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Author: Biffstein Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75540  
Subject: How do you set up a Roth IRA in a stock? Date: 6/7/2000 2:28 PM
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I have a Roth IRA in a mutual fund, and I'm currently helping my wife set up her Roth. I'd like to set up hers in a single stock rather than a fund, and I'm not sure how to go about it.

When I invest in a MF, I call the company directly, they send me an application, and I send them a check. Does it work the same way with a stock? For instance, does Cisco have an investing department I can call to set up a Roth? I know I can set it up through an on-line brokerage, but I'd like to avoid paying commission charges every year when I fund the Roth.

Thanks,

Biffstein
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22428 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/7/2000 2:56 PM
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An IRA has to have a custodian. The custodian can be a mutual fund, a brokerage, or a bank. If you want to buy a stock, it is cheapest to do it through a brokerage, although some mutual fund companies will let you buy individual stocks.
The commissions these days aren't that much at discount brokers. Some companies will sell stock directly, but they are not custodians for an IRA. And you can't buy the stock directly and then send it to a custodian, either. What you put in the IRA has to be cash.
So no, you can't avoid brokers commissions unless you have a broker that doesn't charge commissions. AMEX is one, if the account is over $100000. There are some horror stories about them, however.
Best wishes, Chris

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22430 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/7/2000 4:26 PM
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The only way you can invest in a company without the intermediary of a broker is to use a "DRIP" plan, short for Dividend Re-Investment Plan. These are sponsored by the company itself (usually a bank or brokerage handles the actual work) but the charges are much lower than a brokerage. [Except for startup costs which are generally higher]

See the "DRIP Basics" and "DRIP companies" boards here on the Fool for more details.

However, not all DRIPs allow you to establish a Roth IRA. There are only a few dozen companies that do so. Ask on one of those boards for details, or perform a search at www.netstockdirect.com


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Author: Biffstein Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22433 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/7/2000 7:34 PM
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Crosenfield and jrr7,

Thanks for your helpful replies. It seems that trying to avoid those commission fees are probably more trouble than they're worth. I'm leaning towards just
opening the Roth in a mutual fund (probably VIGRX) and buying individual stocks with some other money. Of course, there is an annual $10 custodian fee for having an IRA at Vanguard, so it seems that I'm going to have to pay up one way or another.

Given that I've decided to have some fraction of my investments in stocks and another fraction in mutual funds, does it matter at all which of those two I put my IRA into?

Biffstein


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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22434 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/7/2000 7:52 PM
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You are not limited to one IRA.
You can buy stocks through Vanguard. They are of course the lowest cost of all for mutual funds. When your account size grows, I believe they stop charging an account fee. They are a little more expensive than some for trading stocks, but you can have both in one account if you wish.
I'd start with VIGRX and next year add to it; you could buy a stock you intend to hold for a very long time and have that outside the IRA. There are no taxes until you sell. VIGRX will pay an end of year dividend most years if not all; if it is in an IRA you will not have to pay tax on it, if it is not, you will.
There is indeed some art in which investment goes where. I've tried to get a thread started on that subject a couple times, got nowhere; it isn't something that gets people excited.
If you were buying a stock paying a relatively high dividend, there would be advantage in having it in an IRA, and if you were buying for just a few months pop in price, you would also wish it to be in the IRA to avoid taxes.
Best wishes, Chris

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22445 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/8/2000 11:59 AM
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Of course, there is an annual $10 custodian fee for having an IRA at Vanguard, so it seems that I'm going to have to pay up one way or another.
The custodial fee is waived if your account gets above $5000. But even before then, it's still a lot less than you'd pay to get diversified in stocks.

However, all of Vanguard's index funds have a $10/year low balance fee until your account gets above $10,000. Your first few years will cost you $20 a year. Still not as bad as buying a dozen stocks.

