Is it time to move your IRA?

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Dear 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

Dear 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?

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