware of/inquire about? Thank you for any insight!

Willmunny
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Re: Advice on Personal Choice Retirement Account

Post by Willmunny » Sat Jan 12, 2019 11:32 pm

I think it all depends on the plan. I think some plans may charge an advisory or administrative fee for assets in a PCRA. Some may have a flat fee per year. Some may not charge anything. I would seek more clarity on that issue.

On the $6.95 per trade, I would speak to someone again on that as well. Schwab has all the commission free ETFs you will need to build a three fund portfolio with an average expense ratio of less than 10 basis points. If you buy VTI, VXUS, and BND or other ETFs that are not commission free at Schwab, that's when I think the per trade fee occurs. But I wouldn't buy those given the commission free Schwab alternatives.

inbox788
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Re: Advice on Personal Choice Retirement Account

Post by inbox788 » Sun Jan 13, 2019 3:23 am

warren26 wrote:
Sat Jan 12, 2019 10:50 pm
I recently learned that I have the option to open a PCRA (personal choice retirement account) through Schwab for my 401k investments. I currently am paying 36 basis points in advisor fees for my 401k, which I have invested entirely in the Vanguard 500 Index Fund Admiral Shares (VFIAX, ER 0.05). My fees for 2018 were ~$580 on a year end balance in the low $200k range. While I am told those fees are not too bad for a 401k, the fees will grow with my account balance and over the years are not trivial. I asked my 401k custodian rep what the fees would be if I were to open a PCRA with Schwab and I was told $6.95 per transaction, of which I would basically have 12 per year. Am I missing something, or is it a no-brainer to take advantage of the PCRA? Are there hidden fees within the PCRA that I need to be aware of/inquire about? Thank you for any insight!
You mean like maybe a 36 basis point fee? Or are you able to avoid it using PCRA?

dbr
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Re: Advice on Personal Choice Retirement Account

Post by dbr » Sun Jan 13, 2019 10:40 am

PCRA will be variable in cost depending on plan, as mentioned.

At my company there is a $10 monthly fee to have the PCRA and there is a transaction cost to buy funds, maybe $7.95. Years ago my 401k charged an administrative fee on assets, but assets moved to the PCRA escaped that. These days the company covers the cost of the 401k so it doesn't make any difference.

The calculation therefore depends on how much money is in the PCRA and how often one purchases shares. It is entirely feasible to hold contributions in the 401k and move them once a year going from 12 purchases to one per year. Retirees with larger asset values and little trading can use a PCRA at a relatively low cost. People with small asset values and fixed costs to own or trade in a PCRA may find it less useful.

livesoft
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Re: Advice on Personal Choice Retirement Account

Post by livesoft » Sun Jan 13, 2019 10:58 am

My spouse's employer pays the PCRA (SDBA) fees for its employees that choose that option. There were the quarterly fees and even a fee to transfer money to/from the PCRA. The fees were not hidden because there was documentation available online about them. I would not believe what a human being told me unless it was "There is documentation online about all the fees and it is found at this URL: ...."

I have also seen that some plans do not allow 100% of one's plan assets to be moved to a PCRA / SDBA, so there may be a limit on that as well.

In the past, the SDBA was the way to go because one could even buy no-commission ETFs within the SDBA. Nowadays, the plan has improved and added many Vanguard and DFA funds.
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Topic Author
warren26
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Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 11:15 am

Willmunny wrote:
Sat Jan 12, 2019 11:32 pm
I think it all depends on the plan. I think some plans may charge an advisory or administrative fee for assets in a PCRA. Some may have a flat fee per year. Some may not charge anything. I would seek more clarity on that issue.

On the $6.95 per trade, I would speak to someone again on that as well. Schwab has all the commission free ETFs you will need to build a three fund portfolio with an average expense ratio of less than 10 basis points. If you buy VTI, VXUS, and BND or other ETFs that are not commission free at Schwab, that's when I think the per trade fee occurs. But I wouldn't buy those given the commission free Schwab alternatives.
Thank you for your response. I am told by my 401k custodian that they would only start to charge a flat fee on PCRA accounts if our group reaches a 'critical mass' of participants electing for PCRA (because it's more time intensive for them to do all of the requisite reporting on individual PCRAs, as opposed to the reporting being taken care of by our current 401k advisors, which is a different entity than the 401k custodian). I asked what that flat rate would be and was told $250 per year, which still seems like a great deal, given what my fees would be otherwise as my account value grows.