Given that I've decided to have some fraction of my investments in stocks and another fraction in mutual funds, does it matter at all which of those two I put my IRA into?
What are you planning to do with the stocks and mutual funds, and when? Remember, IRAs are tax shelters and you can buy and sell as much as you want inside them, with no tax penalty. But you can't get at the funds until you retire (save a few exceptions like education and buying a home), and there are no deductions for losses. Taxable accounts will penalize you if you buy and sell (at least you can deduct losses against gains) but you can get at the money any time.

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Author: Biffstein Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22449 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/8/2000 2:06 PM
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jrr7,

Thanks again for the advice.

> However, all of Vanguard's index funds have a $10/year low balance fee until your account gets above $10,000.

I believe that the low-balance fee is assessed when your account is less than $2,500, and that no such fee is applied to IRAs and other Vanguard retirement plan accounts. I have a couple of non-retirement funds with Vanguard, and have avoided this fee by setting up a monthly automatic transfer from my bank to the Vanguard accounts.


> What are you planning to do with the stocks and mutual funds, and when?

I don't plan to need the $ in the investments for a while, with the possible exception of dipping into the Roths to buy a 1st home one of these days.


> Remember, IRAs are tax shelters and you can buy and sell as much as you want inside them, with no tax penalty.

An interesting point. I am a LTBH'er, but if I wanted to move my investments around it makes the most sense to do so within my IRA, because no capital gains taxes apply to those sales, eh?

Biffstein


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22466 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/9/2000 4:57 PM
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Sorry - I should have called that the "index fund fee". I had forgotten about the low balance for accounts that drop below the minimum. What funds are you invested in with Vanguard? Some of them charge the $10/yr fee (probably billed as $2.50/quarter) and some don't.

If you can avoid tapping your Roths, you'll do a lot better by putting the investments with the highest expected yield there. I say "If" because high yield goes hand in hand with high price volatility, and you don't want to withdraw when your investments are temporarily depressed. If you'll need to tap your Roths, then you shouldn't be in volatile stuff if your home purchase is closer than 8 years.

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Author: Biffstein Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22508 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/12/2000 4:57 PM
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jrr7,


> Sorry - I should have called that the "index fund fee". I had forgotten about the low balance for accounts that drop below the minimum. What funds are you invested in with Vanguard? Some of them charge the $10/yr fee (probably billed as $2.50/quarter) and some don't.

My VG money market fund is the one susceptible to the low balance fee.


> If you can avoid tapping your Roths, you'll do a lot better by putting the investments with the highest expected yield there. I say "If" because high yield goes hand in hand with high price volatility, and you don't want to withdraw when your investments are temporarily depressed. If you'll need to tap your Roths, then you shouldn't be in volatile stuff if your home purchase is closer than 8 years.

My Roth is in a pretty conservative fund, so I was thinking of putting the wife's Roth into something a bit riskier, such as QQQ. I do expect to tap into the Roths for a home purchase within 8 years, though. You think the nasdq index would be too risky?

Biffstein






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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22528 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/13/2000 11:46 AM
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Biffstein,

I'm surprised; I had thought that Vanguard's low-balance fees worked differently. But I certainly could be wrong.

Of the index funds we regularly discuss, QQQ is easily the most risky. The more risky something is, the longer you should plan to leave it alone. But everyone's acceptable risk/reward ratio is different. If you understand what you're getting into, and what a worst-case scenario would look like & what the impact of that would be.


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Author: Biffstein Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22546 of 75540
Subject: Re: How do you set up a Roth IRA in a stock? Date: 6/13/2000 8:02 PM
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jrr7,

> I'm surprised; I had thought that Vanguard's low-balance fees worked differently. But I certainly could be wrong.

They just changed them, with the new rules going into effect June 16, I believe.

> Of the index funds we regularly discuss, QQQ is easily the most risky. The more risky something is, the longer you should plan to leave it alone. But everyone's acceptable risk/reward ratio is different. If you understand what you're getting into, and what a worst-case scenario would look like & what the impact of that would be.

All quite true. Thanks for the advice.

Biff


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