Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I've repeatedly addressed most of the opinions in this column (recognize that outside of some of the numbers, it's almost all opinion masquerading as fact). For example:
"Among the key moments for retirement savers is when they change jobs or retire. At this moment, the best advice is to roll over their 401(k)s into an IRA."
[The best advice depends upon the circumstances, as many have noted in MFO.]
This opinion is made even clearer and more emphatic later in the column:
"people who change jobs or retire every month ... [and] have some sort of retirement plan ... can and should be rolling [it] over."
Yet you're waiting until RMDs come due. It seems that you're not buying into the column hook, line, and sinker. Why worry about some parts then?
The column says that no-cost discount brokerage IRAs will continue to exist. So even granting for the sake of argument that all the opinions are correct, what's the problem?
Incredibly misleading article. What does he mean by "fees?" If he's referring to expense ratios, 401ks tend to be much lower than comparable retail share classes.
"The average 401(k) balance is $91,800 (according to Fidelity) and the average 401(k) annual fee is between 1 and 2 percent. Simply to get a sense of magnitudes, let's say that's an average of 1.5 percent – or about $1,400 annually on the average balance." Okay,
So, a fund expense is 1% (and probably a lot lower). If they move it to the retail account (IRA), it'll be the same or higher if they invest in mutual funds - and most people will.
He also says "However, if a consumer has their IRA directly through the funds themselves, they'll be charged a low annual fee like the $10 fee charged by American Funds or the $20 fee charged by Vanguard (for account balances under $10,000). Again, to get the order of magnitude right, lets' use the average of a $15 annual fee."
Incredibly deceptive here - Many 401ks that have American funds have no 12b1 fee.
Incredibly misleading article. What does he mean by "fees?" If he's referring to expense ratios, 401ks tend to be much lower than comparable retail share classes.
"The average 401(k) balance is $91,800 (according to Fidelity) and the average 401(k) annual fee is between 1 and 2 percent. Simply to get a sense of magnitudes, let's say that's an average of 1.5 percent – or about $1,400 annually on the average balance." Okay,
So, a fund expense is 1% (and probably a lot lower). If they move it to the retail account (IRA), it'll be the same or higher if they invest in mutual funds - and most people will.
He also says "However, if a consumer has their IRA directly through the funds themselves, they'll be charged a low annual fee like the $10 fee charged by American Funds or the $20 fee charged by Vanguard (for account balances under $10,000). Again, to get the order of magnitude right, lets' use the average of a $15 annual fee."
Incredibly deceptive here - Many 401ks that have American funds have no 12b1 fee.
As far as as 401k fees, he might be referring to the 401k administrative fee, not expense ratios. Many, if not most, 40k's have an administrative fee, often a percentage of how much one has in his or her account. This is a fee on top of expense ratios of the mutual funds. The thing I might disagree with is the average annual fee being between 1 and 2 percent. I think the average is probably between 0.5 and 1%, but I don't know that for sure. Smaller company 401k's often have higher administrative fees than larger companies.
Regarding having an IRA directly through the funds themselves, with lower annual fees like $10 for American funds or $20 for Vanguard, I don't think he is referring to 12b1 fees. He is talking about the advantage of rolling over 401k money to an IRA to avoid the 401k administrative fees, where some brokerages, such as Vanguard, impose a lower yearly account fee (I don't know if this is still the case, but several years ago when I had an account with Vanguard, I was charged a new fee of $10 per account. I shortly transferred my money to another brokerage that does not charge me annual fees).
I would be flat out shocked in administrative fees are 1%-2%. I don' think I've seen one that high. If it is, it's usually done through expensive share classes.
Comments
"Among the key moments for retirement savers is when they change jobs or retire. At this moment, the best advice is to roll over their 401(k)s into an IRA."
[The best advice depends upon the circumstances, as many have noted in MFO.]
This opinion is made even clearer and more emphatic later in the column:
"people who change jobs or retire every month ... [and] have some sort of retirement plan ... can and should be rolling [it] over."
Yet you're waiting until RMDs come due. It seems that you're not buying into the column hook, line, and sinker. Why worry about some parts then?
The column says that no-cost discount brokerage IRAs will continue to exist. So even granting for the sake of argument that all the opinions are correct, what's the problem?
"The average 401(k) balance is $91,800 (according to Fidelity) and the average 401(k) annual fee is between 1 and 2 percent. Simply to get a sense of magnitudes, let's say that's an average of 1.5 percent – or about $1,400 annually on the average balance." Okay,
So, a fund expense is 1% (and probably a lot lower). If they move it to the retail account (IRA), it'll be the same or higher if they invest in mutual funds - and most people will.
He also says "However, if a consumer has their IRA directly through the funds themselves, they'll be charged a low annual fee like the $10 fee charged by American Funds or the $20 fee charged by Vanguard (for account balances under $10,000). Again, to get the order of magnitude right, lets' use the average of a $15 annual fee."
Incredibly deceptive here - Many 401ks that have American funds have no 12b1 fee.
http://www.morningstar.com/funds/xnas/agthx/quote.html - IRA option
http://www.morningstar.com/funds/xnas/rgagx/quote.html - in many 401ks. He's assuming the funds in an IRA have no expense ratio while including the fees for 401ks.
Regarding having an IRA directly through the funds themselves, with lower annual fees like $10 for American funds or $20 for Vanguard, I don't think he is referring to 12b1 fees. He is talking about the advantage of rolling over 401k money to an IRA to avoid the 401k administrative fees, where some brokerages, such as Vanguard, impose a lower yearly account fee (I don't know if this is still the case, but several years ago when I had an account with Vanguard, I was charged a new fee of $10 per account. I shortly transferred my money to another brokerage that does not charge me annual fees).