SIMPLE IRA Transfer

My annual trustee-to-trustee transfer of SIMPLE-IRA account accumulations has been successfully implemented. The transfer process went smoothly, although this year I received telephone calls from both investment institutions before the transfer procedure was put in motion.

Reviewing my motivation for making the transfers should be self explanatory once one tabulates the cost differentials between the two fiduciary companies managing the accounts.

My employer plan is invested in AIM mutual funds. I use the sole no-load fund offering, the money market fund, for accumulating salary deferral contributions. The expense ratio for this fund is 1.02%, and the cost per 1000 dollars (at 5% appreciation) comes to 5.16/1000. On a ten thousand dollar balance, this cost loading drains 51.60 dollars per year from investment returns. Over five years of accumulations, the cost drain would accumulate to 774.00 dollars. (If I were to choose a bond fund with AIM, I would sacrifice a 5.5% load on each investment and then endure a 5.66/1000 dollar expense drain on the residual invested balance.)

I transfer the SIMPLE balances to a Vanguard Traditional IRA. I allocate these funds into the Vanguard Inflation Protected Securities Fund. The annual expense ratio for this fund in 0.20%. The cost per 1000 dollars (at 5% appreciation) comes to 1.02/1000. On a ten thousand dollar balance, this cost loading drains 10.20 dollars per year from investment returns. Over five years of accumulations. the cost drain would accumulate to 153.00 dollars.

The differential in cost loadings continuously compounds over the lifetime holding period on the investment.

2006 Year End Portfolio Rebalancing

My portfolio rebalancings at 2006 year end simply returned my portfolio to policy weights. My rebalancing included:

• Allocating my annual transfer of SIMPLE IRA accumulations over to my Traditional IRA and placing the proceeds into Inflation Indexed Bonds;
• Allocating my 2007 Roth contribution into Short Term Bonds;
• Rebalancing my Variable Annuity REIT Index holdings into Variable Annuity Short Term Bonds;
• Rebalancing from my taxable account short term reserves into Total Stock Market Index and Tax-Managed International Fund allocations.
  

2006 Asset Allocation Update:

My portfolio remained essentially in balance during 2005 and 2006. I direct dividend distributions in the taxable account to my treasury money market fund (which is part of my emergency reserves). These funds were reinvested in short term bonds.

As my short term bond allocation was underweighted , I shifted my Roth IRA inflation indexed bond fund allocation to the short term bond index.

Rumor has it that my second job might institute a 401-k program. Since my part-time second job income is invested (in my Roth and taxable portfolio), participation in this plan will depend on:

1.) The availability of a company matching contribution
2.) The expense loading and fund selections of the plan.

My Current Asset Allocation

Keeping in mind that every individual must tailor an asset allocation plan to his or her own specific circumstances, I nevertheless felt that readers might be interested, and to some degree, entitled to have me reveal my asset allocation plan.

My portfolio is divided 50% equity/50% fixed income. Wherever possible, my asset classes are either indexed, tax-managed, or defined asset class funds. Without further ado, my current Asset Allocation Plan includes the following asset classes:

Table 1. Asset Allocation

Asset Class	Portfolio Allocation
US Market	8%
US Value	6%
US Small	5%
US Small Value	6%
US Realty	6%
International EAFE	6%
International Value	3%
International Small	3%
Emerging Markets	3%
Gold	4%
Real Bonds	30%
Short Bonds	20%

My Asset Location consists of the following account structures:

Table 2. Accounts

Account	Portfolio Allocation
Taxable Account	33%
Roth IRA	25%
Traditional IRA	25%
SIMPLE IRA	2%
Variable Annuity	15%

My annual invesment contribution flows into each asset location as follows:

Table 3. Accounts

Account	Portfolio Allocation
Taxable Account	21%
Roth IRA	36%
Traditional IRA	43%
SIMPLE IRA	0%
Variable Annuity	0%

Each year I execute a trustee to trustee transfer of SIMPLE IRA asset balances to my Traditional IRA. (This is why my annual investment contribution to the SIMPLE IRA is entered as 0%; the contribution is registered in the Traditional IRA.)

The taxable account consists of my Total Market allocation, as well as tax-managed allocations in Small Cap and International EAFE allocations. I also hold Emerging Market and Gold allocations in this account. Fixed allocations consist of real bonds (I bonds) and a limited term tax exempt fund. For this account, I redirect all dividend and capital gains distributions to my cash reserves (a treasury money fund). Redirection of dividends allows me to more effectively rebalance asset classes in a tax-efficient manner, as well as simplifying tax accounting.

The Roth IRA contains my allocations to Value, Small Value, International Value, and International Small allocations. For rebalancing purposes I also hold a small allocation to an inflation-indexed bond fund in this account.

The Traditional IRA is allocated to inflation-indexed bonds. The SIMPLE IRA plan fiduciary is a high cost, scandal plagued load fund group, so I hold my plan accumulations in the fund group's no-load money fund awaiting my annual transfers to my IRA.

The no-load, low-cost, no surrender fee Variable Annuity Account is allocated among equity REITS and short term investment grade bonds.