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I was planning to open a new Roth account with Vanguard. I already have one with Scudder but the fund performance with Vanguard seems to be a lot better, specially with indexes. Here's the catch. Vanguard wants $30 per year "maintenance fee" for me to open 3 $1000 funds (my 2002 contribution). This would be for 3 years until my annual contributions or earnings boost the balance over $10k. Essentially, my investment will be down $90 over 3 years before I even get started.

1) How does this benefit anyone but Vanguard?
2) Is there a Foolish justification for doing this?
3) Is there a better alternative?

Foolishly Frustrated...

David
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If you want, you can open a Roth account with Scottrade. They have no fees on their IRA's and you can get the Vanguard funds(along with others) with out the fees. Check out the discount brokerage board for a discussion on this from the past few days.

Chris
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Vanguard wants $30 per year "maintenance fee" for me to open 3 $1000 funds

Hmm, I don't think you have that quite right, and it looks like it might be even worse than you suspect. From my interpretation of their terms (excerpt below)...

There's the "account maintenance fee" you're talking about, which as I read it is $10/year until you have over $10,000, regardless of number of funds.

Then the "IRA Custodial Fee" which is per IRA fund less than $5000, not per account.

So, overall, it would be:

Account Management: $30
IRA Custodial: $150 (by the time you get $5000 in each fund)
Total: $180

_____________________________________________________

Account Maintenance Fee: Shareholders are charged an annual $10 account maintenance fee, which is paid directly to the fund. This fee is waived for accounts with balances of $10,000 or more.

12b-1Fee: None

Low Balance Fee: The fund will deduct a $10 annual fee if your non-retirement account balance falls below $2,500. The fee is waived if your total Vanguard fund account assets are $50,000 or more. In addition, the low-balance fee does not apply to IRAs and other Vanguard retirement plan accounts.


IRA Custodial Fee: Vanguard charges a custodial fee of $10 a year for each IRA fund account having a balance of less than $5,000. However, we automatically waive this fee if you have assets totaling $50,000 or more at Vanguard, in any combination of accounts (whether in IRAs or not, and including employer-sponsored plans, brokerage accounts, and annuities).



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>>Hmm, I don't think you have that quite right, and it looks like it might be even worse than you suspect. From my interpretation of their terms (excerpt below)...

There's the "account maintenance fee" you're talking about, which as I read it is $10/year until you have over $10,000, regardless of number of funds.

Then the "IRA Custodial Fee" which is per IRA fund less than $5000, not per account.

So, overall, it would be:

Account Management: $30
IRA Custodial: $150 (by the time you get $5000 in each fund)
Total: $180
<<

Interesting. Well, I would take what is in print over what customer no-service person says on the phone. Does not seem like Vanguard is too keen on having people open new Roths with them when it takes a couple of years for the earnings to outpace the fees.

I will take a look at Scottrade tonight.

David
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Actually it's even worse than Barak0 suggests!

The paperwork involved with starting an IRA is EXPENSIVE. Vanguard passes on that cost to you. To minimize fees, start out with only one fund, preferably a fund-of-funds like their LifeStrategy series.

Here is their list of fees, PER FUND:

- OUTSIDE AN IRA ONLY, $10/year if your account balance drops below $2500.
- INSIDE AN IRA ONLY, $10/year (can be paid using money inside or outside the IRA) if the fund balance is below $5000 AND the total funds at vanguard is below $50,000
- ANY INDEX FUND, an additional $2.50/quarter fee, taken directly from the dividends, if the fund balance is below $10,000.

In other words, if you have three index funds in an IRA, each with a balance of $1000, and no other Vanguard assets, you will be paying $60/year in fees.

If you want to have several funds with small balances, it might be better to pick a different IRA provider, and use them until your fund balances are high enough. Remember, there's no penalty to transfer between funds, or to transfer from one IRA provider to the other.
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Just today I emailed Vanguard to see if they charge the maintainence fee and the IRA custodial fee on IRA accounts, or just the custodial fee only (sounds like a double-dip to me).
Haven't gotten an answer yet, but will let ya'll know.
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Just today I emailed Vanguard to see if they charge the maintainence fee and the IRA custodial fee on IRA accounts, or just the custodial fee only (sounds like a double-dip to me).
Haven't gotten an answer yet, but will let ya'll know.


*********************
Perhaps this will help.
http://boards.fool.com/Message.asp?mid=14988801

Two alternatives to these fees are Scottrade and/or TIAA-CREF.

Caat
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It's not a double dip.

