Sep IRA options

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Topic Author
Aku09
Posts: 75
Joined: Wed Jan 09, 2019 11:29 am

Sep IRA options

Post by Aku09 »

I am switching jobs and need some advice regarding brokerage options.

Current job has a 401k that has some low cost options and charges 0.6% AUM fee. I am an index fund guy and prefer to keep total costs low like most of you.

I am starting a new job in 2 weeks and will have a Sep IRA using Edward Jones as the brokerage. The lady at Edward Jones that is the groups point of contact told me I wouldn't be happy there because of their fee structure after discussing how I typically invest. I figured as much, but I appreciate her honesty. She stated I would have to use mutual funds and commission is 5% that goes to them.

Luckily my new job I’m in a small group of 3 partners and have the ability to suggest/change things. Am I able to contact Vanguard or Fidelity and open a Sep IRA with them? I’m w2 and my group offers 3% match to retirement if that makes a difference. I am in the 24% tax bracket.
Budgetwise
Posts: 2
Joined: Thu Dec 24, 2020 9:32 pm

Re: Sep IRA options

Post by Budgetwise »

I set one up with Wells Fargo. I do my banking there. They charge me nothing and I can buy whatever I want.
lakpr
Posts: 7924
Joined: Fri Mar 18, 2011 9:59 am

Re: Sep IRA options

Post by lakpr »

5% load and the 1.5% fees on the expense ratios would be a huge deal breaker for me.

Let's say you have $10k to invest in the 401k.
Assume also that the market returns are 6% real (over and above inflation; historically this has been the norm with around 9% nominal returns and 3% inflation rate).

In 401k, on the $10k, you get to invest only $9.5k, on which you will get 4.5% real returns.
In 30 years, that will be $35,500 balance. In retirement, let's assume you will be in 15% tax bracket, so the after-tax value of this investment will be $30,175

In taxable account, in contrast, you get to invest only $7,600 after taxes.
There will be 2% dividends declared annually on which you will pay 15% taxes, or it's an annual 2% * 15% = 0.3% tax drag.
Or, you will realize a growth rate of 6% - 0.3% = 5.7%.
In 30 years, that $7,600 growing at 5.7% will become $40k.
Case 1: If you realize 0% long term capital gains rate, your ending balance is $40k
Case 2: Even if you realize a 15% long term capital gains tax rate, your capital gains taxes = 15% * ($40k - $7.6k) = $4,860. Money left after taxes = $40k - $4.8k = $35.2k.

You win by investing in taxable.

Invest no more than what you can get the maximum match, and invest in taxable.
single2019
Posts: 24
Joined: Thu May 27, 2021 12:13 pm

Re: Sep IRA options

Post by single2019 »

Aku09 wrote: Tue Jul 20, 2021 5:34 pm I am switching jobs and need some advice regarding brokerage options.

Current job has a 401k that has some low cost options and charges 0.6% AUM fee. I am an index fund guy and prefer to keep total costs low like most of you.

I am starting a new job in 2 weeks and will have a Sep IRA using Edward Jones as the brokerage. The lady at Edward Jones that is the groups point of contact told me I wouldn't be happy there because of their fee structure after discussing how I typically invest. I figured as much, but I appreciate her honesty. She stated I would have to use mutual funds and commission is 5% that goes to them.

Luckily my new job I’m in a small group of 3 partners and have the ability to suggest/change things. Am I able to contact Vanguard or Fidelity and open a Sep IRA with them? I’m w2 and my group offers 3% match to retirement if that makes a difference. I am in the 24% tax bracket.
Is the new employer's IRA a SIMPLE IRA or SEP IRA? 3% match suggests it may be a SIMPLE IRA. Having a local office is a huge benefit in such a situation, i would highly recommend Charles Schwab.

PS: I am a happy customer of Vanguard and Fidelity; but have used Schwab in past life for an SEP IRA.
Topic Author
Aku09
Posts: 75
Joined: Wed Jan 09, 2019 11:29 am

Re: Sep IRA options

Post by Aku09 »

single2019 wrote: Tue Jul 20, 2021 7:48 pm
Aku09 wrote: Tue Jul 20, 2021 5:34 pm I am switching jobs and need some advice regarding brokerage options.

Current job has a 401k that has some low cost options and charges 0.6% AUM fee. I am an index fund guy and prefer to keep total costs low like most of you.

I am starting a new job in 2 weeks and will have a Sep IRA using Edward Jones as the brokerage. The lady at Edward Jones that is the groups point of contact told me I wouldn't be happy there because of their fee structure after discussing how I typically invest. I figured as much, but I appreciate her honesty. She stated I would have to use mutual funds and commission is 5% that goes to them.

Luckily my new job I’m in a small group of 3 partners and have the ability to suggest/change things. Am I able to contact Vanguard or Fidelity and open a Sep IRA with them? I’m w2 and my group offers 3% match to retirement if that makes a difference. I am in the 24% tax bracket.
Is the new employer's IRA a SIMPLE IRA or SEP IRA? 3% match suggests it may be a SIMPLE IRA. Having a local office is a huge benefit in such a situation, i would highly recommend Charles Schwab.

PS: I am a happy customer of Vanguard and Fidelity; but have used Schwab in past life for an SEP IRA.
I was told Sep, but I will confirm that.
Jablean
Posts: 746
Joined: Sat Jun 02, 2018 2:38 pm

Re: Sep IRA options

Post by Jablean »

Fidelity has been easy peasy for our SEP. It's just another account.
PizzaEater
Posts: 36
Joined: Wed Apr 10, 2019 1:35 pm

Re: Sep IRA options

Post by PizzaEater »

In case you didn't realize: For a SEP-IRA you can choose whatever brokerage you like. You don't have to use the one they suggest you use. You just have to give your employer the account information so they can directly contribute funds.

Be aware that funds in a SEP-IRA are treated like funds in a Traditional IRA, so it complicates doing the Backdoor Roth. But that may not matter for your case - if your income is low enough you can directly contribute to a Roth IRA and not have to do the Backdoor Roth.
single2019
Posts: 24
Joined: Thu May 27, 2021 12:13 pm

Re: Sep IRA options

Post by single2019 »

PizzaEater wrote: Wed Jul 21, 2021 8:59 am In case you didn't realize: For a SEP-IRA you can choose whatever brokerage you like. You don't have to use the one they suggest you use. You just have to give your employer the account information so they can directly contribute funds.

Be aware that funds in a SEP-IRA are treated like funds in a Traditional IRA, so it complicates doing the Backdoor Roth. But that may not matter for your case - if your income is low enough you can directly contribute to a Roth IRA and not have to do the Backdoor Roth.
From IRS:

Can each of my employees choose a different financial institution for his or her SEP-IRA?

Although the law does not require each participant's SEP-IRA to be at the same financial institution, the institution that offers or administers the SEP may require you to deposit SEP contributions initially into SEP-IRAs maintained at that institution.
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