When driving around town, I usually listen to CNBC on Sirius XM Radio (SIRI).  Every so often I hear an ad that talks about how to turn your IRA into a ‘Gold IRA’.  It sounds exciting, mysterious, and intriguing – which is exactly what they want so you’ll call and pay for their ‘golden’ information. In reality the answer is quite simple. 

One common misconception is that an IRA is an actual investment. However, an IRA, or Individual Retirement Account, is just an account type.  There are many different types of IRAs (Simple, SEP, Roth, Traditional).  Each is designed to take advantage of different tax benefits.  In your IRA you can hold many types of equity positions, bond holdings, money market positions, and other securities.  

Now, how do you get gold into your existing IRA? If your IRA is at a major brokerage firm, like TD Ameritrade or e*Trade, one way is through a type of security called an Exchange Traded Fund (ETF). You can buy ETFs for your IRA just like you buy a stock. ETFs are managed by large investment companies such as Blackrock, Vanguard, and Fidelity, just to name a few. These companies manage ETFs much like mutual funds, but allow them to trade like stocks. This allows for the ETF share price to increase or decrease as the fund exchanges hands. Mutual funds on the other hand, only change prices at the end of each trading session. ETFs, like mutual funds, usually have specialized objectives.

As you might expect, there are gold ETFs. These ETFs are tied to the performance of gold as it trades in the precious metals futures markets. As we’ve witnessed the meteoric rise in gold prices over the past couple of years, these ETFs have also increased in value.  Furthermore, the number of gold ETFs has also increased simply due to the demand from investors.

Here are few ETFs that you might want to consider if you are interested in having gold in your IRA:

GLD – SPDR Gold Shares

IAU – iShares Gold Trust

SGOL – ETFS Gold Trust

While I’ve provided you with some basic information about how to invest in gold for your IRAs, please make sure to consult with your financial advisor before making any changes to your portfolio. Gold, like any investment, is not guaranteed to increase in value. It is not FDIC insured and may lose value.

Attorney at Law Partner Jamestown Wealth Management

Let me pose an uncomfortable question.  Where would you want your assets to go if one of your children died before you, but left children of his or her own?  To the surviving spouse (your son or daughter-in-law) or to your grandchildren?

Most would say, “Not to the daughter (or son)-in-law!”  He or she could re-marry and the new spouse might get it. But check your will or living trust and see if it contains language that says something like this:  “I give, devise and bequeath what’s left of my Estate to my children or the survivor or survivors of them.”

That phrase “or to the survivor or survivors of them” produces an often unfortunate and unintended result.

With “survivorship” language in your Will or Trust, if you were to die predeceased by just one of your 3 sons (for example), your two other sons will divide up your estate to the exclusion of your grandkids from that first son.

Another possibility is that his surviving spouse could take it, re-marry, and then divorce or die, leaving it exposed to the new husband or wife.

If your will or trust has language like I’ve described, see a competent adviser.  Better yet, come see me for a free check-up.  I will let you know exactly what the results of your existing trust will be.

Many people are tempted to avoid probate by adding children or others as joint tenants to their properties or bank accounts.  Don’t do it!  You may think it’s a convenient way to pass your property free of probate, but the risk isn’t worth it.

When you own in joint tenancy, you don’t own a portion of the property; you own, together with your joint tenant, an “equal right to the undivided whole.”  What does that mean?  It means that each of you have all the rights to all the property.  Here are a few of the problems:

First, what happens if your joint tenant is sued?  How much of your property is at risk?  Your joint tenant’s portion of the property?  Only if you mean all of the property.  All of it is exposed, not just half.  If you’ve added a child as a joint tenant and your child runs into financial or legal problems, your property could be used to satisfy their debts.

What about your spouse?  Lawsuits are only one of many potential problems.  For example, what happens to your property if your joint tenant spouse becomes incapacitated (legally incompetent) due to accident or illness?  Can you sell your house?  Not without getting appointed as guardian or attorney in fact for your spouse.  There are no separate rights in the property until the other tenant has passed away.

