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Author: XanaduPrime Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Fool Four Appropriate for Self-Dir Roth? Date: 9/11/1998 10:27 PM
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Hey all,

I've finally decided to get off my arse and start a Roth IRA at a discount broker. Then I find out that all commissions for online trades MUST come from the IRA account itself and cannot be paid for separately (i.e. credit card or personal check). At least 2 online brokerages (DLJDirect and Fidelity) have told me that this is just the way IRAs work. Has this been the case for others out there?

I was incredulous when I first heard this...it eats into my compound growth!! Fool-Four trading every 18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual funds...which brings me to my other questions.

Is the Fool-Four investment method really suited for self-directed Roth/Regular IRAs?

Or should I just bite the bullet and pay beyond the $2k limit (maybe $50 extra a year), take the penalty hit, and move on?

Just what is the tax penalty on the excess amount? Do they just tax the excess or the entire sum?

This whole process has been quite annoying. :P

Thanks for any help,

Xan
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Author: DarrellK One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5393 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/11/1998 11:13 PM
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XanaduPrime writes:
I've finally decided to get off my arse and start a Roth IRA at a discount broker. Then I find out that all commissions for online trades MUST come from the IRA account itself and cannot be paid for separately (i.e. credit card or personal check). At least 2 online brokerages (DLJDirect and Fidelity) have told me that this is just the way IRAs work. Has this been the case for others out there?

Yes, that's the way it works, as far as I know. If there are custodial fees for the IRA, those can be paid from outside the account, but commissions are paid from within.

I was incredulous when I first heard this...it eats into my compound growth!!

So it does.

Fool-Four trading every 18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual funds...

Well, it depends on the size of the IRA. If you're just starting out, then yes, you may be better off using a mutual fund until you have enough in the IRA that the trading commissions are small (relatively).

Or should I just bite the bullet and pay beyond the $2k limit (maybe $50 extra a year), take the penalty hit, and move on?

Just what is the tax penalty on the excess amount? Do they just tax the excess or the entire sum?


You pay 6% excise tax per year on amount of the excess contributions until you fix the overcontribution by withdrawing the excess contribution and all earnings from it. Not a good plan, I think.

See IRS Publication 590 for more details:
http://www.fedworld.gov/pub/irs-pdf/p590.pdf

- Darrell
(not a tax expert)

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Author: Spacefan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5396 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/12/1998 4:32 PM
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Greetings,
I know how you feel. I just went through the same scenario and decided to keep my IRA in an S&P index fund due to the fact that the commissions would chip away at the compounded growth. I maintain a 401K at work, keep the IRA in the index fund, and do some DRiP investing in a few Dow blue chips. Though the Foolish Four is an excellent approach to investing, I'd rather pay the .40% a year on the index fund than loose money from the account due to commissions. If you come accross any new info, please keep me posted. Good Luck.
Alan

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Author: FoolishBull One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5398 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/12/1998 9:51 PM
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[[Then I find out that
all commissions for online trades MUST come from the IRA account itself ...

I was incredulous when I first heard this...it eats into my compound growth!! Fool-Four trading every
18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual
funds...which brings me to my other questions.

Is the Fool-Four investment method really suited for self-directed Roth/Regular IRAs?]]

IMHO, the FF method is ideal for practicing under an IRA. It us unfortunate that commissions must be taken from the funds under the IRA. But if you Foolishly keep commissions under 1-2%, the benefits should far outweigh the costs.

OTOH, if you don't have enough $$ under the IRA to keep commissions down, you could consider a 2-stock approach. Alternatively, you could hold 1 or 2 stocks under the IRA, and the remaining stocks in a regular brokerage account.

Good Luck

F.Bull


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5409 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/13/1998 11:02 AM
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Greetings, Xan, and welcome. You wrote:

I've finally decided to get off my arse and start a Roth IRA at a discount broker. Then I find out that all commissions for online trades MUST come from the IRA account itself and cannot be paid for separately (i.e. credit card or personal check). At least 2 online brokerages (DLJDirect and Fidelity) have told me that this is just the way IRAs work. Has this been the case for others out there?

That's true. If you pay for trades with money outside the IRA, tax rules will say that payment is an additional contribution to the IRA, which could push you over the annual $2K limit. Therefore, all trade charges will be paid for with money already in the account.

I was incredulous when I first heard this...it eats into my compound growth!! Fool-Four trading every 18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual funds...which brings me to my other questions.

Until the account builds up some (usually about $4K at a discounter), it may indeed be better to keep the money in an index fund to keep your annual charges down. Around Fooldom we believe your costs of trading should never exceed about 2% to 2.5% of your portfolio, and the lower the better. With one of the Dow strategies, that's about $4K at a discounter. As the portfolio grows, those trading costs -- as a percentage -- plunge. But with small sums, they are high initially.

Is the Fool-Four investment method really suited for self-directed Roth/Regular IRAs?

Or should I just bite the bullet and pay beyond the $2k limit (maybe $50 extra a year), take the penalty hit, and move on?

Just what is the tax penalty on the excess amount? Do they just tax the excess or the entire sum?

Yes, the FF is a good method for an IRA of any type IMHO, but only when the trading costs can be held below 2.5% per year. And no, you shouldn't pay extra unless you want to pay the tax man 6% per year until that extra deposit is removed from the account. That's the penalty for excess IRA contributions.

Regards……Pixy



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Author: mike1965 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5417 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/14/1998 9:09 AM
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I know how you feel. I just went through the same scenario and decided to keep my IRA in an
S&P index fund due to the fact that the commissions would chip away at the compounded growth.
I maintain a 401K at work, keep the IRA in the index fund, and do some DRiP investing in a few
Dow blue chips. Though the Foolish Four is an excellent approach to investing, I'd rather pay the
.40% a year on the index fund than loose money from the account due to commissions. If you come
accross any new info, please keep me posted. Good Luck.
Alan

Why not use the UV2 approach in the first few years of opening your IRA?? Since it has a proven track record (it only lost money in 2 of the last 27 years) it should do well and keep your expenses low enough until you build up enough dough...Then you can switch over to the FF4 approach.

Mike

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Author: XanaduPrime Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5440 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/15/1998 4:42 PM
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Hey all,

Thanks to all who responded. I really appreciate the help. I might pursue the UV2 plan until my balances increase to about $5000 or so. Plus, I'm moving to Datek. :)

Thanks again!

Xan

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Author: fbeck One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5461 of 75335
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/16/1998 1:11 PM
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>>>>Hey all,

Thanks to all who responded. I really appreciate the help. I might pursue the UV2 plan until my balances increase to about $5000 or so. Plus, I'm moving to Datek. :)

Thanks again!

Xan <<

Just as an aside, check carefully re: fees before you open your IRA at datek. It's my understanding they charge both start-up and annual fees. You can get fee-free IRAs at other discount brokerages (check the discount broker folder for info).

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