Yes, I need to dig into the PCRA fees more thoroughly and verify I'm not missing something. Seemingly the commission free ETFs would be the way to do.

Topic Author
warren26
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Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 11:16 am

inbox788 wrote:
Sun Jan 13, 2019 3:23 am
warren26 wrote:
Sat Jan 12, 2019 10:50 pm
I recently learned that I have the option to open a PCRA (personal choice retirement account) through Schwab for my 401k investments. I currently am paying 36 basis points in advisor fees for my 401k, which I have invested entirely in the Vanguard 500 Index Fund Admiral Shares (VFIAX, ER 0.05). My fees for 2018 were ~$580 on a year end balance in the low $200k range. While I am told those fees are not too bad for a 401k, the fees will grow with my account balance and over the years are not trivial. I asked my 401k custodian rep what the fees would be if I were to open a PCRA with Schwab and I was told $6.95 per transaction, of which I would basically have 12 per year. Am I missing something, or is it a no-brainer to take advantage of the PCRA? Are there hidden fees within the PCRA that I need to be aware of/inquire about? Thank you for any insight!
You mean like maybe a 36 basis point fee? Or are you able to avoid it using PCRA?
I am able to avoid the 36 basis point fee by using PCRA.

Topic Author
warren26
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Joined: Mon Dec 31, 2012 3:02 pm

Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 11:21 am

dbr wrote:
Sun Jan 13, 2019 10:40 am
PCRA will be variable in cost depending on plan, as mentioned.

At my company there is a $10 monthly fee to have the PCRA and there is a transaction cost to buy funds, maybe $7.95. Years ago my 401k charged an administrative fee on assets, but assets moved to the PCRA escaped that. These days the company covers the cost of the 401k so it doesn't make any difference.

The calculation therefore depends on how much money is in the PCRA and how often one purchases shares. It is entirely feasible to hold contributions in the 401k and move them once a year going from 12 purchases to one per year. Retirees with larger asset values and little trading can use a PCRA at a relatively low cost. People with small asset values and fixed costs to own or trade in a PCRA may find it less useful.
Thank you for the response. That's nice that administrative fees on assets in your 401k are covered by the company. Seeing those quarterly fees being assessed in my account when I am invested in a single VG index fund has been bothering me. Thus my enthusiasm for pursuing the much lower fee PCRA option. I am fortunate to be able to max my 401k contributions each year with generous match and profit sharing from my company so the money in the account should be significant over the years -- 36 basis points will hurt more and more. I like the idea of limiting purchases to just a single or few times per year, thus furthering lowering fees.

Topic Author
warren26
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Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 11:22 am

livesoft wrote:
Sun Jan 13, 2019 10:58 am
My spouse's employer pays the PCRA (SDBA) fees for its employees that choose that option. There were the quarterly fees and even a fee to transfer money to/from the PCRA. The fees were not hidden because there was documentation available online about them. I would not believe what a human being told me unless it was "There is documentation online about all the fees and it is found at this URL: ...."

I have also seen that some plans do not allow 100% of one's plan assets to be moved to a PCRA / SDBA, so there may be a limit on that as well.

In the past, the SDBA was the way to go because one could even buy no-commission ETFs within the SDBA. Nowadays, the plan has improved and added many Vanguard and DFA funds.
Thank you for the response. Yes, I need to get fee documentation in hand before making the switch.

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Bodacious
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Re: Advice on Personal Choice Retirement Account

Post by Bodacious » Sun Jan 13, 2019 11:28 am

I've had a Schwab PCRA for the last two years and I'm saving thousands of dollars per year in expenses. Unlike you, I didn't have the option of a low cost index fund in my Nationwide 457 plan. My fund choices ranged between 50 bps and 150 bps

While I do pay a $50 annual fee for the Schwab PCRA, I never incur any $6.95 transaction fees because I purchase Schwab ETF and mutual funds which have no transaction fees.

Your "adviser" is not being completely honest with you.

I am required to keep at least $10k in my Nationwide 457 and I gladly use their stable value fund which currently yields 3%

I would recommend talking to Schwab PCRA customer service and getting additional details. They have been very helpful to me.

