With twenty years of investing history under my worn leather belt, I have a few ghost accounts floating around on the digital interwebs. Recently I had a renewed interest in moving one account I found during a personal financial audit. Hopefully, this picture heavy, short tutorial, will help motivate you to consolidate your old ghosted accounts. Here is how it all went down.
4 Step Guide To Moving Your Money To Vanguard
Last week I laced up my trail running shoes and hit the July level dusty forested trails by our house. As geeky as it sounds, I like listening to financial podcasts while running. It might be all in my head, but I feel like I come up with my best financial ideas while running and listening. It’s almost like the endorphins help make everything more clear.
On this particular podcast episode, the guest was talking about calculating their net worth on a monthly basis. While this is an exercise I wholeheartedly endorse at least once per year, monthly might be a little too extreme for me.
After some thought and podcast motivation, I decided to tighten up my net worth calculation to quarterly vs my old interval, once per year.
Calculating one’s net worth is simply subtracting liabilities from your assets and hopefully not the other way around. The hardest part of these calculations is finding and logging into all of your accounts you have amassed over the years.
Finding A Ghost
It was during this account finding period, that I stumbled upon a ghost account that had a huge problem.
Nearly 20 years ago, for some unknown reason, I opened a Roth IRA with Scottrade and bought Vanguard index funds. I have no F****** idea why I chose to open a second Roth IRA, no less, at someplace other than Vanguard. I mean, I already had a Vanguard Roth IRA account, another was just superfluous. Maybe it was for a bonus? Maybe I had a concussion? Either way that Roth IRA has sat abandoned for nearly two decades.
If you need any reason at all to start investing in a total stock market index, you should know that this IRA has grown from $2,000 to $11,000 and has kicked off $500 in dividends. All while being ghosted.
With those kinds of returns, you may ask what is the problem? Why would I bother moving this ghosted account if it is performing so well? Let me spell it out, F*E*E*S. Vanguard has two classes of index funds and at TD Ameritrade, I owned the expensive class.
Let’s use the actual fund I own. In my ghosted Roth IRA, I have shares of VTSMX (US total stock market index fund). The fee to own this fund is 0.14% ($14 per year for every $10,000 invested).
This fund has a cousin that is more handsome, smarter, and cheaper. He is called VTSAX. He is identical in every way except the expense ratio. VTSAX has an expense ratio of 0.04% ($4 per year for every $10,000 invested). This ten basis point difference may not seem like much but it will have a profound effect on your portfolio returns over several decades.
If my shares were held at Vanguard instead of Scottrade, I could easily convert my shares to the less expensive VTSAX. However, this conversion is not permitted outside of Vanguard.
You may ask why I did not move my ghost IRA to Vanguard earlier? The answer is, any outward bound transfer from Scottrade incurred a $75 transfer fee. Ack!
This past year, Scottrade was purchased by TD Ameritrade and my ghosted IRA packed its bags and headed to a new brokerage. With the move to TD Ameritrade came new rules and fees about outward bound transfers. TD Ameritrade only charges $75 if you close the account. This was now my opportunity to move the money to Vanguard without paying an absurd $75 fee.
To avoid paying the $75 fee, all I had to do was leave some money in the account. I moved all of my VTSMX shares and all the cash except $15 dollars. The $15 is enough to keep the TD account open and avoid the $75 transfer fee.
All you need to begin the transfer process is an account statement from the account you want to transfer, from the last 90 days.
Go to www.vanguard.com. Create an account if you don’t already have one or log in if you do.
Now it is time to give Vanguard some information about the type of account you are trying to transfer: Roth IRA, Traditional IRA, 401k, 403b, taxable, etc.
You will need to have a copy of a statement from the last 90 days from the account you want to transfer to Vanguard. This will help you fill in the next section.
You will need to tell Vanguard whether you are doing full account transfer or a partial transfer. In my case, to keep my TD Ameritrade account open, I opted for the partial transfer.
You will need to list the assets and shares that you are planning to transfer. Cash will be listed as CASH and input to the dollar amount of the cash to be transferred where it asks for shares.
Next review and print your transfer application.
Here comes the buzzkill. The next step after reviewing and printing your transfer application is to mail your forms to Vanguard via snail mail. Now, in the year 2019, I’m not sure why this step is required. I would expect you to be able to scan in your forms and include them as email attachments or pdf files, but no. Print and mail is the only method available.
My envelope with 6 sheets of 8×11 paper weighed in at husky 1.125 oz requiring me to pay additional postage. $0.70 cents was the total damage for my application to traverse the country to Valley Forge, PA.
Once Vanguard receives your application, you will get a notification from Vanguard that your transfer has been initiated. Additionally, you can track your progress by logging into your Vanguard account. The entire process can take 1-2 weeks.
Taxable Account Transfers
This process is the same for taxable accounts as it is for tax-sheltered accounts, but I do have a word of caution. If you are transferring a taxable account, there could be tax implications.
If you sell any mutual fund, index fund or ETF’s in a taxable account you will pay capital gains tax when you file your taxes the following April. Regardless of whether that sale of shares is before the transfer or after the transfer to Vanguard, you should set aside money to cover any tax.
In my case, I owned Vanguard mutual fund shares in TD Ameritrade. Vanguard gladly welcomed these shares without any sale of shares required. This is called an “in-kind” transfer.
Over the years it is likely that you will accumulate multiple investment accounts. According to Linkedin, recent college graduates are likely to change jobs four times in the first decade out of college. While all this job-hopping may do wonders for your income potential, it will almost certainly result in ghosted retirement accounts.
It is up to you to decide if a move to Vanguard is right for your particular financial situation. But with this guide, you now have the steps and hopefully, the confidence to transfer those accounts.