Best Brokerage to open IRA to roll over wife's 403(b)

I've been reading some of JL Collins stock series, and am pretty much convinced that cheap index funds are the way to go.  I know he's got one that he always talks about (can't remember right now, not able to look it up atm...)  But I think he recommends Vanguard.  I'm wondering if that's the best place, or if there are other better options for holding her IRA.

My financial advisor (who in most regards I have the utmost respect for his opinion) is talking about picking stocks to hold the rollover in, and I just want the basic total market index fund, so I'm thinking about just opening it and transferring it myself.  It can't be THAT difficult, can it?

But, I would really like to get some recommendations of what might be good, or what I should avoid when looking for a brokerage.  I'm in early stages, so don't even know what different "discount brokers" (for lack of a better word) have to offer, or if they all have access to the cheap low fee index funds that JL Collins and others like him recommend.

I think the amount in her account is a bit above $20,000, so not really large, but enough to grow... I'd rather have it working for us than just sitting there in a less than ideal fund.

I really appreciate whatever advice you might be able to give.  Currently neither of us have an IRA.  I'm about 2% away from getting the full match from my employer on my 401(k).  I added another percent last month, when I got a raise, and will be doing so again, when the first debt in my snowball is conquered.  And I'll consider opening an IRA account for myself as well, when I'm able to contribute more than that to my retirement.

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    • nolesrule
    • Stealing From the Future fix is an improvement but is incomplete....
    • nolesrule
    • 3 mths ago
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    If you are going to be buying low cost index mutual funds, it's usually easiest to go with the brokerage that "owns"  the line of funds you want. Top choices would be Vanguard, Fidelity and Schwab. There is very little difference among these 3 for the index funds generally recommended by JL Collins or a Bogleheads portfolio.

    I have our brokerage account and IRAs at vanguard, a Solo 401k at Fidelity (only because the Vanguard prototype plan did not allow incoming rollovers in the past). Others here use Schwab.

    For tax advantaged accounts this is not important, but it is in a taxable brokerage account. Vanguard index funds and ETFs are different share classes of the same fund, which allows avoidance of capital gains distributions by the mutual fund through the same mechanism that allows ETFs to avoid capital gains distributions because it is patented other mutual fund families cannot do that.

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  • I don't think you can go wrong with any of the brokerages nolesrule mentioned. I've had Vanguard for years and they've been great. You're probably talking about Vanguard's VTSAX, total stock market index fund. You can call them and they'll help you roll over your 403(b) to an IRA. They'll get on the line with you and the 403(b) company and get it done.

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      • Bruce
      • Software Engineer
      • Bruce
      • 3 mths ago
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      Superbone That sounds familiar.  Yep, I think that's the one.  Sounds great, thanks, I'll probably try to get the ball rolling on that next week.

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  • There may be better protections for 401K/403B accounts than there are for IRA's.  401K's are protected by federal law against outside claims such as bankruptcy and lawsuits (regardless of the amount you have in there) but IRA's are protected by state laws.  Some states offer the same level of protection as the feds but others do not.  I retired recently and was going to move all of my 401K money to my vanguard IRA's and discovered these protection differences.  In my state IRA's are protected up to 1 Mil but Roth IRA's are not protected at all.  I am not sure what happens to an IRA protection if you move from one state with less protection to a state with more protection or vice versa?  Do you always fall under the rules of the state of your residence on record?

    My 401K currently offers index funds that are a little cheaper than Vanguard so I decided to leave them there, if they go up drastically on fees I may consider moving them and taking the risk.  I also may move them when I start taking RMD's if it is too difficult to deal with withdrawals from the 401K.

    BTW, I am a big fan of Vanguard index funds and have read Jack Bogle's book "Common Sense Investing" and JL Collins book "The Simple Path to Wealth" and I agree with their investment advice, I wish I had of learned this early in my career.  

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  • nolesrule said:
    For tax advantaged accounts this is not important, but it is in a taxable brokerage account. Vanguard index funds and ETFs are different share classes of the same fund, which allows avoidance of capital gains distributions by the mutual fund through the same mechanism that allows ETFs to avoid capital gains distributions because it is patented other mutual fund families cannot do that.

