Jill On Money: Your questions, answered
Time for another Q&A column! If you have a question, send an email to: askjill@jillonmoney.com.
Q: What is your opinion on saving apps, like Acorns and Robinhood? Are they a good way to save money?
A: I'm all in on anything that encourages you to save your money and get a jump start on retirement, and that includes where you bank and saving-friendly apps. That said, some lean into saving and investing with gamification and gambling, which makes me a bit queasy.
Q: My current advisor has informed me that he’ll soon be increasing his fees. After becoming much more informed and doing a lot of research, I'm at the point where I'd like to move the account and manage it myself. Is this doable? If so, what's my first step?
A: Moving is definitely doable. Your first step is to initiate a direct rollover from your current advisor’s custodial firm to wherever you decide to open your new accounts. Then determine if you want to maintain the same allocation that you had.
If so, and the old account was populated with passive investments (index funds), you are ready to go. If you owned funds or assets that you do not want to keep, you will need to factor in taxes, if it is a taxable account. Keep an eye on the fees for the replacement funds and don’t forget to rebalance on a periodic basis.
Q: My wife and I have spoken to a financial advisor whose compensation would be one percent of the value of our portfolio. That one percent comes to about $6,000 this year. He has looked at our investments and says he can do better for us. Is one percent a customary fee?
A: One percent is standard on accounts up to about $2,000,000. But, if this person isn't doing anything but managing your money, then I would encourage you to keep looking for someone who offers comprehensive financial planning. Also, I am often dubious of advisors who promise “doing better” as part of their pitches.
Q: I recently was notified that I'm part of the highly compensated club and I'm now only able to contribute a portion of my Roth 401(k), not the full max amount, which is what I've been doing for the last several years. I'm curious what tax advantage options I have at this point that would be best to utilize.
A: One option is to consider a backdoor Roth IRA. But there is a caveat: to do so, you can't have an existing traditional IRA account. If that’s the case, you would make a non-deductible contribution into a traditional IRA and then immediately convert it to a Roth. Most major firms will help you execute a backdoor Roth. Another idea is to utilize a health savings account, if your employer offers it. HSAs offer a triple tax advantage which in the world of financial planning is pretty much a grand slam!
Q: When my nieces and nephews were born, I opened up an UTMA account for them and made contributions on a monthly basis. After 13 years I have a new nephew coming and I was wondering with the new 529 rules, should I stick with the UTMA or use a 529?
A: New rules or not, I tend to favor a 529 plan over the UTMA account. But the new rules make the 529 even more compelling. For accounts that are open for at least 15 years, you can transfer up to $35,000 of unused 529 funds to a Roth IRA in the beneficiary's name. The annual transfers have to comply with the IRA limits in that given year.
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(Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com)
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