Indiana, PA - Indiana County

SMART MONEY: New broker's fees are unwelcome surprise

by on June 15, 2014 1:50 AM

DEAR BRUCE: I rolled IRA funds ($26,500) from a 3 percent annuity (time had elapsed, no penalty) to another broker that invested it in preferred bank stock where I would earn approximately 6.25 percent. I was used to seeing the 3 percent gain on my statements and did not see how much that company was making. Now, with my new broker, I receive a quarterly statement, indicating the fees he is debiting from my IRA funds, and I received notice of an annual fee that the company debited from my IRA.

Is that legal for them to withdraw funds from my IRA? I thought the broker would be paid from the investment company “behind the scenes” and not directly for my IRA. When I opened the account, his correspondence disclosed a number of other services he provides — review my entire financial situation annually, etc. — which I have no need for at this point.

I did ask about the fees and if I would “net” the 6.25 percent, and if I recall correctly, he said I should. I didn’t expect a quarterly statement and withdrawal from my IRA. — Reader

DEAR READER: I don’t see anything illegal. Some brokers charge a fee; other brokers take a commission. It’s up to you to determine what they are doing and what are you comfortable with. It is certainly legal to withdraw funds from the IRA.

You mentioned you “thought” the broker would get paid by the company “behind the scenes.” You have to sit down with a broker and ask very specifically how he is paid, how much, on what basis and so forth.

DEAR BRUCE: My husband and I, as individuals, created and placed all of our assets in revocable living trusts. Does that protect our assets? Or do we still have to spend all of our liquid assets and transfer ownership of real property to our heirs?

We both have long-term care policies. But the daily allowance from those policies will not be enough to cover the current daily charge at nursing homes today. We live in Georgia where it would be necessary to “liquidate” at least five years before it may be necessary to be placed in a nursing home. — C.R.

DEAR C.R.: The word “revocable” means you can yank your assets out at any time. Whether that gives you any solid protection against assets being attached to cover monies that Medicaid has advanced is another question — one that will have to be answered on a specific basis.

On balance, I don’t think you are particularly well covered, but you do have the ability, because it is a revocable trust, to change to a will. It gives you more coverage, meaning more protection for your assets in case you have used (at least in theory) all of your assets and then are covered by Medicaid advances, which is essentially what they are.

As to the five-year period, I believe you are correct: Five years in Georgia is the look-back period.

Whether or not you wish to explore giving away your assets is quite another matter. I very seldom endorse that approach if a better way is available.

DEAR BRUCE: What is the 70 1/2  age rule? — Reader

DEAR READER: This is very simple. If you have monies that you wish to put away in a savings plan such as a 401(k), at the age of 70 1/2 , you will have to start drawing the money out. The government can give you the specific number amount.

The idea of the rule, and don’t choke on this one, is essentially to calculate, when you reach 70οΎ½ years old, how many more years you are going to live, and set the withdrawal amount so that the money runs out around the same time you drop dead.

If you think that works, I have a bridge I want to sell you, but that’s the system.

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