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Zecco for My Retirement Funds?

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Often times, I'm Lazy, but never so much with 401k plans from past jobs I have held. I know I should transfer the money to a Rollover IRA. This would save me money in administrative fees. It would also give me more choice in investments. If I wanted to buy a gold ETF I could. It's an all-around win - there's almost no rational not to do it. (I write "almost" there because high-income earners may find that it's a negative if they plan to convert IRAs to Roths in 2010. This is a sticky situation and to be quite honest, I'm not qualified to opine on it. I suggest you see your tax professional.)

So the question shouldn't be, "Do I transfer my money from my 401k plan to a Rollover IRA?" It should be, "Which company do I want handling my Rollover IRA. My IRAs are currently being handled by TD Ameritrade. It's a fine institution, but it's not one that I chose. They simply bought Datek.com and my account was transferred. They charge a very low $10 commission to buy or sell a stock - or an Exchnage Traded Fund (ETF), which I use. Each year I tend to make one simple transaction. I buy a very diversified index fund ETF with my whole contribution. This means that I only incur the $10 commission once a year. When I sell, years later, I'll incur another $10 fee (assuming that the fee doesn't change) for each ETF that I own.

Zecco, under many circumstances, offers stock trades for free. Between free and paying $10, I'll take free any day. But there's a catch with IRAs - an annual $30 fee for maintaining your account. Thus the $10 a year that I spend now, would rise to $30. That eats away the savings. However, with Zecco, I could rebalance my portfolio for free throughout the year. I could even designate a few thousand dollars as "play money" and buy the down sector hoping to catch a return-to-the-norm bounce.
I could also be more diversified than I am currently. The only cost of buying and selling would simply be the spread between the bid-ask price, which might not amount to much.

Is this worth the extra money each year?
I think it depends how much money is in the IRA. If you have $500 in an IRA, you aren't going to want to pay $30 a year in account fees, but if you have $225,000, $30 might seem like a great bargain. When does it become more valuable for me to go with the Zecco account for the advantages there. I'm not sure where the crossover point is. I currently have around $75,000 to transfer, which makes that fee about 0.04% (note that it's a small fraction of 1%, not 4%) of the whole account. When put that way, it seems like Zecco might be a good value.

At any rate, I'm sure the fees that I'm currently paying in my 401K is many, many times that. It shows once again that I shouldn't let the pursuit for perfection prevent me from performing positively.

Last updated on July 29, 2011.

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Retirement

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19 Responses to “Zecco for My Retirement Funds?”

  1. Laura says:

    My IRa is small enough that the $30 would not help me. I guess I’ll stay with my bank which has $10/year fee.

  2. Kevin says:

    I think the jury’s still out on Zecco. They haven’t been around very long and have already changed up their fee structure. This leads me to believe that they may not last very long, or if they do, they’ll constantly be fiddling around with the fees, creating new, temporary loss leaders, each of which may or may not be a good deal for my particular situation.

    I’m a fan of having one account at Vanguard and buying their mutual funds directly. Buying and selling shares is free, and they have a strong ethos and history of keeping the expense ratios as low as possible. Yes, I could shave the expense ratios down a bit by constantly searching for the cheapest broker and ETFs of the moment, but I just don’t have the time and energy for that. And at my level of assets I don’t think it would translate to a significant amount of savings.

    If I had to pick a brokerage I’d go with one that has a track record of maintaining a low trade commission, no annual fees, and generally keeps things simple, like Scottrade or ETrade.

  3. dong says:

    Like anything it depends. Depends on the quality of your current 401k. Depends on much is in the account. Depends on if you think you’ll ever to d traditional to Roth IRA rollover – having a a rollover IRA makes that complicated and potentially not worthwhile.

  4. It’s funny, and probably not rational, but I just don’t trust Zecco. Free is never really free and I just can’t go there myself. I don’t know. I would give them another year or two before making a move.

  5. J.C.'s Money says:

    Ah 401k rollover… I am about to be in the same position that I need to do that. One thing I hate about my job is my 401k provider’s horrible investment options. Zecco is an interesting idea.

    I’ll take the $30 fee for control over my portfolio, over no fee but only underperforming, high expense mutual funds any day!

    Better to go for the 70% solution today than the 100% solution never.

  6. Jacob says:

    I just rolled over a 401 to scottrade. They have zero annual fees, which is fairly important for small accounts, and $7 trades, which is on the low end but not so important as I think on should keep trading activity on retirement accounts to a minimum.

    I have had my taxable account with scottrade for almost two years and I find their interfaces quite intuitive. Also, they have brick and mortar offices everywhere and I think I read somewhere that the CEO is not planning on going public anytime soon which I suspect also means that they aren’t planning on getting taken over either.

  7. Lazy Man says:

    Good comments guys, keep them coming…

    Vanguard is a great option. I would say that everyone should look into them. I personally like ETFs over mutual funds – especially if there’s no commission. I think it’s because I can understand ETFs better. I don’t have to worry about year-end distributions (or if I do, they are invisible to me). As Kevin says, it’s possible to shave down expenses to the last small bit with ETFs, minimal trading, and a low/no commission broker.

    I understand why someone might not trust Zecco. They have changed policies quite a bit and the company hasn’t been around long. That being well understood, I’ve read they have legit backers with a huge warchest. Also, they have to clear all the regulatory procedures for being a broker, which means it’s not a fly-by-night Web 2.0 site that was developed in a basement.

    ETrade *Shivers*. I’m trying to close all my accounts with them, but I have some $24 that I couldn’t transfer out. I might as well just get it paid to me and then pay the penalty on that massive amount.

  8. I use Scottrade to manage my Roth and they’re great. It’s funny when you ask them a question about specific funds, they will apologize and say that can’t offer “advice,” even though the question is only about availability.

