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Greetings, CurtisHMiller, and welcome to Fooldom.

<<I am new to fooldom, having read the Motley Fool Guide. I have about 9K in conventional IRAs and another 7K in a SEP IRA. I am 42 and am in a position to put away 10 to 20K a year for the next 20 years. I'm interested in what I can do to move that money into stocks. I didn't know there were self-directed IRAs that allowed stock investing. What are the down sides of stock investing inside an IRA? Where can I go for more information on self-directed IRAs?>>

There's nothing complicated in setting up a self-directed IRA. Any broker can help you do it. As to the downside of investing directly in stocks within an IRA, you won't get any break on capital gains. Whatever comes out will be taxed at ordinary rates in effect in the year of withdrawal.

<<I am self-employed so the tax benefits of the SEP IRA are substantial but my calculations indicate that even without the tax benefits I come out way ahead investing in the Foolish Four.

Even with a 40% tax hit on my initial investment and 20% capital gains tax on any growth I figure that I will match the performance of an index fund in an IRA with anything over 16% return on stocks.At 20+% I come out WAY ahead. Has anybody else done this comparison? Is my math right?>>

Over what time period? You'll invest just $60 after taxes for every $100 before taxes. If the before tax investment earns 10%/year compounded monthly for 18 months, you end up with ~$116, which after a 40% tax hit becomes ~$70. For $60 to grow to the same amount after a 20% tax, the return would have to be ~25.4%/year compounded monthly. ($87.50 future value x 0.8 = $70 net future value).

Methinks you may want to double check your hypotheses. Anything you get over 10% in the SEP pushes the after-tax return even higher than the 25% just cited.

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