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I am currently unemployed. I have about $22000 invested in a 403b that is terminating by the end of this month. So I desperately need help in deciding where to rollover my retirement fund . TdAmeritrade has offered a no-fee Traditional IRA but my money would rollover into just one mutual fund. What are the disadvantages of just one mutual fund? Am I setting myself up for a trap? With my 403b I had 5 mutual funds.
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Fidelity or Vanguard are also options.

No IRA should be restricted to one mutual fund. TD Ameritrade offers far more than one no-load fund.

Are you certain that they aren't arranging for the rollover to be to a "core" fund. Once in a core fund, you can trade stocks or funds as you want.
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LilLady13,

You wrote, I am currently unemployed. I have about $22000 invested in a 403b that is terminating by the end of this month. So I desperately need help in deciding where to rollover my retirement fund . TdAmeritrade has offered a no-fee Traditional IRA but my money would rollover into just one mutual fund. What are the disadvantages of just one mutual fund? Am I setting myself up for a trap? With my 403b I had 5 mutual funds.

I'm pretty sure a TD Ameritrade IRA has WAY, WAY more than 5 mutual funds available. Here is today's list of NTF (No Transaction Fee) open-ended mutual funds offered by TD Ameritrade. https://docs.google.com/viewer?a=v&pid=explorer&chro... This list changes frequently and can be pulled from TD Ameritrade once you have an account. However, TD Ameritrade offers literally thousands of other mutual funds that will only cost you a transaction fee when you add new money or sell out.

It's unfortunate you have only $22K to roll over as TD Ameritrade will add $100 to your account if you roll over at least $25K in new funds. http://www.tdameritrade.com/iraaccounts.html

TD Ameritrade is an excellent general-purpose discount broker. However, not every investor needs a general-purpose discount broker. If you can answer yes to any of these questions, you might need one yourself: Are you planning to own shares of a publicly traded company? Do you intend to buy shares of an ETF or CEF? Do you intend to buy bonds, Treasuries or exchanged-traded debt? Are you considering stock options either for investment hedging or speculation and/or leverage? Do you plan to buy Futures contracts? Are you thinking of trading currencies on the Forex exchange?

If the answer is no and you only want to invest in mutual funds, you might want to just create a rollover IRA account directly with a mutual fund company. Vanguard, Fidelity & T. Rowe Price come to mind. They all have a broad range of product offerings with relatively low cost of ownership.

When I opened my first rollover IRA, mutual funds were about the only low-cost option available to new investors. But that is no longer the case. Even with only $22K, if you are careful you can invest directly with a discount broker and have no more expense than you would find in a mutual fund company. In fact it might be the cheapest route.

Take TD Ameritrade as an example. TD Ameritrade offers over 100 ETFs (Exchange-Traded Funds) that have no transaction fee (if you follow their trading guidelines). Most of these funds have lower expense ratios than their mutual fund counterparts and they will perform just as well. What's more, TD Ameritrade being a proper broker, will let you re-invest any dividends from those ETFs, allowing the purchases to grow instead of having the cash from the dividends sit around un-utilized.

If you're going the brokerage route, beyond TD Ameritrade you might want to consider E*Trade, Scottrade, Fidelity and a host of others. (Though I doubt TD Ameritrade will disappoint you.) To help you decide, you might want look at the Smart Money Magazine annual survey: http://www.smartmoney.com/investing/economy/smartmoneys-annu...

BTW, there are separate boards for discussing both retirement planning and discount brokers ... not that I mind answering here.

- Joel
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I wish you all the luck in finding a new job.
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Thank you so much for the good luck. I know I will soon.
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Thank you very much, Joel for taking the time out to write me such an informative response. You helped me immensely. You gave me more information than I could have possibly gathered on my own with the exhausting prior two days of internet research I was doing. I especially liked that Smart Money annual survey. Very helpful. I saved it in my Favorites. I'm not sure how active I want to get in managing my own retirement plan but I do want to make educated guesses from time to time. And you helped me with the biggest one I've had to make. I chose TdAmeritrade. I was initially under the impression that I could only choose one mutual fund with my total rollover being under $25000. I've since been informed I can still get the $100 later once I bring my money up to that amount. So, again thank you not only for your time but for being so informative. Take care.
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LilLady13,

You wrote, Thank you very much, Joel for taking the time out to write me such an informative response. You helped me immensely. ...

