Managed account may help with complex investments

If your retirement savings are a little complex — say, you own a large block of company stock in your 401(k) or want to coordinate your strategy with outside investments or your spouse's retirement savings — you may have a better, easier way to invest: a managed account.

Instead of choosing from your 401(k)'s menu of funds, a managed plan provides a professional adviser to select and monitor your retirement investments.

For its managed-account program, Vanguard typically charges an annual fee ranging from 0.2 percent to 0.6 percent of assets (on top of mutual fund fees). So if you had $10,000 in your 401(k) account, you'd pay about $60 a year for professional management — much less than fees for managed accounts in the retail market.

And the peace of mind that comes with having someone watch over your investments may be worth the extra cost. Harold Tenbrink, 59, thought he'd be retired by now. But his employer, Delta Air Lines, cut benefits, so Tenbrink decided to stay on the job and continue contributing 15 percent of his salary to his 401(k).

But Tenbrink, who lives outside Atlanta, was so overwhelmed by the number of fund choices that he decided to turn the decisions over to the investment managers at PMFM Inc. (www.401ktoolbox.com), in Athens, Ga., which offers advice to individuals through large employers such as Delta.

Tenbrink, who considers himself a good saver but not a good investor, has already accumulated about $300,000 in his 401(k) and hopes to make that nest egg grow to $500,000 over the next six years. That would allow him to withdraw about $20,000 a year in retirement to supplement his pension and Social Security. Based on a fee of 1.8 percent of assets under management, Tenbrink will pay about $5,000 this year (including underlying fund fees), and that's fine with him. "If I make money," he says, "they make money."

A new alternative

The main attraction of the newest retirement-savings plan, the Roth 401(k), is the prospect of tax-free income in retirement — because you pay taxes up-front on the income you contribute each year. Roth 401(k)s are excellent choices for young, lower-paid workers, who will benefit from decades of tax-free growth, as well as higher-paid employees who earn too much to contribute to a Roth IRA. Unlike Roth IRAs, Roth 401(k)s have no income limits.

Employers have been slow to offer Roth 401(k)s. But now that last year's pension law has made them permanent, they should begin to catch on — especially because two-thirds of workers surveyed in a study by Transamerica said they'd prefer the tax-free income feature of a Roth for at least half of their 401(k) savings.