In a past life when I worked as an engineer in a cubicle (it was a rather large cubicle) the company I worked for started a SIMPLE IRA program for us. I am entirely grateful to them for doing this as I was not preparing at the time for retirement and should have taken more of an advantage of the matching funds. The company they choose to use for the program was Waddell.com which in hindsight for me wasn’t the best of choices. With them you had to use one of their funds which were all Load funds (5.25%) plus the maintenance fees which were almost 2% annually. Fast forward to present time where I am ready to continue investing in retirement account and the only way to do it with them is to mail a check or hand deliver it to one of their offices. Pretty 1980’s isn’t it.
So for all those reasons I’m looking at doing a roll over to another brokerage. Its not a lot as when I quit I took out 30k to build up the business and to survive on while the business picked up. Yes I paid 10% penalty and taxes on it, maybe not the best of moves but I am on my own now. At first I was just going to do a traditional IRA but have found out that since I am self-employed I can do the typical business IRAs as well, each having their pros and cons.
Yes as self employed I can do a regular 401(k) for myself (and spouse). This does have the benefit of a large annual contribution. First I can contribute up to $16,500 as an ’employee’ then I as the ‘Employer’ I can contribute up to 20% of net profits as profit sharing. This can add up to no more than $49,000 a year but hey thats quite a bit, so much that I don’t think I would ever get near that. This kind of program as I understand it can also be limiting as to what you can invest in and their are additional fees and paperwork that really don’t make it worth it if you can’t get near that max amount.
This one is much like the Solo 401k but the IRS makes it a little more complicated to figure out your max contributions. Its the lesser of 25% of your net earnings or $49,000. Ok sounds simple so far but you calculate your net earnings by subtracting your expenses from your income (well duh everyone knows that you are thinking, just wait) then subtracting…
- The deduction for one-half of your self-employment tax
- The deductions for contributions to your SEP IRA
The Simple IRA is just that, simple. You can contribute 100% of your net earnings up to $11,500 plain and simple. Besides that it is just like a traditional IRA and you can invest in what ever you wish.
This is your run of the mill IRA for individuals outside or their businesses or work plans. You can only contribute up to $5,000 to this account per year but can invest in anything your broker has. As I understand it I may cable to have one of these and one of the above, still checking on that though.
Next is the where…
Share Builder is part of ING Direct, where I have recently opened a savings account for various purposes. I kind of like them as if I set up automatic contributions to be performed on a Tuesday then trades are only $4.00 with the option of real time trades at $9.95, $19.95 for funds. Real time trades are a little high for me but the object is not to time the market but to dollar cost average your investments over time. So $4 is not to bad and I can invest in funds, EFT or stocks. Gets down to $0 if I choose from about 5 family of funds.
Vanguard is on of those old time brokers that has been around awhile and has a good reputation. Unlike Waddell they have come around to the 21st century and you can invest online with them. The big plus with Vanguard is if I choose their funds or EFT there is no trade commission! Vanguard also has some of the lowest maintenance fees for mutuals, about .2% compared to waddell’s almost 2%. If I do want to choose stocks its only $7 per trade.
There are others like Scottrade, Etrade, Ameritrade, etc etc. They are all pretty much the same with small variations between their trading fees. I have in my mind narrowed it to the two above, one for the low for fees and other for the convenience.
Ill save this for another post as it takes 4-6 weeks to complete the rollover so that gives me more time. If I go with Vanguard Im looking at either a target retirement fund or several sector index funds that will give me more control.
So for me Im leaning heavily towards a Simple IRA and if I happen to max it out then look at a traditional as well If I can. Still want to do some reading and at the least ill just do the traditional, I was prepared for the 5,000 a year. Im also leaning towards going with Vanguard, yes its another account but will have the least amount of fees so that puts more money back into the investing. Have some questions out to them as well but looking at starting the more this week or next.
I would like to hear from you and what you are doing and perhaps how you feel about some of the services mentioned.