Pension Plan termination->rollover IRA?
Hi there,
I’m 39 years old. My employer used to have a Pension Plan(Vanguard) separate from 401k(Vanguard). The Pension Plan has nearly 9000$ in funds.
They have since decided to terminate the Pension Plan option- I have the following choices:
• 401k Rollover
• Individual Retirement Account (IRA)
• Cash payment (taxes withheld, no penalty if over age 59 1/2)
• Annuity (available to employees with balances of greater than $5,000)
If I don’t make a decision very soon, the default option is the funds will be transferred into Annuity.
Reasons for rollover IRA:
* I am thinking of opening a rollover IRA , simply because I don’t yet have one.
* Another motivation is that I also have a prior employer’s 401k with another brokerage firm- Fidelity(50K $).Eventually, I will want to roll that over into a rollover/conduit IRA for purposes of consolidation. I don’t necessarily want to disturb the ex-employer’s Fideility 401k, because I’m happy with the rate of return (15% in the last 3 months!)
I’m unable to make up my mind on whether I should open the rollover IRA with either Vanguard, Fidelity or Schwab. I’ve also considered ScottTrade based on several reviews.
I would call myself a moderate-to-aggressive risk taker. I anticipate reviewing my funds in the (new, to-be) rollover IRA once a month, and make any investment changes based on market movers and shakers.
I realize that there are pros and cons with all of these brokerage firms.
Vanguard: Index oriented
Fideility: Mutual funds heavy
Schwab: Allos a wide variety of stocks to invest in, as compared to Fidelity
ScottTrade: Downside is that they don’t alow for reinvesting of dividends
Given the above background, which rollover IRA firm would you recommend for me- Vanguard, Fidelity, Schwab or ScottTrade?
Permalink Submitted by Alan Spross on Mon, 2012-03-05 20:33
There really is no major differences between what you can do in brokerage accounts offered by these 4 IRA custodians. You can trade individual stocks in brokerage IRA accounts at all 4 firms.
There may be minor differences in the commissions and it fees may also be less to hold certain funds in one custodian vrs the other. Vanguard and Schwab both have their own ETFs that can be traded commission free. Schwab has programs for frequent traders just like Scott trade.
If you want to hold Vanguard products including their index funds or ETFs, you should use Vanguard. But Vanguard does not allow you to hold their mutual funds in a brokerage account, so you would have to open two accounts there.
If you want to go heavily into options and futures, you are probably better off at Schwab or Scottrade. The other 3 firms allow you to hold both funds and individual stocks in a single brokerage account. I would not recommend frequent trading for most people since the average person is at a disadvantage vrs the pros and tend to lose money by trading too often. Likewise, managed mutual funds with their higher fees generally underperform index funds or efficient ETFs.
But I would definitely act soon to avoid that annuity. And you should probably combine the two employer plans into a single rollover IRA. Use direct rollover to avoid the 20% withhholding. Note that the 15% rate of return is probably not much different that what the same investment would have done in your IRA.