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When moving your IRA to a different fund, are there other factors to consider besides the rate of return?

The original IRA fund that I opened has been sold to several different funds, and I do not feel comfortable with them. The bank sent me another option, but it costs twice what I was paying before, has a double expense ratio and a stock turn of 29%. I have to make a decision soon. I'm guessing that when I talk to the broker from the bank he will tell me the only thing to consider is the rate of return. Should I consider other factors besides the return? This is my sixth IRA fund. I opened it in case of emergencies, but I don't need access to the funds now. Later it will go to my estate.

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February 2018

Yes, risks!  It is not about absolute returns but risk-adjusted returns.  In other words, how much risks did you take to achieve those returns?  I would suggest speaking to a fee based only advisor who acts as your Fiduciary, not a broker.  This way you can be more assured you''re getting the best value and management for a particular fund(s).  Most funds have many different classes and a broker is likely to put you in the "same" fund but with higher fees so that their payout is higher.

I do have a few other questions.  Are you saying you have six IRAs, or this is the sixth fund in the same IRA? If the former, why do you have so many IRAs in various places?  This makes it harder to manage your overall portfolio and can increase transactions. 

Second, and more importantly, why leave it to your estate?  This will cause a lump sum taxable event.  You want to leave it directly to the heir(s) you intend to receive the monies so that they have the option of rolling it into either a regular IRA if your spouse or beneficiary IRA if non-spouse.  This way it can continue to grow tax deferred less the minimum required distributions (MRDs), and is asset protected from their creditors.  If they are a minor or a spendthrift, you can always set up a "look through" trust to hold the assets without it being considered a taxable distribution.  Again, a second opinion from someone well versed in estate, retirement, and investment management is probably a good idea.

Hope this helps and best of luck, Dan Stewart CFA®

February 2018
February 2018