investing

Is it time to move your IRA?

Don TaylorQuestionDear Dr. Don,
Is a mutual fund individual retirement account, or IRA, different from a traditional IRA? Are all IRAs mutual funds? I presently invest in a mutual fund IRA. The fees seem to be high at 3 percent. Thanks for any advice.
-- Tina Tim

AnswerDear Tina,
An IRA is held with a custodian. The custodial account can be held at a bank, as a brokerage account, with an insurance company, at a mutual fund company or even as a self-directed IRA custodian account. It's fairly easy to vote with your feet and move the money if you're not happy with your custodian or your custodian's investment choices.

I think people should decide how they want to invest the account first and then choose the custodian that gives them the best balance of investment choices, customer service and low fees for your choice of investments. That's true even if you already have the money in an existing IRA. Would your existing custodian win your business today? If not, then it's time to start looking for your next IRA custodian.

What do you want to invest in? As you know, you can buy mutual funds, and those mutual funds invest in some combination of stocks, bonds and money market securities. If you have an IRA at a brokerage, you can expand your investment choices to individual stocks, bonds, money market securities and exchange-traded funds, or ETFs. A bank account allows you to invest in certificates of deposit or a savings account. Insurance companies can offer variable annuities in subaccounts that mirror investments in mutual funds.

I recommend a trustee-to-trustee, or direct transfer, of the account to the new custodian rather than a rollover. A transfer of funds in your traditional IRA from one trustee directly to another is not classified as a rollover. Because it is not a rollover, it is not affected by the one-year waiting period required between rollovers.

High fees are a major drag on investment performance. On the fee side, you want to consider any annual account expenses, sales loads and the annual operating expenses for the funds you invest in. With your provider, which you provided me the name of, your fees depend a lot on what class shares you own and which mutual funds you're invested in. If you paid a front-end load for class A shares, you've already paid up to invest, and that money is spent. Moving the account won't get it back. Class B shares have a deferred sales charge you pay if you move the account within seven years of purchase.

You can find less expensive IRAs, but you need to consider the value you place on the service provided by your agent before letting fees be the only driver in your decision to change custodians. What will you pay at another custodian for investment advice and fund-management expenses?

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

          Connect with us
Product Rate Change Last week
1 Year CD 0.90%  0.02 0.88%
2 Year CD 1.02%  0.01 1.03%
5 Year CD 1.59%  0.01 1.60%
 
View Rates in your area Search
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

How can I pay myself first?

Dear Dr. Don, You often advise readers to "pay yourself first." It sounds like a fine idea. But I'm wondering how that actually should work. I'd like to know how much or what percentage of my income should be set aside... Read more

advertisement

Blog

Sheyna Steiner

Investing: Sometimes less is more

A sixth grade class played along in an investing throw down among college-level clubs and easily beat all their returns.  ... Read more

Partner Center
advertisement

Connect with us