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Fidelity Offers To Pay Customers For New IRA business
I haven't yet seen is a declaration of tax treatment. What's implied is that the match is treated like other earnings in the IRA. But the IRS might consider the match a contribution. (It looks like rebates from a Fidelity Amex card into an IRA may be treated as contributions - I haven't looked carefully, but Fidelity's footnote 1 to this card suggest issues exist.)
Edit - Fidelity Amex card rebates that go into an IRA are indeed considered same year contributions (and thus limit the additional amount that you can contribute). This is on their FAQ page for the card. The question to look at is: "How do the Fidelity Rewards Credit Cards work if I elect to deposit my rewards in a tax-advantaged IRA or a 529 plan at Fidelity?"
The bonus is structured somewhat differently - it is based on the amount that you contribute (so it is more like an employer 401k match than a third party contribution to an IRA). That may or may not make a difference in the tax treatment.
There is no free lunch.....especially in the harsh world of mutual fund marketing......sure Fidelity is the bounty paying winner, but I would bet there is some fairly significant "fine print" involved in getting/taking free money from our good friends at Fidelity, or any other money accumulator.....!
It's pretty common for brokerages to offer money if you move assets to them. This is just another variant, and a fairly clever one.
In general, they're counting on money being "sticky" - once you move money to a brokerage, you will tend to leave it there. I suspect that IRAs are even more sticky because there's a bit more paperwork involved in moving IRAs. Also, while you used to be able to do an arbitrary number of 60 day rollovers (where you could avoid some of the paperwork by cashing out the account and moving the cash yourself), as of this year you can only do one 60 day rollover per year.
And while the payout is a bit higher than Fidelity's other current promotions, you have to stick around for three year to max out, and you need to contribute to your IRA each year. So the promotion is designed to make the money even more sticky, and just like a rebate offer, Fidelity is likely counting on some people not contributing to their IRAs each year (and thus not getting the bonus for that year).
No fine print - just a very well designed promotion.
Greasy was all the long distance carriers sending out checks in the 90s, which if endorsed would change your service.
The brokerage promotions are all up front - they don't "slam" you. The only "gotcha" I know of is the tax consequence (e.g. in a taxable account, the payment is treated as ordinary income).
Would you move an account from one broker to another without asking the receiving broker to pay for your closeout/transfer fee? That's just another promotion, and IMHO more "greasy", because it's not offered equally to all investors - you often have to ask for it. (I was reading on another board that Vanguard does not participate in that form of promotion, arguably to their credit.)
One may view this as a normal "business promotion". As @msf has documented, I don't find any "hidden" items. Fidelity wants the business and has run the numbers for their breakeven point. This is not unlike a grocery store with the lowest priced gallon of milk in the area, but that section is at the rear of the store. The store is hoping you will grab a few other items during your journey; and is willing to sell the milk at cost for this hope. "Loss leaders" are a common practice, be it a real item, as in milk or a business function related to marketing, to get someone into the business door.
Why don't they offer: Good returns/ low expenses/ customer service.....? That's how Vanguard/ TR price built their business, I get bank offers for "free" money everyday (no More toasters) I haven't changed bankers...wonder Why?
In my case, I haven't switched banks because the only bank service I use at a bank is a safe deposit box, where physical proximity trumps all.
Sure, I have a few $0 balance/$0 cost accounts elsewhere for promotional services (e.g. TDBank will let me use their coin counter for free), but I don't really "bank" at any bank at all. I use brokerages to provide fee-rebate ATM cards and bill pay service. I generally keep enough cash in those accounts to cover expenditures.
Spare cash goes into whichever internet bank pays a solid, stable rate (high, doesn't have to be the highest), so that I don't feel compelled to move money every six months. But that money is only so sticky. If/when that bank is no longer competitive, I move.
T. Rowe Price - they give free M* premium membership at $100K household balance. That's $200/year (if you value the membership) - much more than Fidelity will give you if you move a $100K IRA to them - 2.5% of your IRA contribution each year, or around $140/year. Different form of promotion, same idea - keep the money around.
VBS - everything I read suggests that they are improving, some day they may reach the service level of places like Schwab and Fidelity. Low cost - sure, if you're a Flagship customer, but otherwise it's more expensive to trade TF share classes there than at Fidelity. Cash management services? VanguardAdvantage isn't even offered unless you have $500K in Vanguard funds with them; then they charge $30/year, and an extra $5/mo for bill pay. 'Course, like most stuff there, the freebies kick in at $1M.
I'm not knocking any of these providers. Each has its strengths and weaknesses. But that's why its not accurate to suggest that any one of them is the cheapest/best in general.
Price runs a great ship. Wouldn't have to give me anything to invest with them. Transferring money in directly has gotten a lot easier lately. You can go online at their site and enter your account number, etc. at another institution (fund house) and it's all done electronically - usually completed in about a week.
