Tell me about your awesome Roth IRA.

January 28, 2013 10:33 AM

I have a chunk of money just sitting in an account that doesn't even earn interest. I'd like to park it into an IRA, but would like to avoid spending many hours researching them. I'd love to just pick a place, transfer the money over, and be done with it. What bank/financial institution currently offers the lowest fees for the best results? Do you have one that you adore, and offers a good deal?

There was a similar previous AskMe question, but it's from way back in 2006, and I would assume the landscape has changed. Thanks!

posted by chowflap to work & money (18 answers total)

Vanguard index funds.
posted by ewiar at 10:35 AM on January 28 [12 favorites]

What ewiar said.

Indexed funds are not actively managed--they track some segment of the market rather than trying to beat the market. That means they're cheap as hell to run, so you're not paying much in fees.

I'm pretty sure that was the answer in 2006 as well.
posted by jsturgill at 10:36 AM on January 28 [2 favorites]

The Target Retirement funds from Vanguard are a good choice for this. Extremely low expense ratios, and no low-balance fees if you get electronic rather than paper statements. I do recommend doing a little research first to at least determine your risk tolerance; the Target Retirement funds get more conservative over time (so you don't have to worry about that yourself) but you should figure out where you want to start. Their Target Retirement 2035/2045 funds start out pretty aggressive, you should be aware of the stock/bond ratios in the fund you're investing in and what that means for your loss potential.
posted by matcha action at 10:37 AM on January 28 [3 favorites]

If you really don't want to think about it at all, put it in a Vanguard target retirement index fund for your retirement period. If you want to retire around 2040, then try the Vanguard Target Retirement 2040 Fund. It's currently 90% stocks, 10% bonds (all other Vanguard index funds), and automatically adjusts to become more conservative as time goes on.
posted by grouse at 10:39 AM on January 28 [2 favorites]

The last time I did this research, Vanguard and T. Rowe Price were pretty much a tossup. If you want to do periodic rebalancing yourself, then use index funds. If you want them to do it for you (but pay a little extra in management fees) than use Target Retirement funds. In any case, many of the fees can be reduced or eliminated if you set up an auto-debit from your checking account and/or deposit over a certain threshhold of money to begin with.
posted by ourobouros at 10:42 AM on January 28

Fidelity also has some very low fee index funds that are probably the same expense ratio as Vanguard (0.10% or whatever). You can also look at ETF funds.
posted by Dansaman at 10:45 AM on January 28

Vanguard. For example, VFINX has an expense ratio of 0.17 - one of the lowest in the industry. Other vanguard index funds are quite good, too. If you're transferring a lot of money, you can buy admiral shares with even lower expense ratios.
posted by zug at 10:45 AM on January 28

The short answer is Vanguard index funds, like everyone has said.

The longer answer depends on what else is in your portfolio, your investment time horizon, and how much you have to invest.

If you have no other investments, then the best option is (as also has been mentioned) one of the Vanguard Target Retirement funds. These funds adjust their asset allocation over time so that you need not do any rebalancing yourself. This will assure that you have a reasonable mix of equities (domestic and international) and bonds. The mix will change as you approach your retirement.

These funds are literally designed to do exactly what you are looking for.

If you already have other investments or are going to retire sooner rather than later, you should probably do further research. Maintaining an appropriate asset allocation is key, so if your Roth represents only one piece of your investments, it wouldn't make as much sense to use a Target Retirement Fund if by doing so you'd wind up with some wacky allocation.

But the answer still is some variation of Vanguard index funds.
posted by MoonOrb at 10:53 AM on January 28

Nth-ing vanguard. Their target retirement funds are all-in-one-don't-think-about it funds with super low rates compared to the competition. And if you ever get interested in more actively looking at indidual stocks or dividend stocks or anything, you can easily transfer funds within your vanguard account.

Your title includes the word "Roth." I prefer the Roth compared to a typical IRA if you are eligible for it!
posted by shortyJBot at 10:56 AM on January 28 [1 favorite]

You might already know this, but it wasn't clear from your question:

There are two different issues here. What type of account should you hold the assets in, and how should you invest the assets? It sounds like you have the money in cash, in a regular (non-tax-preferred) account. You can invest the money differently without moving it into a Roth (or other tax preferred) account, and you could also move it into a Roth and leave it in cash (though that would be pointless).

