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I am starting a new individual retirement account and looking for a low-fee account?

I have an account through TIAA-CREF from a previous job which I can no longer contribute to. I need to start a new account, am 43 years-old, and own a small business. It has been suggested to me to start with a 401k with Fidelity, I am trying to follow the advice of finding a low-fee fund. I have looked through your fund ratings but am not sure how to translate that info into choosing a fund to invest in. I am interested in saving for retirement and in tax-sheltering. Can you pls suggest a low-fee company and/or fund, or direct me to a concise way to compare my options. For the sake of simplicity I'd like to keep my comparison to 100 options or fewer. Thank you

Jan 05, 2014 by Miriam from Cherry Hill, NJ in  |  Flag
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15 votes

You have some different options, depending on how much money you plan to contribute.

You could open an IRA and roll the funds into it. Then you could contribute up to $5,500 per year to the IRA. This would be the simplest cheapest solution. You could set up an IRA with any mutual fund or on-line brokerage. Vanguard is known for having low-cost mutual funds. Schwab and TD Ameritrade have low cost options on the brokerage side.

Depending on number of employees, you may want to set up a 401(k) plan through your business. The bottom line is that you can't open a 401(k) for yourself and not for your employees. A 401(k) will allow you to contribute significantly more money (at least $17,500 and potentially $52,000). This is much more complicated and you'll want to get some professional assistance to set up the plan.

Other options include SEP-IRA and SIMPLE plans. But again, you'll probably want some professional help. You can find out more from the IRS at http://www.irs.gov/publications/p560/index.html

Comment   |  Flag   |  Jan 05, 2014 from Alexandria, VA

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15 votes
Rich Winer Level 20

Miriam, The first thing I would recommend would be rolling your old 401K to an IRA at a brokerage firm like TD Ameritrade. There should be no fees to open or maintain the account. This will give you more investments options and you can continue to contribute to the IRA, which would be simpler that having two retirement accounts at different firms. I know that you said you wanted to limit your investment options, but I do not feel that's a good idea. Depending on your interest and how much money you have to invest, you might consider looking for a local financial advisor to either manage your retirement account for you for a fee bases on the amount you are investing or to recommend an appropriate asset allocation and investments for a flat fee.

I know you said that you wanted to limit your investment options to 100, but I think that's mistake. I believe that the investment options you or your advisor have to choose from should not be limited. If you're going to pick investments yourself, do your homework to select the best, most appropriate investments for your goals, risk tolerance and time horizon. If you don't want to to put in the necessary time and effort, then hire a good financial advisor to help you.

You also said that you want low cost options and, as I would expect, my colleagues have recommended index funds and ETFs. Unfortunately, the cost of your investments will not guarantee whether they are appropriate or will help you meet your financial goals. Having low cost investments also won't keep you from making common mistakes like buying aggressively at market tops or panicking and selling out near a market bottom during a nasty bear market. In other words, having fewer and low cost investment options won't make you a better investor. That's why I would suggest working with a financial advisor to help you select the best, most appropriate investments for you.

Another option you might consider would be utilize a model investment portfolio from a magazine like Kipplinger's or Money Magazine. They usually do an excellent job of creating conservative, moderate and aggressive portfolios for investors with different portfolio sizes. You can probably find them online or by looking through recent issues at your local library. Once again, a little homework can go a long way.

If you think you may need something other than an IRA for your small business, a good financial advisor (or your CPA) can tell you the type of account that's needed (i.e. SEP IRA, 401K, Individual 401K, etc.). I would still roll over your old 401K to an IRA to get more and better investment options. Although TIAA-CREF is considered a low-cost provider, their services and funds are not free. By keeping your money in an old employer's 401K, you are likely being charged unnecessary plan-related fees because most employers allocate the plan fees (or some of them) to their employees. Let me know if you have any additional questions.

2 Comments   |  Flag   |  Jan 05, 2014 from Woodland Hills, CA
Rich Winer

Anyone know who keeps giving me negative votes, without having the courage to state why? It's extremely juvenile. I have no problem if someone disagrees with the advice I provide, based on 20 years' experience, and no problem debating differences in professional opinions. But to anonymously give a negative vote is cowardly and does a great disservice to the individual who posted the initial question. Because no reason was provided for the negative vote, Miriam has no idea whether the person who gave a negative vote has a valid gripe with my advice or not.

Flag |  Jan 05, 2014 near Woodland Hills, CA
Rich Winer

I would like to publicly thank Larry McClanahan, CFP®, CASL, CLU for alerting me to the "second cowardly negative vote", as well as his supportive and empathetic email. As Larry stated correctly, "When you put heart and soul into helping folks with questions, that’s like a kick in the gut." Thanks again, Larry!

Flag |  Jan 05, 2014 near Woodland Hills, CA

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9 votes

Miriam the only thing i would add to Curt is this. If you are looking for a low cost funds, the best option for that is an Index Fund. If you are looking at Fidelity, Fidelity has one of the cheapest index funds in the industry, they also have physical branches that Vanguard does not unless you live in PA. You may also consider ETFs they have very low cost to them as well. However to keep things simple for you. I would suggest you explore index funds, the easiest one that covers the entire market Domestically, would be Total Market index fund. That is a combination of Large, Small and Mid size companies. Fideilty also has a fund that is called Four in One index fund. That fund is comprised of 3 US based Index funds one international and one in short term bond fund. I personally like to invest in index funds seperatly so that I can manually adjust and control my clients exposure to different areas of the market. The only other thing I would add is if you go to any of the companies mentioned in this post you will be assigned most of the time, to a very inexperienced planner who's only objective is to hit his or her goals that are set by the companies he or she is employed by. I would recommend you start building a relationship with an independent advisor now, you dont have to have him/her manage your assets but it is a good idea to work with some one who has your best interest in mind and not influenced by sales quotas.
I hope this helps Best of luck Sincerely Michael www.VisionaryWealthMgmt.com

Comment   |  Flag   |  Jan 05, 2014 from Farmington, CT

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