Don’t Be a Moron: How One Man Paid $87,500 in ‘Moronic’ IRA Fees

Over the years I’ve read plenty of articles and blog posts about lying, cheating, and dumb advisors.

While lying and cheating advisors are a topic for another day, I know from experience that there are plenty of morons in the advisory business. I’ve had the er … pleasure … of meeting some of the worst. To wit:

  • One advisor I knew actually said, “I’m not some kind of rocket driver, but …” When the clients corrected him that the colloquial phrase was actually “rocket scientist,” he had no idea what they were talking about.
  • Another advisor never wore tee-shirts under his cheap, thin, white pressed shirts. He was a big, hairy guy and all you could see through his shirts were nipples and chest hair. He could never figure out why clients weren’t buying from him.

Believe me, that’s just the top of the sundae. But there’s an underbelly to this story that’s also true. I’ve also met some incredibly dumb investors during my nearly 16 years in the trenches. Unbelievably dumb. Nice people … but just not the smartest birds on the block.

Here’s the worst:

During the market downturn in 2008 — 2009, one client of mine just couldn’t stand it anymore. I didn’t blame him. The stock market had lost more than half of its value in less than six months. I felt my job was to warn him of the dangers of making huge moves out of the market at one time and help guide him to safe waters. If you were an investor at that time, you’ll remember: there were precious few safe waters. Bonds, stocks, real estate and even precious metals were tanking. Instead of capitulating, therefore, we were exiting at a reasoned pace to cash.

Well, he decided that our strategy wasn’t moving fast enough.

I was on the phone with him one day just after the market’s move back up had begun. We didn’t know at the time that the damage was behind us … it was too dark then to know what was going to happen next. The market had finally rebounded a couple hundred points and I wanted him–as one of my biggest worriers–to hear it from me that we’d actually had a good day.

That’s when he dropped a bomb on me.

Client: “Joe, I called in a couple of days ago and took out all of my money.”

Me: “You called (my assistant)?”

Client: “Nope. I knew you’d talk me out of it with some statistics. I wanted my IRA out of this hell so I called the (800) number and talked to the people at the account.”

Me: “You’re kidding me. You went to cash? The market rebounded over 200 points today! You probably lost a few thousand dollars by making that move. Who knows what’s going to happen tomorrow. You’re already over half in cash now. Why would you put the rest in cash?”

Client: “Go to cash? I don’t know what that means. I took it out.”

Me: “I’m confused. If you didn’t sell to cash, what did you do?”

Client: “I don’t know what this ‘go to cash’ thing means. I got my IRA coming to me in a check.”

Me: “Why the hell would you do that?”

Client: “I told you, I’m sick of it.”

Me: “But that doesn’t mean you need to pay tax on the money! Why didn’t you just do the next-worst thing and sell it to cash?”

Then his wife got on the phone. That’s when I knew it was all over.

Let me explain: I preferred to work with the entire family on their planning, and warned people that any time we’d experience complexity, a spouse who missed the meeting wouldn’t understand the strategy. In some cases couples decided against my advice to both attend. That’s fine with me–my job was just to warn them.

In this case it was killing their financial future. From the beginning, this guy’s spouse had both refused to meet with us, and had vetoed nearly every move we’d tried to make with their money. I had to always provide charts and graphs just so he could (hopefully) drive the stuff home and show her how the plan worked. I didn’t envy him.

In this case, she vetoed putting the money back into the account.

In fact, I volunteered to help them open another IRA at a bank and put it in a CD, just in case the real reason was that they wanted to fire me. Nope. That didn’t happen either. They took a penalty on nearly $250,000 because they were “sick of the market.”

What did they do with the money? They paid off their mortgage and put the rest in a CD outside of the IRA.

Ready for ugly? Let’s do that math, shall we?

10% Federal tax penalty.

Then $250,000 as earned income today. Let’s pretend that’s going to be taxed at 25%, shall we?

So $25,000 plus $62,500 equals $87,500 in taxes that could have been avoided (partially) had my client continued to use an educated approach … even if he’d capitulated and sold to cash (in this case, the smart move).

Guess when they discovered the tax consequences. They didn’t believe me when I told them that there would be a $100,000 penalty on top of all the money they’d lost by selling at the bottom (on top of the damage we’d done together by selling on the way down slowly to keep him calm). He called me at tax time the next year:

Former client: “You should have warned me about the huge penalty! I didn’t know we’d take that kind of hit!”

Me: “I did warn you!”

Former client then said my favorite line ever: “You should have warned me harder!”

So you see, there are moronic fees and then there are fees for insisting on being a moron. Don’t pay the latter!

About the Author

Joe Saul-Sehy is the author of the Stacking Benjamins blog, co-host of the Stacking Benjamins podcast (Len appears weekly!), and the father of twins who are hoping you’ll consider paying their college tuition expenses … pretty please?

