My mom is trying to organize and simplify her financial accounts, which I applaud. A major part of this is to finally move her orphaned 401(k)s and IRAs into one location. I recommended Vanguard, since that’s where all my IRAs are. She was okay with sticking with low-cost and passive index funds, which is Vanguard’s specialty. They are also known to be investor-oriented and have high client loyalty.
If you intend to buy individual stocks or ETFs, I wouldn’t go with Vanguard Brokerage Services because they are relatively expensive. Open an account elsewhere – check out Zecco, TradeKing, or Sharebuilder.
Make A Phone Call To Old Administrator
There are a variety of ways these rollovers can happen. They may want to know the name of the company you’re going with, and also have some various paperwork to fill out. With some companies, you can request everything be done online. Even so, I think the easiest way is to simply call them and ask them the easiest way to do it (my mom didn’t like having to deal with the old company “Why are you leaving us? You can simply rollover to an IRA here…”).
You have to ask for a “direct rollover”, because otherwise you may be subject to a 20% automatic withholding, taxes, and also penalties. If the transfer can’t be done electronically, the old company will liquidate your account and send you a paper check made out to your new company. Be sure to send the check to your new company within 60 days.
Open An Account At Vanguard
Just go to Vanguard.com, click on “Open an account” at the top-right, and follow the guide. We went with “Invest for retirement” > “Roll over a 401(k) or other employer-sponsored plan” and then “Vanguard® mutual funds”.
Choosing Initial Investments
If you don’t know what to buy yet, just choose a conservative money market fund to get started. One popular option is the Prime Money Market Fund (VMMXX). You can switch into other mutual funds later easily as there are no transaction fees.
If you have over $100,000 in assets at Vanguard, you reach their Voyager level which includes a discounted financial plan. The pitch: “Pay just $250 for a plan developed by a Certified Financial Planner™ from Vanguard—a $1,000 value.” I haven’t actually paid for this myself, so I don’t know how customized it is.
Don’t want mom getting hit with crazy fees! Vanguard charges a $20 annual fee for each Vanguard mutual fund in which your balance is under $10,000. Again, if you are at the Voyager level ($100,000+ in total assets at Vanguard) these are all waived. After that, the easiest way to avoid this fee is to sign up for electronic delivery of documents. Most people are willing to save a potential $20-$100 a year by printing out their own statements.
So now she has a funded Vanguard IRA. Next task is to provide her some investment options which fit within her overall portfolio.