You're welcome.

Also, I was initially under the impression that I could only choose one mutual fund with my total rollover being under $25000. ...

I'm a little worried about you having this kind of confusion. A broker's job - no matter what type of broker we're talking about - is to help you buy or sell something. It's in their interest to offer you more - not less. The fact that you might think otherwise suggests you are pretty naive about the investment world and it makes me wonder if a broker is the right decision.

If you stick with this choice, I hope you stick around TMF to learn more about your investment options. It doesn't make sense to get involved in a brokerage if you aren't going to learn enough to develop your own investment plan as well.

If you feel uncomfortable picking your own investments, Vanguard might actually be the best choice. There you can get into a very good, very low-cost "Target Retirement Date" fund that will serve your interest well without complicating your life. (I actually hold some shares of one of these funds in a taxable account.) While TD Ameritrade does have options like this, they're probably not as cheap and if that's all you wind up buying, TD Ameritrade might not be the best choice...

Finally, I've since been informed I can still get the $100 later once I bring my money up to that amount.

I exercised an offer like that last year at E*Trade. Nice chunk of change that was. E*Trade offers something similar to TD Ameritrade's today: https://us.etrade.com/e/t/jumppage/viewjumppage?PageName=con...

I know from asking that both E*Trade and TD Ameritrade have time limits on these contributions. For TD Ameritrade, you must contribute the $25,000 in total within 6 months of the date you open the account to receive the bonus. (For E*Trade, the limit is 45 days.) If you are out of work today, will making these contributions be practical? Do you have savings you can live off of and still contribute $3,000 to an IRA?

Also remember that if you don't have another existing traditional IRA (TIRA) or some other 401(k) plan to roll over from, your eligibility to contribute to a TIRA is limited by the amount of earned income you have this year. What's more, the IRS caps the amount of DEDUCTIBLE TIRA contributions you can make this year. And if I recall the tax code correctly, you won't be eligible for a DEDUCTIBLE contribution this year simply because you worked for an employer that offered you a 401(k) plan for part of the year. So even if you can contribute, if you have to do it out of taxable earnings for this year it may complicate your income taxes from now on out - something you should at least consult TMF's tax board about. (BTW, you might get around the deductibility problem by converting it all to a Roth, but that could hit you at tax time.)

Hopefully aj485 will chime in... :-)

- Joel
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And if I recall the tax code correctly, you won't be eligible for a DEDUCTIBLE contribution this year simply because you worked for an employer that offered you a 401(k) plan for part of the year.

Sorry, honey - your recollection of the tax code is wrong about being completely unable to make a deductible contribution just for having worked for an employer who offered a 401(k). By being eligible for any qualified retirement plan, even for 1 day, your income is limited to a lower amount (but not eliminated) for making a deductible contribution, but if you are single and your MAGI is less than $56,000 the contribution would still be completely deductible. And a pro-rated contribution can be made if MAGI is up to $66,000. Married limits are a bit more complex, but can be found in IRS pub 590.

Hopefully aj485 will chime in... :-)

Not sure why you didn't just ask while you were posting in the first place. It's not like I was more than 25 feet away. Oh, yeah - you're a guy...... :-)

AJ
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Thank you AJ for chiming in. I appreciate the input from the outside, even if you're only 25 feet away at the time.

Lisa
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Joel,

TdAmeritrade just informed me they will give me the $25,000 portfolio because the amount I contributed is very close to that amount, which I am grateful, I think. Morningstar will be managing my funds at 0.9 percent. The cost will be about $250 annually. That seems a little on the high end. I read the range for a professionally managed account is between 0.5 and 1 percent. You did mention Vanguard was cheaper. I should also now be granted the $100 by TdAmeritrade.

