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Maybe my idea of this is wrong.

I went to talk to one. Good side is she really knew her stuff. I always thought that this meant they’d charge you a fee whenever you met them and otherwise you invested your own money outside of their company.

But it seems to mean you pay an upfront fee then invest in their fund company and get a 1% annual fee on top.

Does anyone actually have a fee only advisor where it’s just a fee to chat, like a lawyer, but no percentage of assets type fees? It’s possible I’ve been imagining something that doesn’t exist. Or have I just not really found one. Curious if anyone has one that’s truly fee only.
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So the fee only advisor would charge $2500-$3000 up front then 1% a year.

I’ll give you the one good idea she had for free. If we retire early don’t take SS or withdraw from retirement. Have zero income and use those years to migrate from pre tax to Roth. Like if you have enough to live on for a few years.
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You should be able to hire a Certified Financial Planner by the hour for any kind of conversation you like at an hourly fee similar to an accountant or an attorney.

The key is to not let them take custody of your money. That's when they start taking about a "percent of assets" fee.

intercst
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I went to talk to one. Good side is she really knew her stuff. I always thought that this meant they’d charge you a fee whenever you met them and otherwise you invested your own money outside of their company.

But it seems to mean you pay an upfront fee then invest in their fund company and get a 1% annual fee on top.


Well, there are different types of fee-only advisors. "Fee-only" just means that they don't charge commissions on the products that they are selling. The one you are describing apparently charges an upfront fee for a plan, and then charges a percent of AUM (Assets Under Management). What you are looking for is one that charges an hourly fee, or a flat fee, rather than a fee based on AUM. See this article for some additional detail: https://www.napfa.org/financial-planning/what-is-fee-only-ad...

Does anyone actually have a fee only advisor where it’s just a fee to chat, like a lawyer, but no percentage of assets type fees? It’s possible I’ve been imagining something that doesn’t exist. Or have I just not really found one. Curious if anyone has one that’s truly fee only.

Have you tried www.napfa.org? I know that's been recommended to you before. If you click on the link to 'find an advisor' https://www.napfa.org/find-an-advisor# you can put in filters to look for advisors who charge an hourly fee, or a flat fee.

AJ
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I’ll give you the one good idea she had for free. If we retire early don’t take SS or withdraw from retirement. Have zero income and use those years to migrate from pre tax to Roth. Like if you have enough to live on for a few years.

That is a good idea. It is also retire early 101. Any number of retire early blogs/forums discuss Roth conversions in detail. Now, there is a value to have someone else sort all this out and distill it for you. But if you have portfolio or one or two million dollars that means the cost of that service is $10-20,000. Per year. A tax accountant should be able to give you the same info for a one-time fee of a few hundred dollars.
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I’ll give you the one good idea she had for free. If we retire early don’t take SS or withdraw from retirement. Have zero income and use those years to migrate from pre tax to Roth. Like if you have enough to live on for a few years.

Gosh, where have I heard that before? Seems to me like if you've been reading this board, you just wasted some of your time to get free advice that you already would have read here, for free.

I will say that there are lots of people on this board who argue against doing Roth conversions, but I've been suggesting that retirees use the time between when they retire and when RMDs are required to do Roth conversions for several years now.

I will disagree with her assertion about striving for 'zero' income other than the conversions. Even if you have enough in taxable accounts to not have to withdraw from retirement accounts, there will likely be some capital gains, dividends and/or interest thrown off by those assets, so having 'zero' income is probably not going to happen.

AJ
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but I've been suggesting that retirees use the time between when they retire and when RMDs are required to do Roth conversions for several years now.

still trying to figure that one out.
I have $5k in a Roth starting this year. So. . . that means I can add $2k more, while doing by taxes at the end of the year?
Retired May 1st. 69 last week. So I have about $2,400 income in 2020 I'm thinking. That's all I can put in the Roth, correct?
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Stock Goddess write But it seems to mean you pay an upfront fee then invest in their fund company and get a 1% annual fee on top.


You seem to say the person you spoke with controls the mutual fund which your words 'their fund company' - what evidence or basis do you have for that suggestion?

Mutual funds I know about are all regulated and listed with the SEC. As such those have disclosures. Is the person you spoke with named in SEC filings about the that fund?

I am thinking you paid for advise and also expected to get free service and/or implementation of that advise.
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I have $5k in a Roth starting this year. So. . . that means I can add $2k more, while doing by taxes at the end of the year?

If you have at least $7k in earned income this year and you meet the income requirements to be able to contribute. Your MAGI for 2019 must be less than $193k (MFJ) or $122k (Single, HOH) to be able to make the full $7k contribution. You can see details on how to calculate the MAGI in IRS Pub 590-A https://www.irs.gov/pub/irs-pdf/p590a.pdf

So I have about $2,400 income in 2020 I'm thinking. That's all I can put in the Roth, correct?

If the $2400 is earned income (from a job, self-employment, etc.) you can use it as a contribution for a Roth IRA (or a Traditional IRA if you want the tax deduction). If the $2400 is from something like dividends, capital gains, rental income or interest that isn't considered earned income, then you can't make any contribution to an IRA - Roth or otherwise.

