IRA MRD fees?

[explanade]

My folks have IRA accounts as well as taxable assets with Fidelity, with their asset management services.

I've told them for years to move to Vanguard and stop paying management fees.

But they only got religion because they consulted with another asset management firm who told them Fidelity is charging too much fees and the performance isn't that great.

This other firm is Chase, so I'm skeptical their fees would be much less.

I took a look at their accounts and it's a mess. They have dozens of different stocks and funds, mostly the former. They break the account up into trusts besides the IRA accounts and within each are individual stocks, some with minimal holdings (like market value of $10).

So looking through the statements, it's difficult to track all the activity. For instance, the annual investment report for last year is 100 pages, mostly of all the trades they've done on the account.

And throughout the statements, there are management fees deductions.

One thing gulling is that next to the IRA MRD deduction, there is a deduction of .0064%, which turns out to be more than 10% of the MRD itself.

I don't know if it's the kind of investments which trigger this fee or they're just showing their overall fees allocated to different parts of their assets.

But I can't believe other IRA custodians would charge a fee for MRD payments, would they?


In any event, it's a mess and unwinding it would be very difficult, because of the sheer number of individual stocks and complicated account structure. That must be deliberate.

My folks probably never questioned it because the value of their assets have steadily gone up in the last 10 years but then again, if you're invested in the market, how could it not?

They're in their 80s and the AA is 74% domestic and foreign stocks, 19% bonds. That was one big red flag that Chase pointed out to them.

I see that Vanguard has an option to move assets over from another financial firm. But I don't know if it even makes sense to move dozens and dozens of individual stocks over to a VG account.

If nothing else, VG wouldn't charge them fees or wouldn't charge as high a fees for maintaining them. But if they wanted to convert them over to VG funds or ETSs, they can't avoid cap gains either way, I would think.

 

[bingybear]

way too much going on in this post and some things don't make sense.

One thing gulling is that next to the IRA MRD deduction, there is a deduction of .0064%, which turns out to be more than 10% of the MRD itself.

If there is a fee of 0.0064% and the fee is more than 10% of the MRD. At a bit over 70 the MRD would be about 4%. 10% of 4% is 0.4% or a multiplier of 0.0040.... but not 0.004%. Could you have added a % sign? Was this withholding/fee taxes being withheld? Just a thought.

You said there were extra accounts like trust accounts. Did your parents set up trusts and fund them. This would likely have been done with a lawyer. There may be reasons for setting these up based on their estate plans. If this is the case, VG would have to set the same thing up.

Are your parents using Fido's management or are they using an outside advisor that uses Fido as custodian? Figure out the real situation before jumping.

 

[Koolau]

I suppose the good news is that your parents have assets and they're still growing. Unfortunately, it sounds like they don't listen to you. At some point, you have to let them "live" their own lives OR get them to sit down with you and sort out some kind of strategy with you. Once they have a real strategy, the details will just take some drudgery to work through. Good luck. Been there done that so YMMV.

 

[explanade]

I don't know about the calculation of the MRD itself. I'm calculating the management fee figure versus the amount of the MRD (>10%) and versus the amount of the IRA account itself (<1%).

I haven't taken an MRD myself yet. So in a standard IRA, when you take MRDs, does the custodian impose any kind of fees typically?

 

[explanade]

I suppose the good news is that your parents have assets and they're still growing. Unfortunately, it sounds like they don't listen to you. At some point, you have to let them "live" their own lives OR get them to sit down with you and sort out some kind of strategy with you. Once they have a real strategy, the details will just take some drudgery to work through. Good luck. Been there done that so YMMV.

Unfortunately, I may have to deal with it when they pass on.

I don't need or want any of their money. But my sisters can't handle it so they expect me to handle it.

 

[Koolau]

Unfortunately, I may have to deal with it when they pass on.

I don't need or want any of their money. But my sisters can't handle it so they expect me to handle it.

Heh, heh, you could charge your sisters a fee for your time. Seriously, I actually felt "lucky" that neither my parents or DW's parents had any money when they passed. My sister couldn't have handled it and it would have fallen to me. As it was, I had to deal with the lawyer to petition for no probate and dispose of personal belongings.

 

[braumeister]

in a standard IRA, when you take MRDs, does the custodian impose any kind of fees typically?

Not that I've ever heard of.

 

[aja8888]

But I can't believe other IRA custodians would charge a fee for MRD payments, would they?

I've been pulling RMD's for 4 years out of Schwab & Vanguard and have never been charged a fee of any kind.

 

[Blue Collar Guy]

I find their AA of almost 80/20 admirable. They made your sisters big money in these last few years.

 

[Koolau]

I've been pulling RMD's for 4 years out of Schwab & Vanguard and have never been charged a fee of any kind.

Yeah, I forgot to mention that my 410(k) custodian does not exact a fee for RMDs (unless it's already baked in the cake.) YMMV

 

[Texas Proud]

I do not know why it would be so difficult to fix the problem....

You state it is an IRA.... so SELL everything and move the cash to Vanguard... then buy what they need...