    I want to go over to Vanguard as soon as I meet their minimum requirements to avoid certain fees ($100,000) I think. I think that ETFs in your retirement account is restrictive because the system you espouse prevents you from dollar-cost averaging throughout the year, doesn’t it? And if you do buy more than once throughout the year, now you’re paying way too much in fees. Why not just find the mutual fund that the ETF is probably mimicking anyway?

  9. egoldstein says:

    I prefer Vanguard. I have consolidated enough of my accounts to get a certain number of free brokerage trades and other services with no annual fees. Lots of choices for funds and ETFs as well as fundpurchase options for funds managed by other houses

  10. Lazy Man says:

    Writer’s Coin: I think that dollar cost averaging doesn’t matter too much when you are taking a 30+ year view as I am. I’m not a big fan of dollar cost averaging anyway – I’d rather save the expenses with ETFs. In the end it probably comes out the same.

  11. Just because it looks free doesn’t mean it is free.

    Brokers make money in other ways too. For instance, they can make money on the spread. They can make sure your bid gets filled against a lower ask, thus pocketing the difference. I would actually imagine that this would be more common for cheaper services since they have to be able to make money somehow, nobody works for free. If you trade frequently, or if you trade in big volumes, then this can make a real difference. A few pennies more on the spread can cost you well over the $10 trading fee that most low cost brokerages will charge you.

    I’ve heard that Zecco denies this happens, and that may be the case. But there are many ways that a company can make money on your trading activity, and not all of them beneficial to traders. But if you are only trading small amounts infrequently, I think this might be a fine alternative.

  12. Lazy Man says:

    I understand the difference between spread and ask, which is why I mentioned it in the article. We are talking a retirement account, so those differences (if they even exist) shouldn’t account for much.

  13. Jacob says:

    The spread is not an issue insofar that one uses limit orders. Of course one might not get fill doing that.

  14. Kevin says:

    Lazy Man: have you considered the opportunity cost of buying only once a year? I understand that you’re not a fan of dollar cost averaging, but there is a penalty to keeping your money “out of the market” for a whole year. For example if you always buy in December, the money you set aside in January will have to sit idle for 11 months before it goes into “play”. Over the course of 30 years this can become significant.

  15. The Div Guy says:

    I just posted today on my nine month review of Zecco. I have been very happy with my Zecco account and I am moving the rest of my assets from Scottrade to Zecco. I have a taxable account at Zecco that I use to purchase dividend stocks.

  16. I use Scottrade for my Roth IRA and have been pretty happy with them. $7 per trade is pretty reasonable, especially when you start trading a fair amount of shares at a time.

  17. Bill Foss says:

    Dont forget this:
    15 Trader Guy on October 10, 2007 said:
    I too had to send in paperwork. Has anyone NOT had

    to? I don’t understand why no other online account has

    ever had a problem verifying my identity, but Zecco has,

    multiple times. Sounds like the French commenter

    above had no problems. Beat that! Supplying my info

    online was not good enough so they mailed me the

    paperwork AND asked me to send in a copy of my

    driver’s license. Did that. Trying to hook it up to my 10

    year old bank account, which is clearly mine and clearly

    based on a verified identity and that’s not good enough

    either.

    They then ask me to send them a copy of my social

    security card. Whaaa? Nobody has ever asked to see

    that thing. It’s been in a box so long I’m not even sure

    where I put it. That sounds really really odd and makes

    me uncomfortable for some reason. I’m going to do it

    but I’ve been on the fence about it. Wonder how many

    legit people that scares off? Plus you’d think that it’d be

    pretty easy to just scan and photoshop yourself a fake

    SS card these days if you really wanted to commit fraud,

    so it would seem that a scratchy faxed copy of a card

    wouldn’t be much more verification than just giving the

    number.

    If they have such problems with customer service

    capacity, maybe it’s because they make so much more

    work for themselves and their customers than other

    vendors. They’ve got to be drowning in scattered paper.

    I guess free trades means you should logically expect

    put up with inconveniences you wouldn’t get with other

    vendors, but these barriers to entry seem like a

    lose-lose situation. I know they want to prevent fraud and

    keep security tight, but jeez! I wanted to get in before

    the Fed rate cut and foolishly thought I could do it in a

    week or so, but it’s been weeks and weeks of baloney

    now, opportunity long gone. Sharebuilder was a breeze

    to set up, on the other hand. As an infrequent trader I’m

    tempted to just stay there and eat the fees and deal with

    the weekly purchasing limitation.

    16 The IT Guy on October 16, 2007 said:
    I’m having the exact same issue ..

    http://theitguysblog.com/2007/10/16/zecco-trading-word

    -to-the-wise-stay-away/

  18. John says:

    me too the same crap . i am already waiting for my approval for more than 3 weeks , and each time they report that one document is missing . Maybe zecco is good but their support is the slowest and the poorest ever. I am giving them last chance currently . for my own experience stay away from it .

  19. Bo says:

    Zecco Trading has so far been my worst experience ever, though I haven’t dealt with many online brokers. I was lured by the concept unlimited of free trades in the past (the $30.00 yearly maintenance Fee wasn’t an issue) & decided to try it with a small IRA account as a test, about $5,000. Shortly after the unlimited of free trades turned into 10 free trades a month which would still work for me, though it did cost me some commissions. With the latest change of $25,000 minimum requirement I decided this wasn’t for me so I transferred the account to an existing account in TDAmeritrade which just arrived today with a $81.00 debit (Zecco’s cost for transferring funds & closing the account). I don’t usually believe that you get what you pay for, but in this example it has been a very costly test with no upside. I would recommend exercising caution on using this low rated broker.

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