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I'm 24 years old that just got my first bonus from work with which i plan to start my brand new ROTH IRA. Until now I haven't dealt much with financial institutions other than a bank, so i have a few questions.

I looked at different places to open my IRA and they all have all sorts of complicated fee things. Like vanguard has a fee for having less than 5k in a fund, fidelity has custodial and minimum balance fees in certain cases (and i can't find a description of those cases). So what are the important numbers/fees to look for? What is the best place to open an IRA in your opinion and why? Is there a place that compares all these financial institution in any sort of objective way?

I plan to contribute the max mostly into index funds, and i want a company that offers me good choices, and at the same time doesn't charge me an arm and a leg in commisions, custodial and minimum fees.

TVK
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Management fees are a big killer to return, and those fees tend to be lowest at Vanguard. Vanguard is nice to deal with and has an excellent array of funds. Ask then about various retirement account fees. I think they may be waived in some circumstances. You might start with their total stock market fund and diversify from there as your portfolio grows. The Couch Potato portfolio advocated by Burns is only total stock fund plus total bond fund; the REIT index and international stocks can be added for diversification as your portfolio grows.

db
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I have experience with Fidelity and TD Waterhouse. I recommend the latter.

They have handled our KEOGH, IRA, ROTH IRA, and Jt Tenant accounts for years for no fees and low commissions. Our broker is unobtrusive, but our 'go to' guy when we have difficulty; twice when our internet provider was down, he made our transactions for us at the 'online' commission ($11.95)rather than the 'broker-assisted' cost ($30).

He has helped us with other oddities, and never pressured us to buy/sell anything -- altho he did have an advisor look at one of our accounts when we asked for some suggestions.

I couldn't be happier with their service.

Fidelity? I'm still waiting for the forms that I called and asked for two months ago. And they charge $75 to make a trade. Online. Ouch.

Regards,

Alice of the frogfarm
(who for family reasons has to maintain the Fid account a bit longer, otherwise 'adios, amigo')

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Fidelity? I'm still waiting for the forms that I called and asked for two months ago. And they charge $75 to make a trade. Online. Ouch.

Seems you have a distinct bias mentioning only this piece of information.

That's for funds that aren't in their No-Transaction-Fee selections. There are plenty in that selection, so you should never need to pay the $75. Though yes, it's ridiculous. I think it's just more of an incentive to force people to use the NTF funds, and thereby force companies to join the NTF network.

Stock trades are anywhere from $8 to $20. But the OP said he was mainly interested in funds.


For your situation, Vanguard sounds like a very good choice. The minimums on IRAs are less for the funds and I believe for the IRA they may waive the account fee at only $500 or so (ask). The only problem is all their index funds have a $10K minimum, or else it's $10/year.

But Fidelity doesn't allow their index funds without $10K period. No option to pay a fee, you just can't be in them. Athough they may have index funds by other companies in their NTF network will lesser minimums (and higher expense ratio).


Such is the pain of a 'small' investor, which only a few K to invest. One good news, is as of January 1 you'll be elibile to put yet another $4K in a Roth for 2006, so you can begin to work your way up to levels that cause less problems :)
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For your situation, Vanguard sounds like a very good choice. The minimums on IRAs are less for the funds and I believe for the IRA they may waive the account fee at only $500 or so (ask). The only problem is all their index funds have a $10K minimum, or else it's $10/year.


From the Vanguard site re IRAs :
For most Vanguard funds, a minimum initial investment of $3,000 per fund to open a Roth IRA.
No enrollment, transfer, or advisor fees.
Low expense ratios that vary by fund.
$10 annual custodial fee on each fund in your Roth IRA with a balance of less than $5,000.

rad
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$10 annual custodial fee on each fund in your Roth IRA with a balance of less than $5,000.

Huh, well, I looked and that doesn't seem to be just for index funds either, which is the case in a taxable account (and the number is $10K).

Call them and ask them when in the year the fee is assessed (let's say, December 15 - though, they may not be able to answer so specifically). So put your $4K in after that for 2005 (you have until April 15, 2006), and just make sure to get another $1K or $2K in before that time next year (hopefully, you'll have another full $4K in).

Given that, you'll have to go with only one fund, so a 'total market' kind of fund (but, of course, indexes still have the $10K minimum). This is all if you decide to go with Vanguard. While they're an excellent choice, by no means do I feel any one decision is the only right one.


Let's keep the feels in perspective though. $10 on $4K is 0.25%. Add that to most Vanguard funds and you're still below the industry average.
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Call them and ask them when in the year the fee is assessed (let's say, December 15 - though, they may not be able to answer so specifically). So put your $4K in after that for 2005 (you have until April 15, 2006), and just make sure to get another $1K or $2K in before that time next year (hopefully, you'll have another full $4K in).

Given that, you'll have to go with only one fund, so a 'total market' kind of fund (but, of course, indexes still have the $10K minimum). This is all if you decide to go with Vanguard. While they're an excellent choice, by no means do I feel any one decision is the only right one.


You could use a discount broker to buy ETFs that mimic the index funds until you build the account large enough to avoid annual fees at Vanguard. When it is large enough, you could transfer the IRA to Vanguard.

IF


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$10 annual custodial fee on each fund in your Roth IRA with a balance of less than $5,000.

The low-balance index fund fee is in addition to the custodial fee on each fund. So, if you're only invested in 1 index fund, and your Roth IRA balance is less than $5,000, you pay $20/year just to be in that one index fund.

This is what I don't like about Vanguard, they nickel and dime small investors to death with their myriad fees!

