I did get an answer from Wells Fargo about their fees. It would be 1% for assets under management. The minimum assets under management are more than we want to give them, and honestly, we don’t want anyone to manage our 401K/Roths. Even though we do an occasional stupid stock pick (can anyone say Super Micro Computer 
) we’re really just playing around with a few stocks and mostly have everything in index ETF’s, index mutual funds and some high paying money market. We don’t want a plethora of things. Just some occasional “how are we doing” or “that’s really stupid” retirement picture advice. Think I’m going to sign up for PlanVision, it’s quite cheap.
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When we started with our planner, we just had him help us with our 401k investment balance + talk about future plans. It was fee based and very reasonable. On the website, it’s described this way:
This fee-based service model integrates active portfolio management with client-driven wealth management education. [This service] provides access to a dedicated Certified Financial Planner™ to help provide counsel and feedback on various financial planning topics.
We are your trusted sounding board on all things financial.
- Focused Planning
- Portfolio Solutions (Strategic)
- Annual Review With Assigned CFP®
- By Invitation Only Client Educational Events
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When we were looking, I used to get these two terms confused
Really either type (or even a commission based advisor) could be right for you if know the scoop and trust the advisor. If there is a referral from somebody you know, better yet.
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My advisor doesn’t sell any products (insurance, annuities), and he wasn’t actively managing any of our assets. It was purely advisory. I guess he could have actively managed, but that wasn’t our situation.
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We considered a fee-based planner who worked that way. (Met him at a class he ran about Annuities, though turns out he’s not a huge fan of them.). Probably would have used him if he were younger or had partners…. just figured we wanted somebody unlikely to retire soon after us.
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This informative article, written by a former WSJ financial columnist, details how he is simplifying his finances as he faces the end of his life due to a terminal cancer diagnosis.
Free link: Some Final Personal-Finance Advice From Jonathan Clements - WSJ
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Thanks @Rookiecollegemum. Aging in place has a real risk. We have tried to plan for it, but but the question is if/when we would not be able to use it. We have definitely planned for one floor living. If ShawD and family were to move in, we would have good support and can afford to hire people to help. But, there is a risk. And, there is a lot of work maintaining things, which probably requires either help from my kids or a firm that specializes in taking care of houses like the firm that our friend worked at.
@NJSue, in principle, I could manage my finances myself and kind of wonder why I don’t. But, we use financial advisors for a few reasons. The first is that I am really busy making money and doing pro bono work. I fly all over the world. When I began investing, I would get into investments because of a particular thesis but didn’t have time to monitor the investments and would forget to get out. I would forget to rebalance. But, there was a fair bit of additional value that they added. One of my FAs suggested a defined benefit plan that enabled me to save a lot – at a certain point it was essentially unlimited. Then we were able to invest the DB plan in both stocks and bonds but a fairly hedge fund that had very substantial growth. At a certain point, we had to roll it over into a 401k. Our investments include a number of alternative investments. They evaluate issues relating to insurance, the right year to take SS, etc. I also wanted to have someone in place in case I were to die or become incapacitated as ShawWife would not be able to do things herself.
We have both a fee-based and a percentage of asset-based advisor. The primary advisor is fee-based. But, at one level, the fee goes up as the assets go up. We use the asset-based firm (a major brokerage firm) because their service – the help they give my companies as well as personally and for our kids – has been excellent. Plus, they give us access to some short-term higher yield municipals to enhance cash management.
Overall, having financial advisors is worth the cost for me. But, I don’t think it makes sense for everyone.
Interesting article. Thanks.
Thank you for the clearly outlined scenarios. I think that for us, we are never going to have the level of significant assets requiring your degree of oversight or management. If we did, I can definitely see the value of your approach.
We are middle-class risk-averse people. We have some insurance (whole life, whole life with ltc rider); tax deferred qualified retirement accounts (401K and 403b); a joint deferred IRA annuity; taxable brokerage; cash. We plan on retiring in 5-6 years if we can. We will have no debt. Now I need to learn about our tax situation in retirement. We exceed the Roth IRA limits. We plan on choosing Medicare and Medigap part G. No Medicare Advantage because I have heard so many horror stories from my friends about crappy coverage and denial of service. I know there are IRMAA brackets and we are thinking of those limits.
I need to take a class in retirement taxes.
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I agree about the Medicare Advantage, ugh! With the Roth, you can likely still do a backdoor Roth and mega backdoor Roth if you want to.
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Yes, I don’t really understand the backdoor Roth and will have to look into it.
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Basically, you just contribute to a traditional IRA (like anyone can), and convert to a Roth the next day. No income limitations, no gains to be dealt with. The only caveat is if you have other traditional IRAs, there are tax consequences.
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Thanks. It just seems needlessly complicated (like everything else)!