Photo Credit: Gregg Tavares


  1. 1

    Travis says

    This is almost identical to what my own father did at the bottom of the market.
    He had expressed his frustration over and over to me about how he was losing his nest egg, and even stated “if it keeps going at this pace, my account will go to zero!”. He kept wanting to sell out and put everything into a savings account, where at least he could stop losing money. I explained to him repeatedly how everybody’s 401(k)s were taking it on the chin and the loss was only on paper. For proof, I went over his statement with him and showed him how the number of shares he owned were staying the same, only their individual value was down. I just couldn’t get through to him. In what would be my last conversation I will ever have with him on the subject of money and investing, I pleaded with him not to cash out because all his losses would be realized in an instant and there would be no turning back.
    A few weeks later, he proudly told me how he had gone to his financial advisor and told him, “I see all the fancy cars parked out in the parking lot – someone’s making money here and it damn sure isn’t me!”. He cashed out his account that day and put it all in the credit union.
    I haven’t discussed money with him since. If I did, I’d be tempted to tell him what his account would be worth today if he’d left it alone.
    My own account rebounded to pre-recession levels and I’ve averaged around 8-10% every year since. I can’t bring myself to tell Dad about it though.

  2. 2

    Sean says

    Interesting story. It’s amazing somebody could keep $250,000 in an IRA and not even have a basic understanding of what an IRA is.

    • 4


      An interesting perspective, Kurt. After 16 years of working with people through bouncing markets, I’d like to think that I’d have been able to identify which-is-which. The problem is that clients changed on a dime when the market dropped. I had clients that were happy, “let’s pour on the gas!” clients that became moody, somber, emotional wretches when the market dropped. Now that I’m out of the business, I’d still say it’s incredibly difficult to discern who’s going to be the emotional one when it hits the fan.

  3. 6

    Len Penzo says

    Joe, thank you for sharing this story on my blog while I am still away on vacation. Very funny!

    Forget the fees … Why is it that, when it comes to stocks, bonds, real estate and other investments, most people insist on buying high and selling low? It truly boggles the mind.

    • 7


      Thanks for letting me tell the story here, Len! I love what you’ve done with the place. Just FYI….I finished off the cashews and brews in the minibar in the guest blogger green room.

  4. 9


    Holy crappers! If he would have left the money invested in equities it would be $500,000 today! Instead the poor (literally) guy probably was left with barely more than $150,000, and hasn’t reinvested it yet.

    I’ve been there during the panic but I always ask people, “who cares if you lose a big percentage today or tomorrow? Isn’t this long term retirement money you are investing? Think 20 years out”!. Hard to play the long game with instant access to data on how bad you are doing I guess.

  5. 10


    A friend of a friend passed away. $160K IRA left to her brother who was on Social Security disability. No estate tax, of course, but he was mis-advised, and took the money out in a lump sum. Over $35K in taxes due when he could have taken just $10K or so each year to cover the standard deduction and exemption. It was also at a time when the market hadn’t bounced back yet, so he’d have nearly $250K by now. A real shame.

    • 11


      The sad point, Joe, is he was probably advised by a commission-hungry broker who wanted all that money now to pad his/her paycheck. I saw that over and over during my career. It made my stomach ache.

  6. 13

    Edward says

    Ahh… I remember with fondness the news stories of people around the US and Canada waiting in long lines outside of banks in 2008 to withdraw all their mutual funds at the absolute *bottom*. I laughed, I yelled at the TV, I felt empathy, I felt superior. Then the same folks queued to buy gold in 2011 at $1920/oz. Man, oh man, on man…. Poor, poor, stupid, fluffy kittens.

  7. 14


    Joe- there was supposed to be a little bell that rang in your head anytime he tried to do something, even if it was make an end run around you. I mean really, why didn’t you just have the computer system set up so that he couldn’t do what he wanted…. :-p
    Being in our early 30s during the crash, C and I just constantly reminded each other how much further the dollars we were currently investing would go, and that the crash, in the long run, for us (and our age group) would probably end up being a good thing. But I do feel for people who were at or near retirement. It’s all well and good to talk about 30 year growth and averages, but when it all does downhill in year 29, that sucks.
    Still, I’d hope to be smart enough to listen to my advisor and not incur the tax penalty

    • 15


      Thanks, Erin. Yeah, I’d hope that when your advisor says, “I’ll help you move this money to a CD in a bank….just please don’t take it out of the IRA and pay a third in penalties and taxes,” that you’d listen. What the cynical me wanted to do was to send him Vaseline on April 15th…but I think only one of us would have found that funny.

  8. 16

    Andrew says

    Always, Always make absolute clear distinction
    betweeen SAVINGS and INVESTING! They’re not the
    same, many people do not grasp that clearly enough.

    You SAVE what you MUST KEEP.
    You INVEST what you can stand to lose,
    (or at least risk significant fluctuation).

    Clients who are frightened out of the markets should
    never have risked that much in the first place.

  9. 18

    Fencedin says

    BillyBob, those “brain-dead” people you so kindly refer to usually got that much money by dint of hard work, saving, denying themselves luxuries. That’s one reason why they are so afraid to lose it. It represents all they gave up.

    I know, because I have been there myself. You work and save for many years, thinking you will have a cushion for retirement, and in a short period of time, through no fault of your own, it starts disappearing, and you’re too old to start over. The natural instinct is to feel that a third or half of what you’ve saved will be better than nothing in your “golden years.”

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