I would check out Fidelity's fees, as I think they might actually be cheaper in the OPs case. They advertise their IRAs as "No Fee IRA", so I don't believe there is a 'custodial' fee. In addition, I know their Spartan S&P 500 index fund has an ER of .10, lower than Vanguards. I don't know if they have index funds that will match the OPs other choices though.

As to some other funds, I grabbed this from their website:

Fidelity may deduct a small balance maintenance fee of $12.00 from a fund balance with a value less than $2,000. Fund positions opened after September 30 will not be subject to the fee. This fee will not be deducted from fund positions opened after January 1 of the calendar year if those positions use regular investment plans. Refer to the fund prospectus for details.

Once the OP has over $10K in the IRA, he could then consider transferring it to Vanguard.

2old
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....then transfer the funds....

Lots of companies now charge a transfer fee of $50 or more to close an IRA and transfer it to another company. It might just be best to pick who you want be with long term even if there are a few fees the first couple of years. Some of the companies may also look at other accounts that you have with them so if you have your emergency fund in a money market account at the same place, you may be able to avoid some fees.

I have also heard some grumbling about Vanguards customer service having gone downhill and when I was trying to open an account with them I had a question about how to endorse a check I had received that was made out to me(not a third party check). After talking with a supervisor, the best answer that I could get was to just send them the check and if their processing department didn't like how I had endorsed it, they would just mail it back to me. (What would I do with a check endorsed to Vanguard?) Thanks, but no thanks; I opened an account with Fidelity with that check.

Greg
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So what are the important numbers/fees to look for? What is the best place to open an IRA in your opinion and why? Is there a place that compares all these financial institution in any sort of objective way?

Management fees are a big killer to return, and those fees tend to be lowest at Vanguard.

Would that this were so. I find Vanguard's expenses to be constrictive for new investors. You can purchase their low expense funds but your account maintenance fees take a chunk out every step of the way for at least a couple of years.

I would refer you to Scottrade, where there are no account maintenance fees. Yes, you would have to pay $17 to buy a Vanguard fund, but there are a lot of other funds out there that track indexes and have comparable costs that do not carry transaction fees. If you wish to branch into ETFs or equities, you can do so for only $7 a trade, market or limit.

Fuskie
Who notes that Scottrade is a self-directed discount brokerage but thinks if you stick around Fooldom you will learn how to intelligently direct your retirement investing...
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Since when has Fidelity started charging $75.00 to make a trade? Do you have an assigned financial counsellor with Fidelity. If you manage your own assets, the trading charges at a maximum are $19.95.

Donna
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Since when has Fidelity started charging $75.00 to make a trade?

Perhaps frogfarm was referring to mutual fund trades. Fidelity charges $75 for no-load non-NTF mutual fund purchases (nothing for sales).

Ken
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when I was trying to open an account with them I had a question about how to endorse a check I had received that was made out to me(not a third party check). After talking with a supervisor, the best answer that I could get was to just send them the check and if their processing department didn't like how I had endorsed it, they would just mail it back to me. (What would I do with a check endorsed to Vanguard?) Thanks, but no thanks; I opened an account with Fidelity with that check.

I've had IRAs and a brokerage account with Fidelity for many years, and have been very happy with them. After hearing so much about how low-cost Vanguard is, two years ago I decided to open a brokerage account with them to 'test the waters', as in a few years, when I retire and roll over my 401K, I will have to decide where all of my retirement accounts should be. I use the Vanguard account mainly to hold tax-efficient index funds.

Although Vanguard has made no glaring errors, and I've had very few contacts with their customer service, I still like Fidelity better overall. Whenever I have needed them, Fidelity's customer service has been outstanding.

I was quite peeved when Vanguard charged me the $10 index fund fee because I was holding less than $10,000 in a particular fund, even though I had well over $50K in the account. Turns out that that particular fee is not dependent on the amount in the account. I have never had to pay a dime to Fidelity in fees (although I am careful to not break the short-term trading rules).

I'm also not happy with how Vanguard does some of the small stuff. For example, there have been some instances when I log in on the first of the month (which might be a holiday or Saturday), and Vanguard has not yet posted the monthly dividends to the account. This has never happened at Fidelity. I like to do my monthly investment reconciliation of the first of every month, and this is annoying.

Also, in several areas on their website they list their funds with only the names and not the ticker symbols. I find this very confusing because I know what the ticker symbol is for the funds I hold, but I don't necessarily know the name. And since some of their funds are so similar, it's hard to tell from the name which is the one you own.

Overall, based on my experience so far, I'll be going with Fidelity when I retire.

2old

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Well I think I'm going with vanguard. Here is my thinking, so please correct me if I'm missing something.

Vanguard has a custodial fee for funds with less than 5k in them. However it's only checked in June or December (it would be june for me), so I can beat that if i deposit 4k this year and then another 1k before june for 2006 tax year. Also the custodial fee is not part of the contribution, so i can contribute the full 4k and then pay the $10 custodial fee. This is nice because 4k limit is so small, so I want as few fees as possible augmenting it to make it even smaller.

Index funds have fees in Fidelity too. I know that they go away with 50k in Fidelity accounts, but i'm nowhere near that.

I have a 401k with Fidelity so I figure this will give me a nice contrast, so if one has service much worse than other, I'll have a nice frame of reference to recognize it and switch.

Oh and as a side note, when I called Vanguard to ask them questions, I got the best customer service ever. The guy spoke good english, answered every question clearly, as opposed to just reading the standard answer from a book (no matter how far away from your question it is), and even pointed out how to avoid some fees. Is this normal in this industry, because I think I could get used to it.

TVK

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