Note that there are some restrictions on who's eligible for a Roth. If those apply to you, conisder the backdoor approach.

Whatever kind of account you want to use, Vanguard would be fine, although the equivalent is available through many other institutions (for example by buying an ETF), so if you have an existing relationship, you might want to just stick with that place.
posted by Mr.Know-it-some at 11:03 AM on January 28

Yes, I have it in cash. I have been contributing to my company's 401k for the last 15 years, but besides that, I have no other investments. I am eligible for a Roth, according to Mr.Know-it-some's link. I bank locally, and have a mortgage through Bank of America, was sold to M&T Bank a year or so ago; I have no interest in doing further business with them. I will look into Vanguard -- the Target Retirement one sounds perfect! Thanks, all.
posted by chowflap at 11:08 AM on January 28

Oh God Please Don't! Don't use any target date or retirement date funds. These funds are a moving target, and by their nature are designed to change assets as they get closer to the target date. In doing so they incur greater costs than most other no-load funds. Index funds are fine, but divvy it up amongst a couple of indices. Fortune 500, tech, 2500 etc.
posted by Gungho at 12:55 PM on January 28

A targeted retirement fund is EXACTLY what this user is asking about. They can put their money in and forget about it for the next 50 years, and as they get older and closer to their retirement date, the funds will slowly change to be more stable investments (like bonds) and less risky (stocks). If they kept ALL their funds in index funds and the market dropped the day before they wanted to retire, they would be utterly SOL, but if they put it in a targeted fund, they would be on the whole totally fine because a large proportion of their investments would have been already converted to stable, low risk investments.

The change in cost is miniscule and completely justified for this type of investor. Vanguard is great, and I would also recommend looking into Charles Schwab for their targeted retirement funds (Schwab also has great checking accounts).
posted by permiechickie at 1:05 PM on January 28

These funds are a moving target, and by their nature are designed to change assets as they get closer to the target date. In doing so they incur greater costs than most other no-load funds.

Yes, but the investor should be chaging their investment mix as they get closer to retirement to reduce the risk in the portfolio. Either they do it themselves - and incur the cost - or they use a target retirement account - and incur the cost. Same cost either way, but this increases the chance that they make the right changes at the right time.
posted by NotMyselfRightNow at 1:17 PM on January 28

I'm not sure the Roth IRA is the right thing for you. I'm not sure how large your chunk of money is, but there are yearly contribution limits for a Roth IRA. So you might have to split your contributions into a number of years.

You might be better off investing this chunk of money in just a regular brokerage account (and still buy whatever fund you'd like), and then start making regular contributions to a traditional or Roth IRA.

But yeah, a targeted date account sounds like a great idea, as long as their strategy matches what you are comfortable with.
posted by gjc at 2:00 PM on January 28

Just to pipe in - you can make a contribution for 2012 (up to $5000) until April, and then also fund your IRA for 2013 (again, up to $5000.)

The Vanguard targeted funds are exactly what you want. I've had one for four years now and it couldn't be easier to use.
posted by punchtothehead at 7:34 AM on January 29

The change in cost is miniscule and completely justified for this type of investor.

Yes.

Vanguard's targeted funds charge a fee of 0.18 percent, compared to 0.14 percent for the average index equity fund (Figure 5.6). So for a $10,000 investment, that's an extra $4 a year in fees. Or to put it another way, if you had $10,000 earning 5 percent, you would get $482 net of fees (with a 0.18 percent fee) rather than $486.
posted by Mr.Know-it-some at 11:05 AM on January 29

That's just one of the costs involved. If a fund trades excessively there are transaction costs which are usually absorbed into the NAV rather than expressed as fees. So by their nature targeted funds have to do trades, and could experience higher costs.

If you want to manage your own, and you work with Fidelity or Vanguard you should never incur a fee for transferring one long-term investment into another. This is not to say that there aren't costs involved, as there are always costs involved in conducting a trade, but typically not fees. But by managing it yourself you would tend to trade less frequently than a targeted fund, and overall expenses will be less.

We could however be talking fractions of a penny.
posted by Gungho at 12:27 PM on January 29