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"Rollover IRA" vs "Traditional IRA" --- unnecessary complexities?
I cannot confirm nor deny, sorry. I suspect this is what will happen: the agents you deal with will be full of promises. When the promised fix doesn't "take," they'll blame it on the computers or the computer-geeks who run the computers. So you will be told that it is PERMITTED to make the fix you're looking for, but can they EXECUTE? I have ZERO trust in any establishment any more. I don't believe the agents on the phone will try very hard to make it happen for you. You'll be passed off and referred to their tech. people, who will play verbal games with you. And leave you basically twisting in the wind. They need to straighten out matters between themselves, but no company anywhere bothers with accepting real responsibility to do just that, anymore. So they will dump it in YOUR lap--- as if you are the employee who suddenly has this job to do. They will make it incumbent upon you. They are experts at that, in the year 2014.
Does this qualify as a rant? Just doing my best to be realistic. Different offices and departments no longer communicate and can get NOTHING done between them. They will promise you X, but doing X---intended to be the "fix," turns out not to be do-able. Because the dept. that can make the fix has a DIFFERENT set of rules and procedures than the office where the one who gave you the assurances actually sits. Mostly intended to screw with you and make your head explode. I have seen it and experienced it-----over and over and over. And OVER.
My apologies, Hank. Truly. I couldn't help myself.
One of the problems is that many administrators (whether we're talking about employer sponsored plans or IRAs) don't know what they're doing, or more politely, that they're stuck on old rules. I have vague recollections of many years ago trying to transfer a conduit ("rollover") IRA back to a 401(k) plan, only to be confronted by the plan administrator saying that I could transfer back all or nothing. That is, I had to be able to show that the rollover was not only a rollover, but that I was transferring back the money from one rollover - all of it, no more (i.e. only from one former employer) and no less (i.e. not just part of the rollover).
This was nonsense, but as a result, I started keeping segregated IRAs - each conduit (rollover) in a separate account. Tedious and pointless.
I think that employers and brokers have gotten better about this. I've had no problem combining conduit IRAs, a SEP IRA and "regular" IRAs together.
There is at least one situation in which keeping conduits separate might be of some use. A few years ago the federal bankruptcy laws were changed so that you get $1M of protection (inflation-adjusted) for traditional IRAs, but unlimited protection for money in 401(k)s (and other employer plans), and also rollover money that comes from 401(k)s.
In theory, so long as you can show what portion of the IRA money came from a 401(k), that money gets unlimited protection from creditors in bankruptcy. In practice, this is a lot easier if you keep the money separate. But as noted in the thread below (see link), even that's not conclusive - in theory even an IRA labeled conduit could have comingled moneys. https://www.irahelp.com/forum-post/14009-rollover-vs-contributory-ira-creditor-protection
I'm assuming that when you mean cost basis, you mean your non deductible contributions. I would not be concerned about rollover/traditional. I've combined regular and rollover into one account without any issues or problems. The most important item you need to track is your before (non deductible & 401a) contributions/after tax (deductible & 401K) contributions in all your IRA accounts, make sure the various houses track them properly (they may not) and then report yearly on IRS form 8606 on distribution. Go back looking at your statements and calculate your non deductible amount for your own peace of mind. Distributions are taxed at your ordinary income rate and 8606 helps calculate your before/after amounts and reduces the IRA amount subject to tax. Report it yearly to the IRS to establish a basis. Don't trust the houses, they are mostly incorrect on their calculations (subject for another OT thread).
Vanguard will let you consolidate "rollover" and "traditional" IRA holdings ad-hoc. (Obviously as long as they are the same fund.) As noted above the only restriction used to be was that "traditional" IRA holdings could not be rolled up into a 401k-type employer account.
Your non-deductable basis is calculated as a percentage of your total IRA basis, be sure to carry forward your 8606 basis year after year.
I believe I did something similar. If I recall it was referred to as a section 90-24 transfer. It allowed me to move some of my 403b (7) (mutual fund investments) from Vanguard (which was part of my sponsor plan) to T. Rowe Price (which was not part of my sponsor plan).
My employer (plan sponsor) was not willing to add additional good quality mutual fund choices (we fought tooth and nail to get Vanguard). This "end around" allowed me to access additional mutual funds at a high quality mutual fund company. I only did this once, but I could image it would have worked mutiple times until they changed rules with this provision.
