Schwab Personal Choice Retirement Account (PCRA) Review – 401k Brokerage Window

Tax-advantaged 401k and 403b plans can help you save for retirement, but did you know that you’re probably paying for all the costs of this “employee benefit”? 76% of large employers have workers pick up all the costs of 401(k) administration, according to a recent Forbes article Creative Ways to Cut Your 401(k) Fees. The tab is often quietly paid via high-fee mutual funds (which in turn kick back money to the administrator). The article also focuses on brokerage windows, an “escape hatch” that allows employees to move their funds into a self-directed account with a many more investment options. Their availability is growing:

forbeswindow

What is the catch? These self-directed plans have their own set of fees, notably annual maintenance fees and transaction fees. While regular 401(k) plan options may be limited and more expensive on a percentage basis, they usually don’t charge transaction fees each time you buy or sell. For this reason, brokerage windows tend to work better people with larger account balances. With bigger trade sizes, a flat commission is only a small percentage of the total amount involved.

We recently gained access to Schwab’s brokerage window, called the Personal Choice Retirement Account (PCRA). The mechanics were pretty simple. After completing a special application, you could sell a portion (or all) of your existing investments and transfer them into a “Schwab PCRA” bucket. That money then shows up into your linked account at Schwab.com, where you do all your trades.

Commission Schedule and Available Mutual Fund List. Here is the PCRA fee schedule and PCRA mutual fund availability list that was provided to me by Schwab. (I am assuming these documents are the same across all PCRA plans, but I could be wrong. As I’ll explain shortly, just because something is listed does not mean it is available to everyone.)

The commission schedule is pretty similar to what is available in their standard brokerage account. $8.95 ETF and stock trades, $0 trades for Schwab ETFs. No commission on their No-Transaction-Fee mutual fund list (funds have to pay to be on the list), otherwise $50 to buy and $0 to sell. Schwab PCRA does not charge any annual account or maintenance fees, but your Retirement Plan Service Provider may charge account maintenance fees or some form of “recordkeeping fees”. In our case, there is a $50 annual account fee.

The mutual fund list is quite extensive. Let’s say I was trying to buy the Vanguard REIT ETF (VNQ). I searched and found two results:

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The big caveat in my particular case: ETF and stock trades were not allowed at all. I still tried to make a purchase but got this message:

pcra1

From the fee schedule, I assume that some PCRA plans will offer this feature. But in my case, I had to be satisfied with buying the Vanguard REIT mutual fund (VGSIX) and paying $50 per buy trade. The good news is that I was able to buy Admiral Shares (VGSLX) which has the same expense ratio (0.10%) as the ETF version ($10,000 minimum).

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Should I use my brokerage window? According to this Money article, just 5.6% of 401(k) investors opt for a brokerage window even with it is offered. The Schwab PCRA has worked out well for me as an alternative to my standard 401k investment options, but only because a few things aligned:

  • My balance was big enough. Paying $50 a year and $50 per trade is only worth it when your balance is big. Let’s say my balance is $100,000. $50 is only 0.05% of $100,000. If I am saving over 0.05% in expense ratios every single year in exchange, that is a great deal. But $50 is a full 1% of a $5,000 balance.
  • There was a better option in the brokerage account. For example, the S&P 500 index fund in my 401k standard menu charges 0.30% annually, while I can access a Schwab S&P 500 index fund at only 0.09% annually. In my case, I wanted cheap access to the REIT asset class which I didn’t have otherwise. Only about 25% of 401k plans offer access to an REIT fund.
  • I don’t trade too frequently. $50 a pop adds up, so I intend to accumulate money in the normal account, and then transfer over a chunk of money once a year to my Schwab PCRA. This way my bi-weekly contributions are invested for free, and I limit my $50 Schwab trades to once or twice a year.

Comments

  1. Jonathan,
    Maybe i missed in the post, but does your 401k assesses an asset-based fee on ALL money you have there (mutual funds, and self-directed portion), in addition to transaction fees? If yes, what is it? Is there a ceiling on the amt of money, after which they just charge a flat fee?
    From what I understand, most 401k asset-based fees are quite high (0.33-0.47% of AUM is common) and not many people are aware of them

  2. I have been using the PCRA option in my 401(k) for a couple of years now and I loved it. In fact, I leave very little money outside of the PCRA — the money I have left outside the PCRA are in the stable value fund.

    My PCRA has no annual fee whatsoever, and I could buy any ETF or stock that I wish, with the exception of my company stock. My PCRA is mostly invested in Schwab ETFs (no commissions).

    • Yes, I wish I was able to buy Schwab ETFs and trade them for free. For people with that ability, especially with no annual account fee, then it would be highly preferable. I’m guessing that wouldn’t make much money for the plan provider though.

    • I was wondering if I should accumulate my bi-weekly funds into the S&P 500 index fund or Stable Value Fund. The stock fund would go up on average each year, but in some year it will drop. It used to be an easier decision when my stable value fund offered a higher contracted interest rate than other bond funds.

      • Do you have another way to accumulate the Vanguard REIT fund outside of Schwab with no fee? If so, you can switch around and accumulate the S&P500 index in Schwab and then do a one-time-a-year swap from S&P500 index to the REIT fund in Schwab to reduce fees.

        Schwab is apparently starting a fundamental global real estate index fund SFREX with expected ER 0.49%.

  3. How did you get a copy/access to the PCRA mutual fund availability list?
    I’ve searched Schwab’s site and deduced to assuming they need to be contacted and forward a copy by email.

  4. Where did you get a copy of the PCRA mutual fund availability list?

    I’ve searched Schwab’s site and only found the fee schedule.

    • I downloaded from the Schwab website as I am an active PCRA customer. As noted, I don’t know if the mutual fund availability list is the same for all PCRA customers. I can only share what I have.

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