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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: of 75540  
Subject: Re: Limit on creating Tax Deferred Investment? Date: 12/2/1998 4:36 PM
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Greetings, DSarner, and welcome. You asked:

<<Hello, I know someone who has 6 months to go before retirement (not me I still have 20 years :( ). Anyways this person has some funds to supplement retirement. Currently these funds are 100% in loaded mutual funds and stocks, none are tax deferred. My suggested idea is a two phased attack:
1. To put a chunk of these funds into a safe (i know fools hate this idea) low yield bond fund to pay for the first 8 or so years of supplemental monthly payments.
2 Meanwhile, is there a way to stick the rest (lump sum)in a tax deferred account so that it could continue compoundiing tax free, waiting to be harvested in 8 or so years to fund the remaining desired supplemental monthly payments??

I have played with the numbers in Excel and it looks great on paper but how can one (or can one) re-arrange funds from mutual funds / stocks into Bond Fund / Tax deferred Stock Fund ??>>


I assume you are talking about money that is now invested in taxable accounts. There's only two things that can happen here to obtain tax deferred growth. One is to get the money into a Roth IRA at the rate of $2K per year. That can't be done if the person isn't working because IRA contributions can only be made if a person has job income equal to or more than that $2K. The other route is a variable annuity, a product marketed by insurance companies and one not too popular within Fooldom except for those who have already exhausted all other tax deferral options, and who have an income tax problem, and who can let the money sit for 15 or more years. If your friend can't meet at least two out of three of those items, then a taxable alternative is probably far better than the annuity in terms of net return after taxes.

As to moving the money from existing funds/accounts into something else, that's simply a matter of cashing one investment in (and paying any taxes due), and buying the other. Any broker or fund can handle that kind of transaction be it in a taxable account or in an IRA. All your friend has to do is let his/her desires be known and both the new and old broker/fund will tell him/her what needs to be done.

<<I know the Roth only allows 2K / year but are there other tax deferred vehicles that fit the bill here? THanks for any help out there. BTW is it odd that none of these funds are in any tax deferred accounts as they are managed by a broker at one of the well known firms...?>>

Not necessarily. We aren't privy to what the broker was told nor do we know the entire financial situation of your friend. It's quite conceivable taxable accounts are entirely appropriate and indeed best for your friend's circumstances. Folks tend to place entirely too much importance on tax avoidance to the detriment of what's really important, and that's where can one obtain the best return in a given situation. I sense you, too, may be falling into that trap.

Regards…..Pixy


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