I will only charge you 1% for the advice

 

[redduck]

I've been pulling RMD's for 4 years out of Schwab & Vanguard and have never been charged a fee of any kind.

Let me add Scottrade to the list that doesn't charge.

 

[explanade]

I do not know why it would be so difficult to fix the problem....

You state it is an IRA.... so SELL everything and move the cash to Vanguard... then buy what they need...


I will only charge you 1% for the advice

No it's not all in an IRA.

Like I said, the account listed trusts and other accounts. Maybe they set up living trusts or something.

So selling stocks in an IRA account isn't taxable?

I better double-check their accounts. Maybe a lot of it isn't taxable.

 

[OldShooter]

I have heard good things about Fidelity so I am a little surprised at your report, but with asset managers in general what I have seen is hideously complicated portfolios with the intent of making the customer think investing is complicated. Job security for the manager and extra cost for the customer.

Re AA 74% + 19% doesn't make 100%, so 6% cash? That may be an entirely sensible AA for them if the bonds and cash are 3-5 years or more of cash needs, enough to weather a big market hit. Then the AA really is the kind of AA that might be appropriate for much younger heirs. IMO the formulas based solely on age are silly because they don't consider the size of the portfolio relative to the owners' needs and relative to the purpose of the estate.

Re Chase, ack! IIRC both Fidelity and Schwab have robo-managed portfolios with a human touch option at low cost, like 25bps. I think I saw that Betterment is offering this type of thing too. Absent that I would try to convince my parents to instruct the manager to limit the equity portion to no more than six mutual funds, none of which have fees higher than 50bps. No loads, no 12b1 of course. The fee limit will drive him mostly to passive funds, which is where they should be anyway.

Your attention to detail and identifying that small fee is admirable, but a portfolio that is a train wreck like you describe is probably costing them far more money. I would concentrate on the portfolio first.

 

[explanade]

No not much cash I believe, some kind of short term investments for most of the rest.

I think if they want to withdraw some of it and move over to VG, it could be a taxable event.

 

[Another Reader]

Fidelity does not charge for IRA distributions. Check the statement to see if Fidelity is the custodian or if they manage the accounts. A complicated mess as you describe would likely have been created by a financial "adviser" using Fidelity as the custodian. Trust accounts were likely recommended by an attorney.

Chase is a worse choice. Much worse.

 

[Clone]

If your folks do not want to manage the account themselves, then there is a long line of folks out there that will be willing to manage it for them, and of course they will be less expensive than that mean old Fidelity.

Q1. Are they willing to manage their own accounts in exchange for significantly lower fees? Moving from one manager to a different manager is only changing who gets the management money.

Q2. Do they have a problem with Fidelity? A self managed account at Fidelity is very similar to a self managed account at Vanguard, or any of several other firms.

Q3. Is there a reason for the complexity of the accounts? Are there legal trusts set up that require the different accounts? Or is your concern about the number of stocks or funds in each of these accounts? If there is a massive amount of trading, it sounds like the FA is churning the account. Refer to Q1.

I don't think the problem is with Fidelity, the problem is with using a manager that receives fees. The complexity may be something that the FA created, or it may be something that your folks created. Moving from one FA to a different FA may be moving from an account churner to a fiscally responsible advisor, or it may simply be moving from one churner to another churner.

I have my money at Fidelity, and it is all self controlled. The MRDs are easy, the accounts are simple to understand. When I log on, I see a number of different accounts, because of where they came from. I have my 401K, my HSA, my ROTH, and an inherited IRA. Within those accounts, each has a portfolio. The portfolio can be as simple or as complicated as I want to make it. I could easily add a few more accounts if I wanted an after tax account, or if I transferred my 403b from a different place. Or if I wanted a vacation savings account.

 

[bingybear]

I don't know about the calculation of the MRD itself. I'm calculating the management fee figure versus the amount of the MRD (>10%) and versus the amount of the IRA account itself (<1%).

I haven't taken an MRD myself yet. So in a standard IRA, when you take MRDs, does the custodian impose any kind of fees typically?

Usually a management fee is for managing the account, not making the MRD distribution.

 

[redduck]

My folks have IRA accounts as well as taxable assets with Fidelity, with their asset management services....

I took a look at their accounts and it's a mess. They have dozens of different stocks and funds, mostly the former. They break the account up into trusts besides the IRA accounts and within each are individual stocks, some with minimal holdings (like market value of $10).

So looking through the statements, it's difficult to track all the activity. For instance, the annual investment report for last year is 100 pages, mostly of all the trades they've done on the account.

And throughout the statements, there are management fees deductions...

In any event, it's a mess and unwinding it would be very difficult, because of the sheer number of individual stocks and complicated account structure. That must be deliberate.

My folks probably never questioned it because the value of their assets have steadily gone up in the last 10 years but then again, if you're invested in the market, how could it not?

They're in their 80s and the AA is 74% domestic and foreign stocks, 19% bonds. That was one big red flag that Chase pointed out to them.

I see that Vanguard has an option to move assets over from another financial firm. But I don't know if it even makes sense to move dozens and dozens of individual stocks over to a VG account.