     Can you explain this a little better?  I have Vanguard Index funds and ETF's but did not realize one was more  tax advantaged than the other.  Are you talking about when you exchange your index funds for the same class of ETF's in a taxed account or are their differences in how the funds themselves are structured such that you are not taxed as much when the fund sells investments internally.

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      • nolesrule
      • Stealing From the Future fix is an improvement but is incomplete....
      • nolesrule
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      ynaber2613 When a mutual fund sells underlying holdings throughout the year, those sales will have a gain or a loss. If the net for the year is a gain, those gains have to be distributed to the holders of the mutual fund.

      Mutual funds have multiple share classes. The classes are all the same fund but generally the difference is in fee structures. At Vanguard, the ETFs are often share classes of an existing mutual fund. Since they are all the same fund, the underlying stock holdings are fungible between the classes.

      ETFs are essentially bundles of stocks, and they have a mechanism in which the bundles can be created or destroyed by market partners. And when they are destroyed the underlying stocks are not sold but rather are just converted into their individual components. In this way, specific shares of a stock with high gains can be removed from the ETF without actually selling them.

      Since Vanguard ETFs are share classes of mutual funds and the underlying holdings are fungible, the ETF bundle creation and destruction mechanism allows the mutual fund to be able to remove high-gain holdings without selling them, so no gain is realized.

      Now, generally speaking, Total Market Index funds regardless of provider  are not going to have capital gains distributions often because they follow an index and the index is designed to hold everything, but it sometimes happens. It can also happen when an index fund changes indexes or when an index changes composition. Mutual fund companies are usually good at pairing up the gains with the losses but it can't always be avoided.

      Active funds and funds that are comprised of multiple indexes and need to rebalance to maintain composition will often have to distribute capital gains. these are best held in tax advantaged accounts. That's why it's not recommended to hold a Target Date Fund or one of Vanguard's Lifestrategy funds in a taxable account.

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      • ynaber2613
      • ynaber2613
      • 3 mths ago
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      nolesrule Thanks for the excellent explanation.  I hold total stock market index funds and total bond market index funds.  Other than the smaller expense ration of the ETF version of these funds is there any other advantage of holding those in the ETF version over the standard index version?

      Edit, Once I start taking RMD's I will be transferring unused portions to a taxable account consisting of total stock market or S&P 500 index, I learned from JL Collins book not to hold bond funds in taxable accounts due to the tax nature of bonds.  Just wondering if ETF versions are better, I know Vanguard tried to get me to convert my index funds to ETF's a while back in my Roth.

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    • nolesrule
    • Stealing From the Future fix is an improvement but is incomplete....
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    ynaber2613 said:
    Other than the smaller expense ration of the ETF version of these funds is there any other advantage of holding those in the ETF version over the standard index version?

     In a taxable account Tax Loss harvesting is easier wit ETFs because you can sell and buy in real time rather than at end of day NAV prices which are unknown until a few hours after the market has closed. You can follow the expected trend for the day by monitoring the related ETF, but the major swings generally happen in the first and last hours of trading, so that can be tricky.

    Additionally you can TLH into other ETF families which are generally free transactions at other brokerages, so you can have more partner options for changing holdings during TLH (which also helps if you hold the same investment in an IRA).

    If you aren't going to play the TLH game then there isn't much benefit to ETFs. Mutual funds are otherwise simpler to work with.

     

    ynaber2613 said:
    I learned from JL Collins book not to hold bond funds in taxable accounts due to the tax nature of bonds.  Just wondering if ETF versions are better

     JL Collins is right. Bond funds generally earn their money not from capital gains but from the bond interest payments, all of which are ordinary unqualified dividends. Which means the income is paid at ordinary income tax rates rather than capital gains tax rate. Bond fund NAV price changes are mainly due to changes in the interest rates, and the change to the NAV is inversely proportional (based on rate change and fund duration). The best place to hold bonds is in tax-deferred (Traditional) accounts. But a second reason for that is it slows the growth in those accounts which is also better for future RMDs.

    It doesn't mean you can't hold bonds in taxable, but then you need to do research to determine the best bond holdings based on your tax situation.

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      • ynaber2613
      • ynaber2613
      • 3 mths ago
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      nolesrule Again thanks for the detailed info, you are a good source for this type of advice.

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