"However, my confidence in this institution is now shaken to the point that I now question the wisdom of dealing directly with fund houses for IRA monies as I have always done in the past, rather than perhaps utilizing a big brokerage account as I know many here do." ---------------
I've been very happy with the way the very large discount brokerage firms handle IRAs and 401ks
I followed the pension tax issue very close, here in Michigan; and wrote many emails about this silly tax plan......but, I digress.
My understanding, from recall only; having read many of the legal pieces of this taxation document a few years ago, provides the following: No mandatory Michigan tax withholdings are required, if, the payer of a pension and/or related type of retirement plan withdrawal, resides outside of the State of Michigan. One has the option to file the MI-W4P form to request a percentage amount of Michigan tax to be withheld. 'Course, underwitholding can also cause a tax problem with underpayment; if this would be the case. Please correct me if I am wrong about the tax withholding, per my above recollection.
I have some info about this parked on this pc somewhere; but I'm way past me bedtime for tomorrow's schedule.
Hi Hank. I've been reading this thread, somewhat casually, only because my 401k has been with this same 'yet to be named but everyone knows who' Baltimore brokerage (TRP). I recently changed employers and have been trying to decide whether to keep the 401k in place, convert it to an IRA with TRP or move it to one of the big supermarket brokerages like Schwab or Scottrade.
If you had to do it all over again, what would you do. Like you I've always been happy with TRP, but the comment you made on charging you a fee if you take up more of their phone time is not what I would expect.
I would guess that a broker like Schwab would give you access to many more options to invest in than would TRP. I have nothing against TRP but my experience with Schwab has been excellent.
Thanks for the feedback Hank. I tend to think you can run into the same inconsistancies and problems at every brokerage, especially if your communication is on a phone line with changing customer associates. TRP has a very good reputation and my plan has been to keep some money with them staying in the 401k (maybe 10%). The rest I want to put into an IRA at a brokerage with a local brick-and-morter office in our area with people I can meet face to face. That would be Schwab, Scottrade or Fidelity here in the Rochester NY area.
Getting back to your orginal point...why some much complexity? Why so many layers of fees (especally with respect to 403b accounts).
Average workers remain inadequately prepared to invest and often don't possess the skills to navigate the maze of products and rules that exist today. My cynical side feels this business model provide the financial industry with a mechanism of "control" over the individual investor and a method to hedge risk. It provides the opportunity to accumulate and concentrate risk free profit for the finance service industry by tithering themselves to the investors capital. This riskless tithering places a drag on the investors capital while at the same time the investor and his capital attempts to battle the risks of the market.
On a separate note, I have always thought that fees should be charged on the "added value" component that the investment company brings to the investment, not on the capital (savings) that is brought to the institution by the investor. Charge me a fee for the growth component. When results are negative, lower these fees to a basic level. This, I believe, is how hedge funds operate.
to Mike M: Like John Chisum I've had good experiences with the local Schwab office. It's very helpful to be able to talk to the same person over a period of time, as it minimizes inconsistencies of the sort that Hank experienced at TRP.
@MikeM, I find the experience reasonably correlated with the size of the portfolio. Without exception, the larger the portfolio, the better services I seem to get. Some of them provide different phone lines, agents and response times based on total portfolio size. It is sort of like elite levels in airlines.
For example, the difference between 6 and 7 figure portfolios can be quite stark, so sometimes that can be a factor in deciding to consolidate or not depending on the size of the portfolio.
Those of you using Schwab or other brokerages: Is it a case of having face-to-face assistance when needed AND ALSO being able to exchange/withdraw money online when more convenient?
Yes Hank, exactly. In reality after a couple of set-up visits there's been no real need to walk over there (1 block!) to talk to them personally, but it's nice to know that I can do that at any time.
The only minor complaint re Schwab is that they don't send a confirming email when I do an on-line transfer. But then I haven't been bothered enough by that to bother walking over to see if it's possible, either, so it's really that important. After all, I can check the account status at any time to make sure things went as planned... and they always have, so far.
I don't have a Schwab office near me so I haven't experienced the face to face service. The phone service is very good though and online is excellent. I agree with Old Joe, I wish Schwab had a transaction alert service and I mentioned that in a survey they put out some time ago.
