How to exit H&R Block's dubious IRA fund

ON THE MONEY

Your Money

March 26, 2006|By GAIL MARKSJARVIS | GAIL MARKSJARVIS,CHICAGO TRIBUNE

Sometimes bad things happen to good ideas.

Consider the IRA you might have opened at H&R Block while doing your taxes.

Opening an individual retirement account is a great idea, perhaps one of the best financial moves you can make for your future. If you put a few hundred dollars into a well-managed IRA when you are young, you are positioning yourself to have thousands by the time you retire.

For example, if a person in her 20s stuck $500 a year into an IRA, and kept up the practice throughout life, she could have about $150,700 at retirement with an 8 percent average annual return.

But if you are one of the people who have opened what H&R Block calls "Express IRAs," your good intentions probably have been foiled.

About 85 percent of the roughly 500,000 people who put money into Express IRAs since 2002 have lost some of it, according to New York Attorney General Eliot Spitzer. His office sued H&R Block, claiming it misled investors about what they were getting. Puny interest payments and costly fees were destined to erode savings of low- and moderate-income people who struggled to start IRAs, according to the complaint.

The complaint said the average customer, who put $323 into an IRA, has earned only $3 in interest each year, but paid more in fees than they earned in interest. While some fees have changed - originally customers faced more than $100 in possible fees - everything from $15 to open an IRA, a $10 annual maintenance fee, $15 to reinvest new money (a fee that's been removed) and $75 to close an account (that fee is now $25).

The company strongly disputes Spitzer's charges, contending that it did people a favor by helping them cut their tax bills and start to save for retirement.

If you have money in one of these IRAs, you have options. Your money is safe, so there is no urgency to grab it. You could let it sit for a while and see what happens with the suit.

But the problem with that is that the money in your IRA is never going to grow much if you leave it where it is. So you might not want to wait.

IRAs can be transferred from one firm to another. You could go to a mutual fund company, brokerage or bank, and tell them you wanted to transfer your IRA, and they would handle the transfer for you. In a few weeks, your money would be in a new location.

But just be sure that if you decide to move your money, you do it through one of these official transfers. If you just go to H&R Block and pull your money out, you are going to face large tax consequences. The federal government protects you from taxes if you leave the money in an IRA until you are 59 1/2 . If you break the age rules, though, there are penalties.

If you transfer the IRA to a new institution, you won't be hit with any tax consequences. But you will encounter the $25 termination fee from H&R Block. That fee is at issue in the suit, so it's possible that at some point you will get it back.

But paying $25 to set your IRA on the right course for the future may be worth it.

gmarksjarvis@tribune.com

Messages for Gail MarksJarvis also can be left at 312-222-4264.

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