Custodian Or Self Manage?

[Guest mrcharols]

I am 56, single, plan to retire in 5 1/2 yrs and it looks like my taxable income then will be sigificantly higher than it is now, so I'm thinking that I should cut back on my tax-defferred 457 account and get a Roth started. I have Scott Trade and Edward Jones accounts but with the investigation I've done it appears that the fees charged by using a broker would greatly decrease my return if I contribute monthly.

I'm wondering if I should just pick a fund family and invest directly within it. I would like to get this done before April 15 so that the time clock for withdrawal would revert to Jan 1, 2005.

Any information or suggestions (Including experiences with either option) will be appreciated.

Thanks

[John G]

Couple of points:

1. You can always take out contributions at any time without penalty.

2. It also seems likely that you will be able to take withdrawals of any kind based upon age at what you said might be your retirement age.

3. Neither 1 nor 2 makes a lot of sense if your income (you said tax rate) will be higher in retirement - I assume that means you will have more income at retirement then you currently have. Assuming that you are not living beyond your means... won't you have more money in retirement then you do now?

The current max for you is $4000 plus $500 for the "make-up" provision. That means you are likely to be contributing less than $30,000 over the next six years. You mentioned "fees", but it is not clear to what you are referring. If you mean commissions, I don't think you will be making very many transactions. If you are talking mutual funds - no loads don't have commissions. If you are talking annual fees for a custodial account - they are not very large, are often waived after your assets exceed 5/10/20K, or if you do a monthly contribution program that taps into your checking account.

A reasonable approach is to talk to a couple of custodians about starting a monthly Roth contribution that will automatically go into one general purpose no load mutual fund. Or, talk with a mutual fund family directly. This approach gives you dollar cost averaging and often will have ZERO fees and certainly ZERO commissions.

What kind of mutual fund you select would depend upon where you have placed your other funds, your investment time horizon (probably still more than a decade) and risk tolerance.

Post again if you have additional questions.... I had to make some assumptions in this response.