Since TP has the bulk of our assets and we've found it convenient and simpler to take our regular distributions there, we occassionally find ourselves "feeding" accounts at Price in this way. Still - prefer not to have all the eggs in one.basket - even one as good as theirs.
Suppose next somebody will be giving out free toasters. Might work for a bank where services are all pretty much the same. But, Yikes - selecting your money managers on such a basis? I think not.
Comments
I haven't yet seen is a declaration of tax treatment. What's implied is that the match is treated like other earnings in the IRA. But the IRS might consider the match a contribution. (It looks like rebates from a Fidelity Amex card into an IRA may be treated as contributions - I haven't looked carefully, but Fidelity's footnote 1 to this card suggest issues exist.)
Edit - Fidelity Amex card rebates that go into an IRA are indeed considered same year contributions (and thus limit the additional amount that you can contribute). This is on their FAQ page for the card. The question to look at is: "How do the Fidelity Rewards Credit Cards work if I elect to deposit my rewards in a tax-advantaged IRA or a 529 plan at Fidelity?"
The bonus is structured somewhat differently - it is based on the amount that you contribute (so it is more like an employer 401k match than a third party contribution to an IRA). That may or may not make a difference in the tax treatment.
marketing......sure Fidelity is the bounty paying winner, but I would
bet there is some fairly significant "fine print" involved in getting/taking
free money from our good friends at Fidelity, or any other money
accumulator.....!
In general, they're counting on money being "sticky" - once you move money to a brokerage, you will tend to leave it there. I suspect that IRAs are even more sticky because there's a bit more paperwork involved in moving IRAs. Also, while you used to be able to do an arbitrary number of 60 day rollovers (where you could avoid some of the paperwork by cashing out the account and moving the cash yourself), as of this year you can only do one 60 day rollover per year.
And while the payout is a bit higher than Fidelity's other current promotions, you have to stick around for three year to max out, and you need to contribute to your IRA each year. So the promotion is designed to make the money even more sticky, and just like a rebate offer, Fidelity is likely counting on some people not contributing to their IRAs each year (and thus not getting the bonus for that year).
No fine print - just a very well designed promotion.
The brokerage promotions are all up front - they don't "slam" you. The only "gotcha" I know of is the tax consequence (e.g. in a taxable account, the payment is treated as ordinary income).
While "everybody does it" doesn't make something all right, well, everybody does it:
http://investorjunkie.com/12278/current-stock-broker-promotions/
Would you move an account from one broker to another without asking the receiving broker to pay for your closeout/transfer fee? That's just another promotion, and IMHO more "greasy", because it's not offered equally to all investors - you often have to ask for it. (I was reading on another board that Vanguard does not participate in that form of promotion, arguably to their credit.)
That's how Vanguard/ TR price built their business,
I get bank offers for "free" money everyday (no More toasters) I haven't changed bankers...wonder Why?
Many use Fidelity for the brokerage platform......I believe you're out of the loop with this, being a Vanguard person
Sure, I have a few $0 balance/$0 cost accounts elsewhere for promotional services (e.g. TDBank will let me use their coin counter for free), but I don't really "bank" at any bank at all. I use brokerages to provide fee-rebate ATM cards and bill pay service. I generally keep enough cash in those accounts to cover expenditures.
Spare cash goes into whichever internet bank pays a solid, stable rate (high, doesn't have to be the highest), so that I don't feel compelled to move money every six months. But that money is only so sticky. If/when that bank is no longer competitive, I move.
T. Rowe Price - they give free M* premium membership at $100K household balance. That's $200/year (if you value the membership) - much more than Fidelity will give you if you move a $100K IRA to them - 2.5% of your IRA contribution each year, or around $140/year. Different form of promotion, same idea - keep the money around.
VBS - everything I read suggests that they are improving, some day they may reach the service level of places like Schwab and Fidelity. Low cost - sure, if you're a Flagship customer, but otherwise it's more expensive to trade TF share classes there than at Fidelity. Cash management services? VanguardAdvantage isn't even offered unless you have $500K in Vanguard funds with them; then they charge $30/year, and an extra $5/mo for bill pay. 'Course, like most stuff there, the freebies kick in at $1M.
I'm not knocking any of these providers. Each has its strengths and weaknesses. But that's why its not accurate to suggest that any one of them is the cheapest/best in general.
Since TP has the bulk of our assets and we've found it convenient and simpler to take our regular distributions there, we occassionally find ourselves "feeding" accounts at Price in this way. Still - prefer not to have all the eggs in one.basket - even one as good as theirs.
Suppose next somebody will be giving out free toasters. Might work for a bank where services are all pretty much the same. But, Yikes - selecting your money managers on such a basis? I think not.