Comments
Does this qualify as a rant? Just doing my best to be realistic. Different offices and departments no longer communicate and can get NOTHING done between them. They will promise you X, but doing X---intended to be the "fix," turns out not to be do-able. Because the dept. that can make the fix has a DIFFERENT set of rules and procedures than the office where the one who gave you the assurances actually sits. Mostly intended to screw with you and make your head explode. I have seen it and experienced it-----over and over and over. And OVER.
My apologies, Hank. Truly. I couldn't help myself.
I suspect it will work out.
http://www.bogleheads.org/forum/viewtopic.php?t=65824
This was nonsense, but as a result, I started keeping segregated IRAs - each conduit (rollover) in a separate account. Tedious and pointless.
I think that employers and brokers have gotten better about this. I've had no problem combining conduit IRAs, a SEP IRA and "regular" IRAs together.
There is at least one situation in which keeping conduits separate might be of some use. A few years ago the federal bankruptcy laws were changed so that you get $1M of protection (inflation-adjusted) for traditional IRAs, but unlimited protection for money in 401(k)s (and other employer plans), and also rollover money that comes from 401(k)s.
In theory, so long as you can show what portion of the IRA money came from a 401(k), that money gets unlimited protection from creditors in bankruptcy. In practice, this is a lot easier if you keep the money separate. But as noted in the thread below (see link), even that's not conclusive - in theory even an IRA labeled conduit could have comingled moneys.
https://www.irahelp.com/forum-post/14009-rollover-vs-contributory-ira-creditor-protection
Your non-deductable basis is calculated as a percentage of your total IRA basis, be sure to carry forward your 8606 basis year after year.
I understand that in terms of tax liabilities, there should be no difference between the two varieties of IRA.
My employer (plan sponsor) was not willing to add additional good quality mutual fund choices (we fought tooth and nail to get Vanguard). This "end around" allowed me to access additional mutual funds at a high quality mutual fund company. I only did this once, but I could image it would have worked mutiple times until they changed rules with this provision.
403bwise has an update on how this works:
403bwise.com/wisemoves/transfer403b_bm.html
---------------
I've been very happy with the way the very large discount brokerage firms handle IRAs and 401ks
Howdy, up north.
I followed the pension tax issue very close, here in Michigan; and wrote many emails about this silly tax plan......but, I digress.
My understanding, from recall only; having read many of the legal pieces of this taxation document a few years ago, provides the following: No mandatory Michigan tax withholdings are required, if, the payer of a pension and/or related type of retirement plan withdrawal, resides outside of the State of Michigan.
One has the option to file the MI-W4P form to request a percentage amount of Michigan tax to be withheld.
'Course, underwitholding can also cause a tax problem with underpayment; if this would be the case.
Please correct me if I am wrong about the tax withholding, per my above recollection.
I have some info about this parked on this pc somewhere; but I'm way past me bedtime for tomorrow's schedule.
Take care,
Catch
If you had to do it all over again, what would you do. Like you I've always been happy with TRP, but the comment you made on charging you a fee if you take up more of their phone time is not what I would expect.
I would guess that a broker like Schwab would give you access to many more options to invest in than would TRP. I have nothing against TRP but my experience with Schwab has been excellent.
Thanks again Hank and good luck to you.
Average workers remain inadequately prepared to invest and often don't possess the skills to navigate the maze of products and rules that exist today. My cynical side feels this business model provide the financial industry with a mechanism of "control" over the individual investor and a method to hedge risk. It provides the opportunity to accumulate and concentrate risk free profit for the finance service industry by tithering themselves to the investors capital. This riskless tithering places a drag on the investors capital while at the same time the investor and his capital attempts to battle the risks of the market.
On a separate note, I have always thought that fees should be charged on the "added value" component that the investment company brings to the investment, not on the capital (savings) that is brought to the institution by the investor. Charge me a fee for the growth component. When results are negative, lower these fees to a basic level. This, I believe, is how hedge funds operate.
For example, the difference between 6 and 7 figure portfolios can be quite stark, so sometimes that can be a factor in deciding to consolidate or not depending on the size of the portfolio.
The only minor complaint re Schwab is that they don't send a confirming email when I do an on-line transfer. But then I haven't been bothered enough by that to bother walking over to see if it's possible, either, so it's really that important. After all, I can check the account status at any time to make sure things went as planned... and they always have, so far.
OJ