That said - the suggestion is about Roth conversions, not Roth contributions - which is what you asked about above. Conversions occur when you move money from Traditional accounts (Traditional IRA, Rollover IRA, SIMPLE IRA, SEP IRA, 401(k), etc.) to a Roth IRA. There is no income limitation on doing conversions. You just have to be able to pay the taxes on what you're converting.

Retired May 1st. 69 last week.

You have a few issues here:

- Since you only opened the Roth IRA this year, assuming that the contribution that you made was a contribution designated for 2019, the only money that you can take out of the Roth without taxes or penalties before Jan 1, 2024 will be any contributions you have made - the $7k from this year, and potentially, the $2.4k from next year. That's because to be a qualified distribution, the account must have been opened for at least 5 tax years, in addition to you being over 59 1/2
- Until Jan 1, 2024, when your account will be 5 tax years old, each set of conversion that you do will have their own 5 year clock before they can be withdrawn, which means that even if you do a conversion this year, your conversion won't be 5 tax years old until Jan 1, 2024.
- Since you turned 69 last week, you will turn 70 in January, 2021. That means that you have only 2 years to do conversions before you have to start taking RMDs from your Traditional accounts - so your window of opportunity to decrease your RMDs is very small.
- Even worse, you will turn 70 in July, 2020, which is the latest age to start claiming SS. So beginning in 2020, you will have additional income that could push you into a higher tax bracket when figuring the taxes that will be due on the conversions.

AJ
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Thank you AJ!
I understand now.
I was not expecting any immediate money from my Roth IRA.
It was just an afterthought a couple years ago when I put $500 into it to start and left it until my job allowed my last paycheck to be put in it.

So . . . kind of a speculative gamble.
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I used http://www.napfa.org/ to find a 'fee only' financial advisor.

She was great, I hope she is always there for me.
She is fan of Vanguard, but never pushed anything on us.
She does not manage your money, but rather, gives you a 'to-do' list.

Unfortunately, in my area, she was the only one I found that did 'fee only'.

All the others pretty much wanted to manage your money and charge you a percentage to do so.

nag
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Unfortunately, in my area, she was the only one I found that did 'fee only'.

All the others pretty much wanted to manage your money and charge you a percentage to do so.


Actually, if you found them through www.napfa.org those advisors are 'fee only' too.

'Fee only' just means that they do not collect commissions on the products that they have you purchase. Charging only a fee (no commissions) based on Assets Under Management (AUM) is also a form of 'fee only' advising. To be a member of www.napfa.org, you are required to be a 'fee only' advisor.

The advisor you were able to find is apparently a 'fee only' advisor who charges either on an hourly basis or an annual basis, rather than charging based on AUM.

AJ
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aj485: "'Fee only' just means that they do not collect commissions on the products that they have you purchase."

That has never been my understanding.

Though NAPFA seems to agree wit you.

"We primarily charge a percentage of assets under management because of our emphasis on offering comprehensive wealth management. But fee-only financial planning includes other methods of charging clients such as a flat retainer, an hourly rate or a charge specific to the task at hand.

https://www.forbes.com/sites/davidmarotta/2012/06/11/fee-onl...

But it is not uniformly accepted.

"There has been some debate as to how "fee-only" compensation should be defined – mainly, whether it should include the second group, those who charge based on AUM."

https://www.investopedia.com/articles/investing/102014/feeon...

Regards, JAFO
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The Garrett Financial Planning Network charges a fee for advice but no AUM fee.

https://garrettplanningnetwork.com/about/members
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Glad she knew her stuff. Did she give you anything to think about you don't see posted on the boards?

My company sponsored a FA consult as part of an overall "wellness" program. It was good to see confirmation that I'm on track, but I didn't really learn anything new. Of course it was only 45 minutes, so it was pretty high level.
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“All the others pretty much wanted to manage your money and charge you a percentage to do so.”

This.
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On the theory some people want financial advisory services at no cost, I will add Vanguard Flagship services to this thread.

Vanguard offers financial advisory services at no out of pocket costs. The requirement is having at least one million dollars invested in Vanguard funds. I used this and found it was not what I wanted. They sent me a long information gathering form. Next I was sent a digital report suggesting a distribution of investments in Vanguard index funds. There was a scheduled phone conversation that lasted 45 minutes to any hour.

To be honest, Vanguard does get fund management fees for running the index funds, but these are small - my S&P500 fund has an 0.040% charge.

This advisory service is but one of several Flagship Client benefits.

If you drill down at your broker's site I am sure you will find advisory systems.
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Yes, I should have specified that the Fee Only pricing that my advisor uses is by the hour.

I think it was well worth the cost, in that the recommendations she gave took into account an in-depth looks at the current allocations and what the goals were and risk tolerance.
And the Vanguard funds she recommended fit both, I just didn't know of them.

The fool is great for a lot of information - but it's not the same as opening my books to a professional.