IRA custodial fee = fee for filing paperwork with the IRS
Account Maintenance Fee = fee for answering phone calls & emails, and sending you your statement

If they didn't have these fees, they'd have to set the expense ratio higher. Vanguard is admittedly biased in favor of its big customers, mainly because small investors are so expensive to service.
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I got an answer from Vanguard...

The $10 account maintenence fee is waived if the account is over $10,000. Depending on the fund it is paid quarterly or yearly; it cannot be prepaid. (It's deducted from the fund.)
The IRA fee of $10 is paid yearly and can be prepaid by check.
Vanguard does not charge a low-balance fee for IRA accounts.

So that's $10+$10+expense ratio=?

And if you by a Vanguard (or other) fund thru your discount broker, don't you have to pay for the trade?
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Why would you need 3 IRA? Usually, one IRA includes several investments/funds.

If you have one Roth IRA and one traditional IRA, then you do need separate accounts. But if you have 3 investments in a Roth IRA, you need only one account. The balance will add up to $10,000 after you invest for three or four years.
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Author: ddeitch Date: 4/12/02 5:11 PM Number: 34177
Vanguard wants $30 per year "maintenance fee" for me to open 3 $1000 funds.

I think you may be confused here. You can buy as many different funds as you want to inside a single IRA account. There is only a single IRA maintenance fee for a single IRA, no matter how many funds you own inside it.

RK
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Sorry RK. ddeitch is right. The IRA custodial fee is $10 per EACH FUND whose balance is below $5000 (except for your primary money market fund).

Vanguard wants to minimize paperwork it has to do. One way to do this is to coerce new shareholders into owning just one fund.
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I think you may be confused here. You can buy as many different funds as you want to inside a single IRA account. There is only a single IRA maintenance fee for a single IRA, no matter how many funds you own inside it.
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Sorry RK. ddeitch is right. The IRA custodial fee is $10 per EACH FUND whose balance is below $5000 (except for your primary money market fund).


Now I'm confused! Perhaps this helps http://www.indexfunds.com/articles/20001115_VG-TIAA_com_tax_JK.htm

Vanguard charges investors a $10 maintenance fee per year on each index fund with less than $10,000 of assets. There is an additional $10 IRA custodial fee for each fund with less than $5,000 unless total assets are more than $50,000. So one's total fees will amount to either $10 or $20 per fund per year depending on the size of one's investments.
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1) How does this benefit anyone but Vanguard?

Actually...Vanguard itself really does not benefit from this arrangement. These fees are simply a way for Vanguard to make everyone pay the fees they are actually responsible for. Look at it this way...

Person A has $5000 at Vanguard in VFINX; Person B has $50,000 at Vanguard in VFINX. Using just the expense ratio of 0.18%, person A would pay fees of $9 and person B would pay fees of $90. Unfortunately for Vanguard, there was a total cost of running VFINX for these two people of $109 (just accept the premise). Now...which person do you believe should be responsible for paying that $10 fee? In terms of work required by Vanguard, do you think peson B took up 10 times the resources? I don't...and neither does Vanguard. So the fee passes to the person that has essentially underpaid.

Now...let's change the operating cost for Vanguard and say it only cost them $100 to run the fund for these two people...but person A still pays the $10 fee and they take in $9 extra. Vanguard makes out great, right? I mean, they pocket $9 for nothing. Well...no. That $9 would actually be placed back into VFINX increasing the NAV of the fund.

Vanguard does not strive to make a profit on the operation of the mutual funds...so any fees and expenses received from shareholders above the operating expenses (including management fees, trading costs, etc.) is returned to the mutual funds. It really is a great system for the investors...especially the big guys, but it is even good for the little guys if you look at the total fees paid over a 10-year period of relatively focussed investing (only 2-3 funds).

Hope that clears some of their thinking up a bit.

ACME
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[i]If you want, you can open a Roth account with Scottrade. They have no fees on their IRA's and you can get the Vanguard funds(along with others) with out the fees. Check out the discount brokerage board for a discussion on this from the past few days.[/i]

If I set up an IRA through Scottrade, or any other discount broker, then I the fees that Vanguard charges won't apply to me? How does that work? Does the broker eat the fees? I would have imagined that purchasing shares of the fund through a broker would have left the original fees in place, in addition to the fees incurred by going through a broker (if any).
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If I set up an IRA through Scottrade, or any other discount broker, then I the fees that Vanguard charges won't apply to me? How does that work? Does the broker eat the fees?

Some brokers agglomerate all their customers' buys and sells of the mutual fund and hold it all in one account. Then they keep track internally of which customers own pieces of that account. I reckon that Scottrade has so many Vanguard-using customers that Vanguard doesn't charge Scottrade any fees.
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