Self Directed IRA Suggestions

[moguls]

I'll be taking a portion of my pension in a lump sum and I'm looking to set up a self directed IRA. I'd be curious what firms any board members recommend.

Also I have a couple of separate IRAs and was wondering if combining them all together was advisable.

Any thoughts or suggestions would be appreciated.

Moguls
(Still getting into this ER lifestyle)

 

[dory36]

If you have one IRA, your SEPP is locked in until you reach 59 1/2 or 5 years after starting it, whichever is later. No additions to your IRA and no changes.

If you have multiple IRAs, you can designate IRAs 1+2 as the IRA for your SEPP, and leave #3 out of the mix.

You can then continue to add to #3, and can then later start an additional SEPP if you want using #3.

#1 and 2 can be combined and so forth, but can not be mingled with anything else.

Dory36

 

[wabmester]

One minor point that probably doesn't affect anybody here: if you combine a rollover IRA with another IRA, you lose the ability to "roll back" your rollover into another 401k plan, for example.

 

[unclemick]

It wasn't a minor point with me - I've kept the rollover and trad. IRA separate - just in case.

 

[Nords]

Re:  If this isn't confusing enough...

Once you get your money into your IRA accounts, take a look at converting to Roths.

If you ER then you'll go through a prolonged period of low adjusted gross income, which means you could convert your conventional IRA a little at a time to a Roth.

I plan to start this in a few years when my wife stops bringing home the paychecks. Our large mortgage deduction will put us solidly in the 10% tax bracket, and we'll convert enough each year to stay under the 25% bracket. By the time her pension kicks in it'll be all Roth.

I hate giving money to the government before it's absolutely necessary, but this appears to be an easy way to kick-start the tax-free compounding. I thought our tax brackets would be lower in full retirement, but it's lower in ER before her pension kicks in. I'm also sensing a groundswell of sentiment that tax rates may never be this low again.

One other disclaimer-- I've never had a 401(k) so I don't know what jeopardy lurks for Roth conversion. If I'm wrong, please correct me.

 

[unclemick]

Nords

Roth conversions? - what are your thoughts as to 'what to convert into' - stocks, fixed, asset classes, etc. ?The longer the span time for a particular years conversion - the more aggressive?

I.E - What's your plan going in and then later taking out. I'm in a somewhat similar(low tax bracket) and have not been able to convince myself. If I convert some every year age 60-70 and remove age 80-? will I do better than the Trad IRA tax deferred growth to 70 1/2 and endure the minimum dist. and taxes.

This has come up in previous posts and there are non-financial considerations depending on lifestyle and life expectency assumptions,- I've always 'chickened out' up to now in spite of some compelling math(on conversion calc) - but I gotta live to 90 and 'do' high growth stocks to make pretty graphs.

 

[Nords]

Re:  I think Roths should be in stocks

unclemick,

The conventional IRAs are in Tweedy, Browne Global Value (TBGVX) since that's the least tax-efficient of our funds. When we convert we'll have Tweedy roll shares from the conventional IRA accounts to Roths. Same shares, same company, different account numbers, much better tax treatment.

When spouse quits part-time work, we'll drop down into the 10% tax bracket for about 10 years where our only income will be my pension & our investment income. When her pension kicks in, we'll be back in a higher tax bracket. So we're taking advantage of that decade's lower bracket to "prepay" now to avoid a much more taxing situation later. Who knows what taxes will look like in the future, but I'd be very surprised if they're lower!

I treat my govt pension (and eventually, spouse's pension) as the income from an equivalent portfolio of T-bills. (Perhaps that could be TIPS since the pension has a COLA, but my point is that it's all bonds.) So our retirement portfolio is 100% equities (BRK.B, TBGVX, plus iShares S&P600/Barra Small-cap Growth ETF IJT, and the Dow Jones dividend ETF DVY). We also keep two years' expenses in cash.

We'll be paying the IRA conversion tax out of taxable investments, so the new Roths will start at the same balance as the old conventional IRAs. A poster at Ed Slott's irahelp.com board pointed out: "There is a huge benefit to Roth conversions that is largely understated and not usually addressed directly. If the client converts and pays the tax from 'other funds', as a practical matter the client has just contributed a 'fresh' amount (the tax payment) directly to a Roth. This is an otherwise impossible thing to do!"

That's the "going in" strategy. And you're right, the conversion will compound for a very long time since Roths don't need a "taking out" strategy. Our grandparents all lived well into their 90s so spouse and I are expecting to hit triple digits. I don't know what future returns will bring, but if we're going to be compounding for 50+ years then we'll keep our IRAs in value stocks.

 

[moguls]

Thanks for the input folks. Lots of help.

By the way is anyone using Vanguard for a self directed IRA? Do they allow purchasing funds other than Vanguard? Anyone done this?

Moguls

 

[wabmester]

Yes, Vanguard offers a brokerage service (which they outsource) that let's you purchase stocks and non-Vanguard funds in your Vanguard IRA.

I have one setup, but I just use it to buy treasuries (no fees, no markup, and no annual brokerage fee if you meet their minimum balance).

 

[Telly]

Hmmm. Been thinking a little bit about Roth conversion, as a quick run-through of our 2003 taxes looks like we will be in the 0% bracket by making a small 2003 Roth contribution. So this is the lowest fed tax ever, no where to go but up!

 

[ordway]

I use Fidelity for my IRAs (Roth and SEP) as well as for our taxable investments. I've been very pleased with them - a broad enough selection of low-cost, no-load funds to suit my needs, and in my experience, excellent customer service.

 

[moguls]

Holly,

I agree with your comments on Fidelity's customer service. I had good experience with it. However, I want to move more of my assets to low cost index funds such as Vanguard's.

Moguls

 

[fire5soon]

However, I want to move more of my assets to low cost index funds such as Vanguard's.

Moguls

I agree.  For bare bones indexing it's hard to beat Vanguard.  The only bad thing is I've heard their brokerage services have something left to be desired.  I'd like to add Pimco's commodity fund to my mix, but the thought of opening a VBS account has kept me from it & I don't want to open another account somewhere else.