I've managed to consolodate a lot of drips that were opened over many years and stream line finances for me, and in the future, my family (hopefully) won't be cursing me out over a mess I've left them.

nag
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So the fee only advisor would charge $2500-$3000 up front then 1% a year.
I’ll give you the one good idea she had for free. If we retire early don’t take SS or withdraw from retirement. Have zero income and use those years to migrate from pre tax to Roth. Like if you have enough to live on for a few years.


That's been something I've pointed out on this board many times (as have others). Part two of that idea is that the taxability of your social security depends on your "provisional income," which is your taxable income plus half your SS. So, if you converted your IRAs to Roth IRAs while you were in a low tax bracket, and have gone enough years to freely withdraw from the Roths (five years), your taxable income will be low. Thus, you will have avoided future tax on the money you converted to Roth while in a low tax bracket AND you may be able to cause your SS to be untaxed or taxed at 50% instead of 85%.

There's a similar Medicare effect as well. Plus, Roths don't have RMDs (for the original owner or spousal beneficiary). Also, perversely, muni bond interest counts towards provisional income even though you don't pay income tax on it.

All that info for free as well.

Another thought: If you've got a million dollars the advisor is going to manage, she's going to collect $10K per year. If she manages your money such that you feel confident in removing 4% per year, your portfolio will really generate 3% for you. But maybe she'll do such a better job that she says that you can take 5% per year? For comparison, my wife and I paid a fee-only fiduciary $1500 for a comprehensive plan. It includes portfolio suggestions, but not ongloing portfolio management.
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have gone enough years to freely withdraw from the Roths (five years),

Big tangent here but I've always wondered if one wants to shorten the five year window, if one could open and fund a Roth (even when not qualified to do so) with just $1 long before retirement. You would be penalized $0.06 for the ineligible contribution (every year) but it would start the five year clock.

Anyone have any experience with this?
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Big tangent here but I've always wondered if one wants to shorten the five year window, if one could open and fund a Roth (even when not qualified to do so) with just $1 long before retirement. You would be penalized $0.06 for the ineligible contribution (every year) but it would start the five year clock.

And when you round-off to the nearest dollar, that $0.06 disappears. Cool.

Big danger I see would be when you take advantage of the 5-year clock, the IRS then decides that because you funded it with ineligible money you didn't *really* have an established Roth. And then hit you with taxes & penalties that you thought you had cleverly avoided.

Best to only start a Roth with a valid contribution. BTW, this is what I told all my kids to do. Open it with even only $100, then it's there if you should ever need it. Always thought that might be a good way to accumulate a house down-payment fund.
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BTW, this is what I told all my kids to do. Open it with even only $100, then it's there if you should ever need it. Always thought that might be a good way to accumulate a house down-payment fund.

I helped my kids open Roth IRAs when they were about 11 or 12 years old and earning money pet-sitting and baby sitting. When it is such a small amount, about the only alternative is to open it at a bank or credit union and stick it in a money market. That's what they did, and when they had enough to meet the minimum at Vanguard, they put it in an index fund, and then put their contributions there.

However, I told my kids that this money was for retirement. I do not consider it a great way to accumulate for a house down-payment because that seems to short-change retirement, particularly with so much time on their side when they start young. With limits on what can be saved in a Roth IRA, I have always recommended also saving in a taxable account, and that would make a great house down-payment fund.
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{{Open it with even only $100, then it's there if you should ever need it. Always thought that might be a good way to accumulate a house down-payment fund. }}

I don't know if I would recommend a Roth IRA as a way to accumulate a house down payment. That is an expense that is likely to occur and will hurt your retirement.

In contrast, when my wife and I made relatively little as grad students, we used our Roth IRA as an emergency fund for true emergencies. Fortunately, we never had to pay for an emergency so we got to keep those contributions in the Roth for our retirement. Using a Roth this way works because if there is no emergency, then we got to make a contribution for that year. Also, if you miss out on contributing a given year, you can never make it up.

c
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However, I told my kids that this money was for retirement. I do not consider it a great way to accumulate for a house down-payment because that seems to short-change retirement, particularly with so much time on their side when they start young.

I can't really remember but I think each of the kids may have considered the $10,000 exception when they bought their houses. My younger son isn't here at the moment but he might have used it for his first house - I can't remember. He sold that house a few years ago and the proceeds have been in fairly liquid accounts. He's just put a contract on another house. His Roth is pretty healthy no matter what he did and he has maxed out(pun semi-intended) all his retirement opportunities along with pretty much heading toward a pension as well.

For me, using the 10K from a Roth is in the "it depends" category. In fast moving real estate markets and/or a healthy savings(for whatever reason) plan, it may be a good choice. YMMV.
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Wasn't the original post about a strategy for being able to withdraw money from a Roth without getting hit with the penalty? That's what I responded to. What to do with that money is a separate and distinct topic.

While an IRA, either regular or Roth, is nominally a *retirement* account, there's nothing wrong with using a Roth for a different purpose if there is an advantage in doing so. Plenty of things get used for a purpose which is completely different from its original stated purpose. You can use a screwdriver as a hammer.
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So, if you converted your IRAs to Roth IRAs while you were in a low tax bracket, and have gone enough years to freely withdraw from the Roths (five years), your taxable income will be low.

Your taxable income may be low, not will be low.

PSU
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