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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 75381  
Subject: Re: Roth IRA through Datek Date: 9/8/1999 2:15 PM
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Mark aka Asterisk writes:

<<I also noticed that only a 6% penalty is assessed on additional Roth IRA contributions past $2000.

"What If I Contribute Too Much?
If you make an excess contribution to a Roth IRA, a 6% penalty tax applies to the excess.
Excess contributions. These are the contributions to your Roth IRAs for a year that equal the total of:
1. Amounts contributed for the tax year to your Roth IRAs (other than amounts properly and timely rolled over from a Roth IRA or converted from a traditional IRA, as described later) that are more than your contribution limit for the year, plus
2. Any excess contributions for the preceding year, reduced by the total of:
a. Any distributions out of your Roth IRAs for the year, plus
b. Your contribution limit for the year minus your contributions to all your IRAs (other than education IRAs) for the year."

This appears to be a great loophole. Six percent is even less than leveraging a portfolio on margin at 7.75%, and it's not even close to the 20% long term capital gains. Does TMF have any pros/cons regarding additional IRA contributions?>>


T
You apparently missed the fact that the 6% penalty is applied yearly. Even in a Roth where ultimately you can take earnings tax-free, that reduces your return on that money to about an untaxed municipal bond rate. Run the numbers yourself, and you should quickly discover that investing the excess money in a taxable stock account using a LTB&H strategy will give you a far better result than investing in the same thing within a Roth while incurring an annual 6% penalty.

Regards..Pixy
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