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In 2002, I rolled a former employer's 401(k) into fee-based, managed IRA accounts. Since 2003 there was a market downturn and that the wrap fees were accelerating the loss in account value. I switched to direct payment of the fees.

Initially, there was a nominal tax advantage to paying the fees directly; however, the value of the IRA accounts have quadrupled. The fees, now, provide a substantial tax benefit. It is my only significant deduction.

I just retired. In 2015, I will start the IRS' Required Minimum Distributions from the accounts. This leads to two questions.

(1) Should I continue paying the fees directly as they reduce my taxable income?

(2) At what point would it be better to have the fees paid from the IRA accounts?

This gives rise to another question. Is there any financial or tax planning software available that would help answer the above questions?
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MCCrockett: I just retired. In 2015, I will start the IRS' Required Minimum Distributions from the accounts. This leads to two questions.

(1) Should I continue paying the fees directly as they reduce my taxable income?

(2) At what point would it be better to have the fees paid from the IRA accounts?


My answer is not to pay any fees, unless you are persuaded that there s value added.

Go to Vanguard, https://investor.vanguard.com/home/ and read up on their retirement funds. n particular, look at the Target Retirement Fub=nds.

Coung No'Count
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I just retired. In 2015, I will start the IRS' Required Minimum Distributions from the accounts. This leads to two questions.

(1) Should I continue paying the fees directly as they reduce my taxable income?


No. You should continue paying the fees directly because that doesn't reduce your IRA balance. I suspect the tax benefit isn't anywhere near what you think it is, but it really doesn't matter.

(2) At what point would it be better to have the fees paid from the IRA accounts?

When you can't afford to pay them directly.

Phil
Rule Your Retirement Home Fool
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I don't follow the logic behind your recommendation. I would still be paying fees were I to shift my IRA accounts to a mutual fund. In addition, such a move would increase my Federal and State income tax liability.
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McCrockett

There am more than one kind of fees and me thinks there is a definitional problem in this thread.

Some financial institutions (banks are prime offenders here) charge fees for maintaining an IRA. Unless a person has an IRA balance that is small say $5,000 or so, paying such fees is stupid.

Unless a person is keeping their IRA in cash, it will be in instruments that one way or another have fees. Stock will have trading fees as will ETFs, bonds and mutual finds. If you invest in managed products (mutual funds are the most common, but ETFs also fit) there will be management fees.

The second group of fees vary with location and with the total investment at a specific brokerage firm.

There are people who think any fee is bad and any place with lower fees is better. I think that approach is silly. Very few of us would want the lowest priced medical treatment - if we did there would not be a problem with medical insurance costs rising.

That said, it is wise to check into the various fees and charges. It takes some time and effort. But you will be paid well over a hundred dollars per hour for your time. The time investment is not an annual deal only once when you pick brokerage firms - compare fees.

Gordon
Atlanta
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I don't follow the logic behind your recommendation. I would still be paying fees were I to shift my IRA accounts to a mutual fund. In addition, such a move would increase my Federal and State income tax liability.

Vanguard's IRA maintenance fees are low. Likely lower that what you are paying. Still a fee, but very low.

You don't incur an income tax if you simply change custodians of the account, i.e. by shifting to Vanguard. (Or Schwab, or any other low-cost provider.)

Vanguard costs average far less than 1%. What are you paying now?

Take the time to educate yourself. You seem to lack some of the basic information you need. Not trying to insult you, but this fact screams from what you say.

The Fool used to have a great short course on Foolish Investing, back before they became Wise. The best I see from The Fool now is this http://www.fool.com/how-to-invest/thirteen-steps/index.aspx Vanguard https://investor.vanguard.com/corporate-portal still has a lot of helpful information.

Forget an advisor. Don't do ANYTHING until you feel capable of making all the decisions yourself.

Consider this board as well: http://boards.fool.com/retirement-investing-100154.aspx?mid=...

Count No'Count

READ!
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I would still be paying fees were I to shift my IRA accounts to a mutual fund. In addition, such a move would increase my Federal and State income tax liability.