Topic Author
warren26
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Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 11:47 am

Bodacious wrote:
Sun Jan 13, 2019 11:28 am
I've had a Schwab PCRA for the last two years and I'm saving thousands of dollars per year in expenses. Unlike you, I didn't have the option of a low cost index fund in my Nationwide 457 plan. My fund choices ranged between 50 bps and 150 bps

While I do pay a $50 annual fee for the Schwab PCRA, I never incur any $6.95 transaction fees because I purchase Schwab ETF and mutual funds which have no transaction fees.

Your "adviser" is not being completely honest with you.

I am required to keep at least $10k in my Nationwide 457 and I gladly use their stable value fund which currently yields 3%

I would recommend talking to Schwab PCRA customer service and getting additional details. They have been very helpful to me.
Thank you for the reply...very helpful and reassuring to pursue this course.

ClaycordJCA
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Re: Advice on Personal Choice Retirement Account

Post by ClaycordJCA » Sun Jan 13, 2019 12:55 pm

I also have a Schwab PCRA for my 401k. I opted for PCRA when I realized it was a new plan feature and more than half of my annual 401k contributions went to pay the 1% advisory fee charged by the financial advisor selected by the firm to manage our investments if we wished to invest in something other than the four or five high ER mutual funds offered as standard investment options. Schwab website is very easy to use and I can easily download into Quicken. Very much unlike the financial advisor’s firm. At the time, I opted to hold the Schwab Total Stock Market Index Fund plus BND and VXUS since Schwab did not then have comparable bond and total international index offerings.

I now direct all new 401k contributions to the Schwab Total Bond Fund. When It is time to rebalance, I sell most of the Schwab Total Bond Fund and allocate between the Vanguard bond funds or VXUS, as needed. Doing it this way costs me under $10 a year - 2 trades at $4.95 each. Will probably roll the 401k into a Vanguard IRA when I retire, unless Schwab offers me a nice bonus to roll it into a Schwab IRA.

Topic Author
warren26
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Re: Advice on Personal Choice Retirement Account

Post by warren26 » Sun Jan 13, 2019 1:18 pm

ClaycordJCA wrote:
Sun Jan 13, 2019 12:55 pm
I also have a Schwab PCRA for my 401k. I opted for PCRA when I realized it was a new plan feature and more than half of my annual 401k contributions went to pay the 1% advisory fee charged by the financial advisor selected by the firm to manage our investments if we wished to invest in something other than the four or five high ER mutual funds offered as standard investment options. Schwab website is very easy to use and I can easily download into Quicken. Very much unlike the financial advisor’s firm. At the time, I opted to hold the Schwab Total Stock Market Index Fund plus BND and VXUS since Schwab did not then have comparable bond and total international index offerings.

I now direct all new 401k contributions to the Schwab Total Bond Fund. When It is time to rebalance, I sell most of the Schwab Total Bond Fund and allocate between the Vanguard bond funds or VXUS, as needed. Doing it this way costs me under $10 a year - 2 trades at $4.95 each. Will probably roll the 401k into a Vanguard IRA when I retire, unless Schwab offers me a nice bonus to roll it into a Schwab IRA.
Great info...thank you!

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Bodacious
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Re: Advice on Personal Choice Retirement Account

Post by Bodacious » Sun Jan 13, 2019 2:45 pm

I will just add that the only “downside” to a pcra is that you are responsible for maintaining your account and making purchases.

Like most on this website, I’m comfortable with establishing my own asset allocation and maintaining a simple 3 fund portfolio.

I direct all contributions to my nationwide 457 stable value fund and I transfer funds to the pcra once a quarter to purchase Schwab funds.

Most of my coworkers prefer having an “advisor” and are willing to pay a lot more in expenses for their “expert” advice. I enjoy maintaining my own account and I really enjoy all the money I save.

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Quercus Palustris
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Re: Advice on Personal Choice Retirement Account

Post by Quercus Palustris » Sun Jan 13, 2019 7:02 pm

Maybe also find out if using Schwab's auto investing feature allows you to avoid the transaction fee? It will only work with mutual funds you hold a position in, but you can make a very low cost 3-fund at Schwab with SWAGX, SWTSX, and SWISX (bond, total US market, international developed). You can schedule purchases on the 5th or 20th (or both) of the month with auto-invest. Good luck!

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