Also, the surviving joint tenant may be unable to distribute property as you wished without running into gift tax problems.  The law says that if you name your daughter as a joint tenant on your large bank account or CD, then when you die it’s her account.  If your instructions were for her to divide the account among her siblings, she could run into tax problems.  For example, she can’t give more than $12,000 per year to her siblings without paying a gift tax or using her own unified credit.

If your goal is to avoid probate, there are other options that don’t have the same level of risk as joint tenancy.  It’s worth your while to look into those other options.  I will address a few of them in coming posts.

Brent Ripley is an estate planning attorney with Jamestown Law Group and partner of Jamestown Wealth Management, a Utah Registered Investment Adviser.

Many people mistakenly name their family trust as a beneficiary of their IRA or 401(k) account.

But wait!  You thought this was what your trust was for, right?  Shouldn’t your trust be the owner or beneficiary of all your assets?  Not necessarily, especially if tax savings are a priority.

A trust can be an efficient beneficiary of your IRA account, but it should be specifically drafted for that purpose, and only under certain circumstances.  The overwhelming majority of family trusts are not drafted to account for retirement plans.

The simple truth is, it may be better to leave your IRA out of your trust altogether.
This is because IRA accounts are non-probate anyway, and are transferred according to their beneficiary designations.  This means you do not need a trust to avoid probate when it comes to your IRA.

If you leave your IRA to your trust, it’s unlikely to receive the full benefits of special “stretch IRA” tax treatment.   If it isn’t distributed and taxed outright to your heirs upon your death, your youngest child will likely have to take minimum distributions according to your oldest child’s life expectancy tables.  Either way, the result is heavy, unnecessary taxation of the potential inheritance.

One disadvantage to naming heirs directly as beneficiaries of an IRA is the fact that they can immediately withdraw it once you pass away.  This will result in immediate tax consequences that the heir may not fully appreciate or plan for.  A specially drafted IRA Trust can help in this situation by restricting the circumstances under which the IRA can be accessed, often until the heir has reached a certain age.

It should be noted that many IRA custodians (the brokerage or investment company where the IRA is invested) have expanded and detailed beneficiary forms that allow you to leave the account restricted or unrestricted and divided among as many beneficiaries as you want.  Other custodians accept detailed beneficiary designations that have been specially drafted by an attorney.  Using these methods, you can restrict IRA blowout potential without a trust, as long as the custodian is willing to administer the restrictions.

Trusts are powerful tools, and should be the cornerstone of any meaningful estate plan – but be careful.  Used improperly they can cause big problems.

If you have any concerns about your IRA and how it is to pass to your heirs, contact us at 801-342-9275 or visit us at http://www.jamestownlawgroup.com.

Brent Ripley is an estate planning attorney with Jamestown Law Group and is a partner with Jamestown Wealth Management, a Utah Registered Investment Adviser.

Recently, a friend asked me about some mutual funds his financial advisor recommended. In our brief discussion, he told me how he was presented with two options and wanted to know what he should do. While he didn’t remember all the details, I became quite aware that he needed help. Especially after he mentioned the unmentionable in mutual funds, the sales charge. Hopefully, this article will help you understand that selecting the right mutual fund is about much more than just the fund’s objectives, risks, holdings, manager tenure, and performance history – it’s also about the fees.

Mutual Funds Loaded and Deadly

Let’s talk a little about loaded vs. non-loaded funds. Loaded funds are just what they sound like – loaded. These mutual funds have some form of a sales charge and should be avoided if similar funds with similar results are available in no load funds. If your financial advisor is recommending a fund with a sales charge either at the front-end, deferred (back-end), or at a level-load, and is not offering no load alternatives, it would be wise to ask for a second opinion. Most of the time, the only reason a financial advisor is pushing a loaded fund is because they’re being paid a commission for selling the fund. While it’s not necessarily wrong to earn commissions, it leaves a lot room to question their objectivity, especially when these charges can range from 4% to 8.5% of your initial investment. On the other hand, fee-only advisors do not, and should not ever recommend loaded mutual funds to their clients. While loaded funds may be suitable investment for a client, they are not always the best investment option.