I know, everything is complicated! However, if you don’t have any other traditional IRAs, it’s actually very uncomplicated. You just open an IRA, contribute to it, the next day do a Roth conversion, and it’s done. Takes maybe ten minutes max for all of it. Easy to do on Vanguard or Fidelity websites, and probably many others.
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The Backdoor Roth seems complicated but as @busdriver11’s explanation is correct, so it is not really complex. I’m pretty sure you can do some each year if you wish. We have done this as well but @busdriver11 is correct in highlighting that there is real complexity if you already have a conventional IRA. The real question is why the loophole exists. Either you should be able to save in a Roth or not, but this is a legal way to save in a Roth when you would not qualify directly. It would be nice to just change the eligibility rules rather than have people jump through silly hoops.
Medicare Advantage plans have been misleading – lots of promises but then they work hard to avoid covering things one would think they cover. There may be some good plans that are not misleading. But, IIRC, it may be hard to reverse course from an Advantage Plan to a Medicare Part D-F-G plan. Not sure why but that is my recollection.
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I have not reorganized my finances per the earlier article. But, I have reorganized my main business activity, which is a consulting firm. Over the last few years, I have transitioned consultants from a salary and bonus structure to contractors who receive a piece of the projects they work on. So, I don’t worry about feeding them. One highly talented and highly narcissistic employee left entirely. With a much lower fixed cost base (we have a small office with two admins), we have changed our cost to clients to lower retainers and higher success fees. Even without success fees, from a current income standpoint, I think having fewer mouths at the trough means that my partner and I will probably make more than before. So, I’ve made my work life simpler to manage and may be able to pass on more to my kids. The downside is that we would not be able to sell the firm. But I never thought the firm would be worth that much without me and my partner, so the downside does not seem big.
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Interesting. This tax attorney is not a huge fan of backdoor Roths:
The author’s assertion caught my eye b/c I have been advising my son to contribute to a non-deductible IRA and then convert to Roth, since his income exceeds the Roth contribution limit and he is earning more than he is spending. The converted amounts have been added to the Roth he opened during college.
This is the first time I have seen mention of maintaining separate accounts, and I realize that the author is addressing people who have other deductible IRA accounts, but his comments still leave me wondering.
Has anyone else seen the same advice elsewhere?
" Each year’s contribution has to be created as a separate Roth IRA account, meaning that if you make contributions for the next 20 years, you’ll be juggling 20 separate Roth IRA accounts."
Several readers have emailed me to say that a specific assertion I make in this piece is in error. Specifically, I say that each year’s backdoor Roth IRA contribution would require a separate Roth IRA account, and that the tracking, recordkeeping and audit risk involved makes the backdoor Roth IRA an undesirable option.
I also say that highly compensated W-2 workers and successful business owners have tax minimization strategies available to them that offer far larger tax savings with similar or lower administrative requirements and that, in the vernacular, the backdoor Roth IRA “juice is not worth the squeeze.”
Some readers have pointed out that one part of my assertion is technically incorrect. Separate Roth accounts would not be required by IRS regulations, they said.
And that is technically correct, but in our office, due to the nature of the transaction, our best practices would be to use a separate account every time. I apologize for the technical error, but I’ll tell you why what I said remains fundamentally true for our clients.
If the backdoor Roth conversion comes from a deductible contribution IRA account or your IRA had earnings before conversion, you would need to track the cost basis and earnings for each year’s contribution individually in order to document and pay the taxes due.
Given that a backdoor Roth still carries the strong whiff of loophole (which the Biden administration sought to close as part of the Build Back Better bill), I would strongly advise any client using one to use separate accounts for transparency and trackability each time they carry out a backdoor Roth transaction.
And for certain I’d tell them to maintain those separate accounts for at least the three-year lookback audit period after the transaction is made. We don’t want clients losing audits, and the IRS will see a Gordian knot of commingled assets as a weak point for attack. Can you document your way out of it? Maybe, but again, that’s even more of an administrative burden.
If not following those best practices is a risk some readers want to take to establish a $6,500 investment account, that’s their option.
So I stand corrected. The regulations permit you to have just one account. I just wouldn’t advise it.
All this simply underscores the central point I make earlier in this article: For high-income taxpayers and business owners, there are dozens of tax-reduction strategies that can give you significant deferrals and savings with an acceptable and concomitant level of administrative burden and manageable audit risk.
But the backdoor Roth, as a limited small contribution investment account that carries significant recordkeeping burdens and that is under political attack as a loophole, isn’t one of them.
Aren’t there income limits for contributions to a traditional IRA if the employer or spouse’s employer is offering a 401(k)? Here is what Fidelity says:
You can donate to an IRA; it’s just not tax deductible/pretax. If you are doing a backdoor Roth IRA, you make a non deductible contribution to an IRA, and then convert to a Roth a day or two later. No real tax implications, although sometimes you may have a dollar or two of gains by the time you convert. Just be sure there is no other money in your traditional IRA if you are going to do the backdoor Roth.
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