I recently became semi-involved with this kind of situation with a friend. He showed me his nifty quarterly investment summary his FA sent him. Very hard to follow. He currently owns a few investments bought through his FA that he is unable to bring over to Vanguard (or brokerages like Vanguard). Unwinding his portfolio to transfer it would take time and effort. I doubt your 80-year old parents would be up to the task. Plus, it sounds as if they don't want to or are overwhelmed by it. My friend appears to be overwhelmed.

I called Vanguard and we went over what was in my friend's portfolio--some of it could be easily transferable; some not transferable. There are no trusts involved.

I suggest you call Van, Schwab or Fidelity and speak to a retirement account specialist. Perhaps, your parents could easily move a portion of their portfolios and leave the rest that can't be transferred (I just made that up). Once again, speak to a rep as they work on this stuff all day long.

As for my friend: the argument that almost won him over was that his advisor's fees are the biggest expense that he has.

 

[explanade]

If your folks do not want to manage the account themselves, then there is a long line of folks out there that will be willing to manage it for them, and of course they will be less expensive than that mean old Fidelity.

Q1. Are they willing to manage their own accounts in exchange for significantly lower fees? Moving from one manager to a different manager is only changing who gets the management money.

Q2. Do they have a problem with Fidelity? A self managed account at Fidelity is very similar to a self managed account at Vanguard, or any of several other firms.

Q3. Is there a reason for the complexity of the accounts? Are there legal trusts set up that require the different accounts? Or is your concern about the number of stocks or funds in each of these accounts? If there is a massive amount of trading, it sounds like the FA is churning the account. Refer to Q1.

I don't think the problem is with Fidelity, the problem is with using a manager that receives fees. The complexity may be something that the FA created, or it may be something that your folks created. Moving from one FA to a different FA may be moving from an account churner to a fiscally responsible advisor, or it may simply be moving from one churner to another churner.

I have my money at Fidelity, and it is all self controlled. The MRDs are easy, the accounts are simple to understand. When I log on, I see a number of different accounts, because of where they came from. I have my 401K, my HSA, my ROTH, and an inherited IRA. Within those accounts, each has a portfolio. The portfolio can be as simple or as complicated as I want to make it. I could easily add a few more accounts if I wanted an after tax account, or if I transferred my 403b from a different place. Or if I wanted a vacation savings account.

They may have set up trusts of some kind and then moved it to Fidelity from another institution.

But yeah, within each grouping, some called trusts, the IRA accounts and so on, there are dozens of stocks and funds.

One grouping I recall is "subset of S&P 500 non-taxable" or something like that.

Maybe within trusts, they can't even liquidate for the purpose to converting to VG funds without paying fees or penalties or taxes.

The other thing they told them is that they have other sources of income so their portfolio didn't have to generate income for them. So they have holdings in tech and Internet stocks and things like Sirius (which actually is a huge gainer for them).

 

[Texas Proud]

If it is a trust they set up then there is a trust instrument saying what it can and cannot do... get these ASAP.


I would also ask what they wanted to accomplish with the trusts....


Be aware that these could be 'trusts' that they are invested in and not a trust they set up... you can just sell those...

 

[explanade]

Probably some kind of living trusts they set up here in CA with eye toward making leaving assets to heirs clear.

 

[Clone]

It is one thing to establish a trust but a whole nuther thing to maintain it. There have been many families that had set up a trust, but never respected the rules regarding how to maintain it, document where the property and money is, file paperwork, etc. When it come time to 'protect' something, the trusts would fall apart because the rules were not followed.

 

[euro]

No it's not all in an IRA.

Like I said, the account listed trusts and other accounts. Maybe they set up living trusts or something.

So selling stocks in an IRA account isn't taxable?

I better double-check their accounts. Maybe a lot of it isn't taxable.

So, whatever is in an IRA, you can sell and move tax free ( make sure it's a direct transfer to the new custodian or pay attention to time limits). The assets in taxable accounts (as well as those in trusts), you can very likely transfer " in kind" to avoid taxes, especially the individual stocks.

All that said, Fido fees are very reasonable and have been moving closer and closer to VG fees (I have had accounts with both for many years), so I'm pretty confident that you could appropriately streamline the situation within Fidelity too.

 

[bingybear]

first things first.

Do your parents want you involved with their finances? Are you trustee on their trusts? Are they not competent to manage their financial life?

I much younger than your parents, ... maybe closer to your age, but I would not want my kids messing with my finances at this point.

It sounds like the first problem is that you don't understand what is going on. Talk with your parents and see if they will allow you to learn what is really happening. With their approval (in a way that fido and the advisor can legally verify), I'm sure fido and the advisor can explain the details. Or maybe your parents can tell you themselves.

I have a relative that has investments with a real high cost broker. I moved some $ into a similar account so I could see what they were doing. They are expensive but do invest soundly and without major conflicts of interest. I pulled my $ out, but her's are still there. She is comfortable with them. My take is that her comfort is worth paying a higher fee than I want to. If I tried moving it and the market tanked, it would be all my fault. Plus I have no authority to make a change by myself. At this point she is the only one that has that right. When she is not competent the someone may be able to make a change, but I'm not on that list (relative is an in law.)