Transfer from AG Edwards to Vanguard

[Guest CraigHa]

Hello,

What I want to do....

I would like to move IRA money from an AG Edwards account that my wife and I have. We each have a Roth Ira and a Traditional Ira.

I would like to move the money to the Vanguard, specifically the Vanguard Target Retirement 2040 fund.

What I'd like to know from you....

Will AG Edwards charge me a fee for the money leaving them?

Does it make sense for us to open four(4) Vanguard Target Retirement 2040 funds?(A Roth and Traditional for me and a Roth and Traditional for my wife). That doesnt seem very diversified!!

I would eventually like to convert the traditionals to Roth's but haven't pulled the trigger due to the taxable gain I'll have to pay.

Any insight would be greatly appreciated.

Merry Christmas!

[Guest allancoleman]

Hello Craig ,

Having just moved a large amount of money from my Schwab Roth account to a Vanguard Roth account , let me congradulate you on your selection of a new custodian . I absolutely love my choices of Vanguard's " Admiral " class shares mutual funds . My Admiral class GNMA fund ( VFIJX ) only cost me 0.11% a year or 1.1% for a whole ten year period . Don't get much cheaper than that .

" Will AG Edwards charge me a fee for the money leaving them ? " . Probably , but Vanguard can give you a good idea what those fees might be . And I would let Vanguard handle all the details on your transfer .

As for your " taxable gains " converting money from your tradidional IRA to a Roth , you're subject to paying taxes on the dollar amount of your traditional IRA on the date you convert that amount to a Roth . They'll cut you a 1099 for that conversion amount and you pay regular income taxes as if it were a distribution on that year's income taxes .

As for whether your " Target " funds are a suitable investment selection for you , I'll leave that answer to others here better able to address that . As far as I can see , you've made a big score just by picking probably the lowest cost mutual fund provider , Vanguard , as your new custodian .

Hope your holiday is safe and that you , and yours , have a better new year .

[Guest CraigHa]

Thanks for the response.

I'm most interested in what AG Edwards will charge. I have Aim Funds and my wife has American Funds. I had a guy from Edward Jones tell me some time ago that it would cost several thousand dollars to move from Aim to say American Funds. I cant even remember why, but I have always felt hostage to these Aim Funds because of that fee. I hope it isnt that much to move to Vanguard. I plan on calling them on Tuesday to see what my options are. Thanks for your time.

[four01kman]

It sounds like you may have purchased "B" or "C" shares, both of which may have "back-end" loads. That means if you sell the funds before a specified period of time, you will have to pay certain charges.

[John G]

Wow. You seem to have been talked into some funds - and you don't understand much about them and what kind of fees you may get charged when exiting them. Boy, I hope you are learning some lessons about asking questions up front and spending some time reading the materials (like a prospectus) before you make a decision.

There are TWO kinds of fees you might be charged.

First, a custodian will often charge a fee when you terminate a Roth or IRA, something like $50 to $100 per account (perhaps 4 fees for you if you have two IRAs and two Roths). Some firms will credit these fees back to you when you transfer your account. For example, Fidelity and Schwab do this if you ask. The funds/brokerages treat the public poorly with these dumb fees... they already ticked you off with apparently bad service, then they ding you to leave. Does you barber, grocer or book store get away with an exit fee?

The second kind of fee can come when you exit a specific investment product which has exit fees. Back end loaded mutual funds fall into this catagory, as well as recently purchased mutual funds. Annuities have surrender charges. I have no idea what kind of mutual fund shares you might have at AG Edwards, but they should be able to explain it to you over the phone. Some of these exit fees are phased out if you hold the investment for many years... like 6%, 5%, 4%, 3% ,2%, 1% and finally none over a six year phase out.

I highly recommend that you dedicate some time to learning more about investing. Especially NO LOAD mutual funds where you will not get trapped by these archaic fee structures. NO LOAD means no commission, not front end or upon termination.

You may want to search on this message board for "Target" to see what I previously posted about Target funds. They may work out just fine for you, but they are basically a gimic investment. The mutual fund industry realized some folks were confused on how to pick funds. The marketing dept. created the Target fund - just buy these and you don't need to think for the next three decades. DANGER DANGER Never ever fall for the "don't need to think". Some of these Target products have layers of expenses upon expenses because they are essentially a umbrella mutual fund that then owns cluster of other mutual funds. One of the supposed benefits of Target type funds is that they automatically move your assets from stocks to bonds and cds as you get older. Anyone can do the same thing once a year with a 5 minute phone call. But when you buy a Target fund, you live by their fixed schedule, which does not take into consideration your assets, health, expected life, etc. You get the "group" rule not your personalized solution.

You brought up the issue of diversification if you have four Target funds. OK, here's a homework assignment. Go to Vanguard websiteand read about the composition of the Target funds. You will find that their assets are spread across a number of mutual funds. Now move to reading about the portfolio of each component fund. These funds have dozens to hundreds of positions, typically covering many industries, and sometimes many countries. That's a lot of divesification. Some folks think if they own four separate mutual funds they are much more diversified. Maybe. One reason they may not is because many of these funds own positions in GE, Microsoft, Marriott, Dell, Intel, Home Depot, and AT&T. To the extend that different funds hold some of the same stocks, you are not getting more diversification. How many funds do you need to own? For some folks, just one general purpose equityfund (not a niche or specialty fund, but one very broad based fund) will do just fine. For example if you own an S&P500 index fund or a "total market" index fund, you own 100s of stocks representing all of the domestic industries and in a global economy, some of those firms have a worldwide reach (Coke in China, Halliburton in the Middle East, Dell in Europe).

If you jump into Target funds because you think they are a solution, then perhaps you are making the same mistake you made when you bought the AG Edwards program. I think you need to read more about your choices and understand how they work.

YOU are the single most important person in the process of making investment choices. Make it your New Year Resolution to spend perhaps 1 hour a month learning more about investing. Ask lots of questons.