Yes, you're absolutely correct in your assumption of my being naive in the investment world. I much prefer having my funds being professionally managed. But I don't want to pay the highest cost for that. I'd appreciate, once again, your thoughts on this.

Thank you again for your time.

Lisa
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LilLady13,

You wrote, TdAmeritrade just informed me they will give me the $25,000 portfolio because the amount I contributed is very close to that amount, which I am grateful, I think. Morningstar will be managing my funds at 0.9 percent. The cost will be about $250 annually. That seems a little on the high end. I read the range for a professionally managed account is between 0.5 and 1 percent. You did mention Vanguard was cheaper. I should also now be granted the $100 by TdAmeritrade.

Yes, you're absolutely correct in your assumption of my being naive in the investment world. I much prefer having my funds being professionally managed. But I don't want to pay the highest cost for that. I'd appreciate, once again, your thoughts on this.


I don't understand what MorningStar has to do with this. TD Ameritrade doesn't use MorningStar for it's individualized investment advice - it offers services from Amerivest. Ah! I think I see now. This is the "service" you've signed up for: http://www.tdameritrade.com/planningretirement/portfolioguid...

That's actually an automated service offered by Amerivest that simply does quarterly rebalancing of your asset allocation using Morningstar-recommendations for your chosen target portfolio mix. The cost is 0.90% of your portfolio per year. Here's the disclosure document for these plans: http://www.tdameritrade.com/forms/TDA4855.pdf

I never recommend a financial planner. Amerivest appears to be a subsidiary of TD Ameritrade that provides financial planning services. In your case, they're charging you $225/year to do something you can do yourself with just a little research and almost no on-going effort. Despite how it's sold, they are not "looking at your situation" and doing trades "just for you." They just take a fixed asset allocation and periodically re-balance it to achieve a particular goal - and they do that for everyone with that goal. And I'm sure they do it all with a simple computer program. For the most part, those commissions are profit and pay for advertising, sales people and to fatten the CEO's bonus - something he earned by hiring people smart enough to get you to sign up for this service.

There are already mutual funds that do exactly the same thing - but aren't marketed the same way - and they don't charge these fees. Why do you want to pay Amerivest/TD Ameritrade an extra 0.90%/year for this service? You might as well have gone the Vanguard route and invested in a Target Retirement fund. Those are "safe" and well managed following a plan to grow the funds in early years and have them in more stable assets in the later, post-retirement years. There are such mutual funds available at TD Ameritrade, but they tend to be more expensive than Vanguard, but I'd bet they bet the Amerivest equivalents.

Assuming you want to stay at TD Ameritrade and want to have your money "professionally managed" at a really low cost, consider buying a Target Retirement ETF and having dividends reinvested. For instance, if you want to retire in 20 years, you might buy a Target Retirement 2030 fund. There is an ETF for that - the symbol I'd suggest is TZL. It has an expense ratio of just 0.30%/year. You would have been paying more than that just for the expense ratio of the funds Amerivest put you into, not counting their annual commission. But TZL invests in a mix of other ETFs blended in ratios adjusted periodically to achieve the goal stated. And it does it as a single, one-stop purchase that's just as competitive as Vanguard's equivalent mutual fund.

Unfortunately TZL and it's kin aren't in TD Ameritrade's free list; but that shouldn't matter too much if you plan to just buy it and forget it. Instead you'll just pay $9.99 once to purchase shares. Then you should call up a rep to ask them to re-invest the dividends. Then you can just walk away from it until you retire. Any dividends will be rolled back into shares of the fund and I'm pretty sure that in most years you'll beat the Amerivest "managed investments" quite handily because this won't be eating into your gains with hefty fees.

Of course cashing out at retirement could be a different story. If you sell just a few shares at a time, selling this fund could get expensive pretty fast. At that point, you may need to consider selling the entire position and buying a no-transaction-fee mutual fund. Of course if you roll a lot more money into this account over the ensuing years, the transactions fees could become a moot point.

- Joel
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