Here’s a quick breakdown of the different types of loaded funds:

• Front-end load: Your initial investment is charged a percentage rate in order to even purchase the fund. For example, if you invested $10,000 in a 5% front-end load mutual fund, your $10,000 only bought $9,500 worth of the fund, while the other $500 typically goes to the broker or financial advisor.
• Back-end (deferred sales) load: Similar to a front-end load, except this sales charge is collected when you sell the mutual fund. Typically, these charges are to encourage you to keep the mutual fund for a certain period of time. Usually, the charges will become zero if you sell once you have met the minimum holding time period.
• Level-load: These mutual funds carry a sales charge throughout the time you own the fund. Most funds carry no front-end sale charges, have a small back-end load, and contain higher overall fees (more on this later – expense ratio) each year.

How can you tell if a fund is loaded?

It gets a little tricky finding out if a mutual fund has a sales charge. Usually, mutual funds come in different share classes. These share classes are usually A, B, & C:

• Class A: Front-end loaded
• Class B: Deferred, or back-end loaded
• Class C: Level-loaded

In addition to the noticing share classes, is to find out with your own due diligence. A good resource is Yahoo! Finance’s mutual fund profile. At Yahoo! Finance, you can type in the mutual fund’s ticker symbol. However, that will only provide you with basic information. You’ll need to click on ‘Profile’ on the left-hand side of the page. In the Profile section, you are presented with important information regarding the ‘Fees & Expenses’. At the Fees & Expenses section, you will see the total expense ratio, max 12b-1 fee, max front-end load, & max deferred sales load charges. Look for funds with no front-end load or deferred sales load charges. Also, you’ll be able to use this tool for the next section on expense ratios.

Expense Ratios

Another important fee that you need to watch out for is the expense ratio. Mutual fund companies are not in the charity business and need to make money. Therefore, all mutual funds have fees that are summarized as expense ratios. The expense ratio of a fund is an annual percentage fee that is internally charged to the fund. A simple way to understand what an expense ratio is to think of it as what it costs to own the fund per year. You won’t ever see this fee on a statement because it’s just built into the fund. These fees are usually to cover the cost of operating the fund, get sent to brokers, or even to pay for marketing the fund to new investors (12b-1). While expense ratios are unavoidable, the key is to find the funds with the best performance and with the smallest expense ratio (and no sales charge of course).

What are your options then?

So, what’s the alternative to high cost loaded retail mutual funds? There are a few options. I’m going to assume you’ve done your research on the other, equally important aspects of mutual funds: objectives, risks, holdings, manager tenure, and performance history.

1. NTF Funds: No-load no-transaction fee funds, also known as NTF funds, are funds that won’t cost you anything to make the trade to purchase the fund. These are great if you just want to buy a few hundred dollars worth of a fund. That way, you won’t get eaten alive by commissions from your brokerage firm which charges a flat-fee to buy or sell both loaded funds and funds without a load. I recommend using these types of mutual funds are if you are just beginning to invest and don’t have a lot of money to start with. However, most NTF funds do have higher expense ratios, so it might be wise to make a portfolio change once your account For example, if you were to buy a $100 worth of a mutual fund with a transaction fee, your brokerage firm could charge anywhere from $2.99 to $49.99 depending on their fee structure. That means, right from the start, you can lose quite a bit of your initial investment just to fees to your brokerage firm. The key is to find NTF funds with a low expense ratio. A few notes on NTF funds: With no load, NTF funds, there probably will be an early redemption fee if you sell the fund without holding on to it for a certain period of time, usually 90 days. This fee can be quite hefty, so be careful. Also, make sure you meet the minimum initial investment requirements. Some funds require a minimum amount to invest or reinvest in them. Also, just because a fund is NTF, doesn’t mean it’s the lowest cost option for you due to high expense ratios.



