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Mutual funds with 5.75 Load? – Rollover IRA options

Home Retirement Accounts Mutual funds with 5.75 Load? – Rollover IRA options

  • ChadCFP ChadCFP 
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    Joined: 10/04/2017
    Earnest refinancing bonus

    We will have to check with the new employer about this option. I will do it first thing tomorrow morning. I am not familiar with backdoor Roth IRAs and need to read about them on this site.

    Click to expand…

    I misread your earlier post and thought you said your wife’s current/new employer terminated their 401k. However, jhwkr542 is correct, if the current/new employer plan allows rollovers (most do, and most will allow the IRA to roll in as well) that may be the best option assuming the plan is good (low expenses, good fund line-up, etc..). Not only do you eliminate the custodian search, but it keeps things organized and the Backdoor Roth IRA is not compromised going forward.

    As a word of caution, if they do accept rollovers into the 401k plan, don’t assume it is good. We still see plenty of very high-cost 401k plans, while the space is improving there are still some bad/expensive plans.

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #179420 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4290
    Joined: 05/13/2011

    My wife who is a physician recently rolled over her 401K (over 500K) to a rollover IRA. We are working with a financial advisor who is pitching a number of mutual funds with 5.75% front load and expense ratios of 0.8% to 1.33%.

    Initially, he was selling us Fixed Indexed Annuity with 15% of profits kept by the annuity company ( I am forgetting the technical term) but as we read more about them on this forum, we realized that we may be leaving a lot of money on the table even if we select something like S&P indexed annuity. We declined to invest in Annuities. So these mutual funds are the recommendation now.

    I had setup her original 401K using a number of index funds and it returned an average of 8.64% over last 10 years – without any financial advisor.

    We are feeling that the new rollover IRA fund options may not be the best choice for us. I would rather pick 3-fund strategy from Boglehead plus add REITs to it. I can go with Vanguard as they offer cheap index funds for all sectors/markets.

     

    I am feeling skeptical about looking for another advisor at this point and I think we can do better in long run if we improve our financial literacy.

    Any suggestions? We are exhausted thinking about our options and are stressed out!

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    You’ve made the classic mistake (and I say classic because I made it as have many others here) of mistaking a commissioned salesman for a financial advisor. Don’t buy loaded mutual funds OR a fixed indexed annuity.

    Yes, you need to improve your financial literacy. I hope you realize you’re already well on your way by recognizing you were making an error.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #179437 Reply
    Liked by Hank
    Avatar tintin 
    Participant
    Status: Spouse
    Posts: 22
    Joined: 01/07/2019

    Our “advisor” is now offering us funds from one “family” with breakpoints in load charges and has moved some of the front load to back load 🙂  We are being told that moving money to other funds in future, if needed, will not have any front load.

    Or we can invest in no-load funds with his “guidance” and pay 1.5% AUM

     

    And that we need to hurry as we are loosing money since market is moving up and our money is parked in a money market fund right now

    BTW we found out that we have been paying similar fee in my rollover IRA & 529 account we had setup for our kids 3 years ago with his help. I guess it is our fault that we have not been paying attention and not reading the statements from IRA & 529 accounts in detail

     

     

    #179511 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016
    And that we need to hurry as we are loosing money since market is moving up and our money is parked in a money market fund right now

    Click to expand…

    This guy’s setting new lows with every interaction.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179515 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 76
    Joined: 10/04/2017

    Our “advisor” is now offering us funds from one “family” with breakpoints in load charges and has moved some of the front load to back load   We are being told that moving money to other funds in future, if needed, will not have any front load.

    Or we can invest in no-load funds with his “guidance” and pay 1.5% AUM

    And that we need to hurry as we are loosing money since market is moving up and our money is parked in a money market fund right now

    BTW we found out that we have been paying similar fee in 529 account we had setup for our kids 3 years ago with his help.

    Click to expand…

    Sad, even with you calling him out he is still offering loaded mutual funds but “suddenly” found breakpoints. Plus, another solid sales pitch, “act now before its too late!” Use the other notes above, and run!

    Also, not sure what state you live in but opening up a self-directed 529 is easy. Most offer age-based portfolios which shift to lower risk investments as your child get older. By just removing the commission based 529 plan, you will save the front-loads fee, lower the expense ratios and internal fees. I would guess you lower your fees drastically especially if you invest consistently and get hit with a front end load fee each time. You can rollover your current 529 plan, just as you would an IRA, to a new 529 plan.

     

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #179518 Reply
    Avatar tintin 
    Participant
    Status: Spouse
    Posts: 22
    Joined: 01/07/2019

    We live in Texas

    #179522 Reply
    ChadCFP ChadCFP 
    Participant
    Status: Financial Advisor, Website Sponsor, Small Business Owner
    Posts: 76
    Joined: 10/04/2017

    We don’t have current clients in Texas, so I had to click around first. I would assume you are currently in the “LoneStar 529 Plan” which is the advisor-sold 529 plan. The direct-sold (aka you can do it without an advisor) is called “The Texas College Savings Plan.” It does have the age-based portfolios which include a few fund families including Vanguard, DFA and a few others. The age-based index portfolios range from .60-.62% with NO upfront sales load. While that is better than your current fees, it is still a little high in my opinion. That does include their program fees of .53% as well. For comparison, every age-based portfolios for Utah’s 529 plan is under .20% which also included their program fees of .14%. So while their portfolio expense ratios are pretty close in cost, the program fees almost 3x when comparing TX to UT.

