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Subject:  Re: A few questions about taxable accounts Date:  11/21/2003  12:20 PM
Author:  pauleckler Number:  37936 of 87437

You ask quite a few question, Aida. I'll try them, but perhaps others will be able to fill in a few details.

On meeting the $5K minimum in your Roth, the easiest way is to wait until Jan 1. Between Jan 1 and income tax day (Apr 15) you can make a $3K contribution for 2003 and another $3K contribution for 2004. Consider making them both to exceed the minimum and avoid the fee.

On discount broker vs mutual fund company for your taxable account, it depends entirely on where you plan to invest. Your mutual fund company will usually accept your contributions for investment with no fees charged. The discount broker may charge fees for some mutual funds, but gives you a broader range of investments to choose from. You can always move the account later, but that is a hassle and often involves paying a fee. So make you choice. Are you content to buy only Dodge & Cox mutual funds for the next few years? Or does Dodge & Cox offer brokerage services? If so, compare all the fees for what you plan to do.

How long it takes to open an account usually depends on how long it takes your request and payment to reach them. Also you must certify that you have read the prospectus for a mutual fund. Sometimes they will delay until your check clears. I would say mail is the slow part. Fastest is in a local office if they have one. On line can be quick, but usually you print out the forms, fill them out, sign them, and then mail them in with the check. If you arrange electronic payment, it can probably be very quick.

The tax consequences of opening your account before Jan 1 are likely to be small. But if you are really concerned about it, wait until January. If DODBX plans to make a capital gains distribution this year, they should be able to tell you. Then you should wait until after that distribution.

A brokerage account gives you the option to buy many more investments. For example, SPY is the ticker symbol of the S&P 500 tracking stock traded on the Amex. It has a low expense ratio. So you can buy it from a discount broker at a very low fee. This fee can be less than the account mainenance fee in some mutual funds. Of course, the discount broker will charge fees for some services. You must look at the whole picture. It is not necessary to actively trade stocks to have a brokerage account.

As to account activity, some people will select one investment like a mutual fund and buy it over and over whenever they have cash to invest. Others will accumulate funds as in a money market until its large enough to buy something and then pick the most appropriate investment (or best opportunity) when their funds are large enough to minimize commissions. Others will switch back and forth between several investments to achieve desired levels of diversification. Everyone developes their own investment style. There is no one size fits all.

On selling losers at the end of the year, look at Sch D on the US Form 1040 tax form. If you have a long term gain that year, you will pay taxes at capital gains rates. If you have a short term gain you will pay taxes at ordinary income tax rates. The form allows you to deduct long term losses from long term gains and short term losses from short term gains. Hence while gains exceed losses, you reduce your income tax liability. Losses can reduce your ordinary income by only up to $3K. Larger losses must be carried forward and claimed at the rate of $3K per year in future years before you can write them off. But capital gains allow you to write them off sooner because the max is all your gains plus $3K.

If the stock appreciates in the near future, it does not matter. The sale is final for tax purposes on the date of sale. However, there is a wash sale rule that prevents you from selling and then immediately buying back the investment (or technically even a similar investment--whatever that is).

I hope that covers your questions. If not, feel free to ask again or for more details.
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