Q: I was recently let go by my company. I have $70,000 in my 401(k) plan and have been looking for a brokerage firm to take it over. I spoke to a stock broker. One part I do not understand is the fee the brokerage will charge to administer the plan. I was told it was 1.2 percent per quarter. Is this fee for the total amount of my assets? Is this too high? Other firms charge 1 percent. Any thoughts?
Name withheld, via e-mail
A: Some firms charge nothing. "We have no administrative charges on our rollover IRAs, although there may be commission costs when buying specific investment products," says a spokesman for T.D. Waterhouse, a discount broker.
Fees vary sharply among financial institutions. Usually a 401(k) account is rolled over into a plain-vanilla IRA. According to a broker with Merrill Lynch, a full-service firm, administrative charges on a rollover IRA run about $100 a year, although, he says, the cost can be lower on smaller accounts.
If the assets are instead put into a "managed account" which is a customized, although still tax-sheltered, account using a broker administrative fees can run from about 1.5 percent to 3 percent annually, based on account assets. Shop around to save money on a rollover.
Q: The recent article in the Monitor on index-linked certificates of deposit was interesting, but failed to give the outcome of such an investment if the S&P 500 or the Dow Jones Industrial Average turned out to be flat for five years or, say, grew by 5 percent per year. Would the return then be less than the return of traditional CDs?
M.M., via e-mail
A: "It is theoretically possible that the return could be less than the traditional CD," says Kevin Murray, with Bankers Financial Services Corp., in Johnston, Iowa, "but over time that seems unlikely,"
Granted, there have been unique periods when the Dow was down for a number of years the early 1970s, for example, Mr. Murray notes. But more often, the Dow is down only one or two years at most before resuming its upward trajectory.
The advantage of a CD product linked to a stock index is that "you are giving up a guaranteed interest rate for the possibility of outperforming more traditional CD rates," Murray says. You incur market risk. But remember, he says, your principal is always protected. :