    For apples to apples comparison, the advisor-sold (your current plan) plan has age-based portfolios and the all-in-cost is over 2% on some. Here is their chart, not sure why it is from 2016 but here is what they had on their site. It also notes the maximum front end sales charge of 5.75% as well.

    Since Texas does not have a state income tax, they don’t offer an income tax deduction for your 529 plan contributions. While that is not ideal, it also gives you the opportunity to use other state’s 529 plans (For example, we use Utah’s plan with many of our clients since PA offers tax benefits for outside 529 plans as well.). Virginia, Illinois, and Nevada also have great 529 plans (direct-sold, not advisor-sold).

    Chad Chubb, CFP ® | WealthKeel LLC
    https://wealthkeel.com/wci | Gen X & Gen Y Physicians

    #179536 Reply
    Liked by childay
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 478
    Joined: 06/18/2018

    @tintin

    Why on earth all you still talking to this guy? You’re getting royally screwed, and apparently have been for some time. Now that you know this, if you continue to interact with him, you are, quite simply, a fool. You should NEVER talk to him again.

    Go set up accounts at Vanguard or Fidelity, etc. and initiate a transfer. They pull the money from him, so you don’t need him to do anything for you.

    You’re paying AUM on a 529? In a state that doesn’t have state tax and therefore offers no tax break for contributing. Seriously? I’m embarrassed for you at this point.

    Wait…you didn’t transfer your wife’s 401k rollout in kind, but rather, cashed it out and now it’s sitting in MM? Who gave you that terrible guidance, this ‘advisor’? Depending on the timing of that (sold at the bottom), that could end up costing you massively more than just the unnecessary fees you incurred in doing that.

    Please, do yourself a favor and get your money out of there ASAP. Even if you don’t know what to invest it in, you can sit it in a money market at Vanguard just the same as it’s sitting in a MM right now, and at least that won’t be costing you 1.5% AUM. Then, use the fact that some sleazeball took advantage of you and has probably cost you retirement age future value of several hundred thousand dollars at this point to motivate you to educate yourself. Your ROI for a weekend of reading about personal finance will be massive.

     

    #179544 Reply
    Liked by octopus85
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016
    Wait…you didn’t transfer your wife’s 401k rollout in kind, but rather, cashed it out and now it’s sitting in MM? Who gave you that terrible guidance, this ‘advisor’? Depending on the timing of that (sold at the bottom), that could end up costing you massively more than just the unnecessary fees you incurred in doing that.

    Click to expand…

    On this one point, I have a different perspective.

    1. We don’t know what “recently” is. For all we know, he c/h cashed out in August or September. Trying to time the market is wrong, though, so I have no problem with the timing of cashing out.
    2. When you sell low, you can get back in low, also. The only times, however, you really should liquidate are:
      • When you have a bad portfolio and/or
      • When you need the money. This should be according to your personal financial plan; money you will need w/i 5 years should never be invested, but kept liquid.

    Yes, there are mistakes inherent in what @tintin has been advised. But I don’t think this is as bleak as we may be leading him to believe.

    @tintin, Clark Howard has a great roundup of 529 plans with direct links to state sites.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179548 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4290
    Joined: 05/13/2011

    Our “advisor” is now offering us funds from one “family” with breakpoints in load charges and has moved some of the front load to back load ?  We are being told that moving money to other funds in future, if needed, will not have any front load.

    Or we can invest in no-load funds with his “guidance” and pay 1.5% AUM

     

    And that we need to hurry as we are loosing money since market is moving up and our money is parked in a money market fund right now

    BTW we found out that we have been paying similar fee in my rollover IRA & 529 account we had setup for our kids 3 years ago with his help. I guess it is our fault that we have not been paying attention and not reading the statements from IRA & 529 accounts in detail

     

     

    Click to expand…

    Sounds like a classic mutual fund salesman using American Funds. Obviously, the correct choice here is to NEITHER buy loaded mutual funds NOR pay 1.5% in AUM fees.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #179554 Reply
    Liked by Hank
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1546
    Joined: 01/08/2016

    As more story unfolds, the picture is getting worse. You originally posted that you were stressed; dont be, but do take action. Get your money over to Vanguard or Fidelity. You would be well served to put it in a target date fund, or you could leave it in cash for a short time while you get more education.

    Also, block the number from your advisor.

    #179568 Reply
    Liked by Hank
    Avatar tintin 
    Participant
    Status: Spouse
    Posts: 22
    Joined: 01/07/2019

    @zzz, we cashed out in last week of December and we did not know that we could do an in kind transfer 🙁 Again, my lack of financial literacy and the thought that we can hire someone to “take care of our investments for us ” so that we can focus on making money.

    We initiated the transfer of assets to Vanguard yesterday.

    At this point, we are realizing that the lesson we are learning the hard way is that no one is going to care for your money the way you will. Most of others (financial advisors) will just focus on getting their cut out of the transactions they do on your behalf. So we need to spend time on educating ourselves and spend time learning so that we can do the right thing.

    Thanks for all the feedback and critique. We deserve it.

     

     

    #179569 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    Hey I know someone who is in the almost same situation.  I have tried bringing this up to her but it falls on deaf ears.  Does anyone have any particularly good posts or other material I can use to help further explain why loaded funds are bad?

    #179604 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3791
    Joined: 01/08/2016

    Math….

    #179607 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7511
    Joined: 01/09/2016

    Hey I know someone who is in the almost same situation.  I have tried bringing this up to her but it falls on deaf ears.  Does anyone have any particularly good posts or other material I can use to help further explain why loaded funds are bad?

    Click to expand…

    Start with this thread?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179609 Reply

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