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Migrating to lower fee funds..
Old 08-18-2014, 12:55 PM   #1
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Migrating to lower fee funds..

Hi All,

I have accounts at Vanguard and TRowe Price... I know that
many of you like Vanguard, and the fees are noticeably different.

I have about 400k in TRowe funds that have been flagged as
"high fees". ie. 0.5% vs 0.1% in Vanguard. So, the question is
it worth it migrate those over to Vanguard, but understanding that
I'd be realizing taxable gains now ($50k). Or can I avoid that
with identical funds at Vanguard? At what point is that 0.4%
worth the switch?

I am still in a high tax bracket, so, maybe it's worth the wait.
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Old 08-18-2014, 01:01 PM   #2
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There is a write-up on the cost to switch that you may find helpful:
Paying a tax cost to switch funds - Bogleheads

I would at least turn off any automatic reinvesting of distributions at TRP and use the money to invest more cheaply.
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Old 08-18-2014, 01:35 PM   #3
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I have avoided moving some "high fee" mutual funds into VG because of the tax hit. But there are 2 important points to consider:
- 0.5% is still way below average for an actively managed fund, so if you like the fund and it's doing well, you might just keep it
- The tax bite may not be as bad as you think - have you calculated your cost basis? Remember that you've already paid taxes on all of the reinvested dividends and CGs. I ended up cashing out two taxable accounts during the market downturn and even though I had a lot of gains, very little was actually taxable. Another idea would be to hold until the next big market downturn (you know there will be one) and then move to minimize the taxes.

If you do hold, I second LOL!s suggestion to stop reinvesting distributions.
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Old 08-18-2014, 02:26 PM   #4
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I switched from USAA to Vanguard for this reason. In my IRA, I sold the USAA S&P 500 fund and bought VTSAX. In my taxable account, I just moved shares in kind rather than realize gains. I'd rather pay the smaller fee (0.25%) than pay capital gains taxes this year. I'm sure at some point it would be worth cashing out and buying lower fee funds, but I'm also too lazy to do that much math with less than 10% (and shrinking) of my portfolio. Considering that .25% is the highest fee I pay in my accounts, and my overall is <.1%, I'm not worried about it.

So, the answer, as always, is "it depends." But either way, I'd stop reinvesting dividends or adding new funds to TRP fund.
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