2. No-load Funds: It’s important to understand that NTF funds are not always the best choice. Sometimes, NTF funds carry higher expense ratios and have restrictions that make them inappropriate for your portfolio. If you have a larger amount to invest, and/or aren’t planning on making significant additions or withdrawals from your portfolio, take a look at no-load funds. The difference between NTF funds and just plain no-load funds is that for no-load funds, your brokerage firm will charge a trading commission to buy or sell the fund. However, the possible benefit to using a no-load fund is they can have small expense ratios that make them very cost-effective in the long-term.

Case Study 1: Jonathan wants to buy $5,000 worth of a mutual fund for his retirement portfolio. He plans on holding on to the fund for at least 10 years. If Jonathan were to buy a no-load no-transaction fee fund:

Fund Type: No-load No-Transaction Fee Initial Investment: $5,000

Expense Ratio: 2%

Brokerage Fee: $0

Cost of ownership over 10 years: $914.64

If Jonathan were to buy a no-load fund with identical performance as the above fund:  

Fund Type: No-load Initial Investment: $5,000

Expense Ratio: 0.25%

Brokerage Fee: $24.99

Cost of ownership over 10 years: $148.59

Result: Because Jonathan already has $5,000 to invest, and is looking for a new mutual fund, a no-load fund with a small expense ratio would be the best option.

Case Study 2: Jackie just got her first job and wants to start a Roth IRA. She doesn’t have much to start with but plans on contributing $600 per quarter to her Roth IRA. She decides on a diversified plan that includes five different mutual funds ($150 to each fund per quarter).

Fund Type: No-load No-Transaction Fee

Total Contributions after 10 years: $24,000

Expense Ratio: 2%

Brokerage Fees: $0

Cost of ownership over 10 years: $2487.76

If Jackie were to use no-load funds, with transaction costs:

Fund Type: No-load

Total Contributions after 10 years: $24,000

Expense Ratio: 0.25%

Brokerage Fee: $24.99

Cost of ownership over 10 years: $6188.96

Result: Because Jackie is just starting out, having to add to her mutual funds each quarter would result in high transaction costs, thus a higher cost of ownership. Jackie should use no-load no-transaction fee funds for her portfolio. However, Jackie should sell her funds that have lower expense ratio funds she can put at least $4,000 in each fund.

What You Should Do

Of course everyone has a different investment scenario, but it’s probably safe to say that most investors should avoid loaded mutual funds. For investors with a good sized portfolio, look for funds with low expense ratios (less than 1%), high ratings (4 to 5 stars in the Morningstar system), good manager tenure (at least 3 years with the same manager), and a solid performance history (at least performs with or better than the S&P 500 over a similar time period). If you can find mutual funds like that, you’ll be in better shape in long-term. For new investors, look for no-load no-transaction fee funds with low expense ratios, high ratings, good manager tenure, and a solid performance history as well. Watch out for transaction costs that can eat away at your account. If you aren’t sure where to start looking, a good fee only advisor probably has a long list of great no load and NTF funds. He or she can make recommendations and help you make good decisions, and you don’t have to worry about whether the advice you’re getting is tainted by a commission incentive.

Here are a few funds I recommend looking into:

No-load: Vanguard Large Cap Index (VLACX) , Fidelity Large Cap Growth Enhanced Index (FLGEX)

No-load No-Transaction Fee (depends on your brokerage): Marsico Flexible Capital (MFCFX) , T.Rowe Price New America Growth (PRWAX)

Nathan is the Chief Compliance Officer and portfolio manager at Jamestown Wealth Management, a full-service wealth management firm.  As independent Registered Investment Advisors (RIAs), Jamestown Wealth Management upholds a fiduciary responsibility to their clients and provides clear, effective investment management services tailored specifically for each client.