Yes, and No. Yes, you would still be paying fees, just lower ones. And no, such a move -- best done by a custodian-to-custodian transfer --would have no effect on your tax situation. (For the custodian-to-custodian transfer, contact Vanguard, not the current custodian.)

Eliminate "wrap fees" completely.

Vanguard has fees on their mutual funds. If these are the fees that concern you, Vanguard has very low fees -- sometimes the lowest in the business.

Other fees they have can often be eliminated by agreeing to receive information (statements, etc.) electronically rather than through snail mail.

culcha
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I'd bet his 'planner' has him locked in "A" shares or something that have high surrender charges if he leaves before five years are up. Typical financial planner strategy so you can't move your money even that fund(s) do miserably and fall way behind the index for their class of funds.

The only thing you are doing by a 'wrap' and a 'financial planner' is ensuring that the college tuition and/or new car payments for the planner are paid for by 2 or 3 of his 'best' customers who leave hundreds of thousands or millions in an IRA or wrap account with him/her.

Let's see...just a 1% wrap fee on a million dollar portfolio is $10,000 a year. SOme are 1.5% of assets.....and many plans sock you for high
fund fees plus the wrap fee plus 'other fees' like account maintenence fees...up to 2.5% of your total assets each year.

You don't see it if your account is growing 10% a year..you think you are doing great...but if the market is only going up 4 or 5% a year, you give half the gain to your 'portfolio manager' and 'fees'.

t
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You don't incur an income tax if you simply change custodians of the account, i.e. by shifting to Vanguard. (Or Schwab, or any other low-cost provider.)

I realize that were I to liquidate all my stocks and bonds in my IRA accounts that I could transfer the funds to Vanguard without incurring a tax liability. However, moving my IRA accounts doesn't change the tax liability that results from the IRS' Required Minimum Distribution.

At age 70 when RMD starts, the withdrawals will double my retirement income. I will move back to my pre-retirement tax rates. My question was more about whether to pay the fees directly and reduce taxable income or to pay the fees from the account reducing the RMD amount.

Vanguard costs average far less than 1%. What are you paying now?

I'm paying about 1%.

Take the time to educate yourself. You seem to lack some of the basic information you need. Not trying to insult you, but this fact screams from what you say.

I don't feel insulted. My retirement saving approach was dictated by the nature of my job. I have much to learn about investing and how to invest the RMD withdrawals.
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At age 70 when RMD starts, the withdrawals will double my retirement income. I will move back to my pre-retirement tax rates.

So, is that a bad thing or a good thing? On the surface it's terrific news. I'd love for my income to double when I turn 70. We don't have anything close to a 100% tax rate, so the more income you have, the more taxes you pay, but you still have more in your pocket than you would have had without the additional income. In short, stop obsessing about taxes and a deduction for investment expenses.

That said, there can be situations in which RMD's have an effect other than simply more income equals more taxes. Percentages can sometimes be useful comparisons, but in this case "double" doesn't mean much without knowing the starting point.

I'm not clear from your posts whether you are already receiving Social Security benefits or are already enrolled in Medicare Part B. RMD's may (or may not) increase the portion of your SS benefit that is taxed and your Medicare Part B premium. You can figure that out fairly easily. There's a worksheet for line 20 of the 1040 that calculates the taxable portion of SS. It can be anywhere from 0% to 85%. If you're taxed on 85% without the RMD, the RMD has no effect here.

On the Medicare front, at www.medicare.gov you can find the income levels at which your Part B premium goes up. Again, if you're already at the max, your RMD will have no effect here.

So let's say after you do your analysis you find that there will be a significant impact from your RMD's. Other than making bad investments, the only thing you can do is some conversions to Roth, which reduce the base computation amount for future RMD's. But again do the same analysis as above to see whether you're just shooting yourself in a different foot.

Phil
Rule Your Retirement Home Fool
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At age 70 when RMD starts,

It's not at age 70 it's 70 1/2.
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At age 70 when RMD starts,

It's not at age 70 it's 70 1/2.

Technically, you are correct. However, as I was born on 15 January and the RMD is based on my IRA account balances 16 days earlier when I was still 69, I tend to think of it as starting at 70.
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