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Author: mtcunnin Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76392  
Subject: not eligible for roth Date: 5/6/1999 4:40 PM
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I'm 26 years old and contribute to a 401k. Let's say I open a Roth IRA. (Starting young, very Foolish) Let's futher say that in 10 years or so, I am no longer able to contribute to a Roth IRA due to my income. (Dare to dream!!!) Then what? Are all my IRA options used up and/or am I stuck with regular taxable accounts?

Also, unrelated question, the Roth vs. Traditional IRA calculators use tax rate at retirement as a parameter. How the heck do I know what my tax rate will be at retirement??
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Author: jocave One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10381 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 5:14 PM
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<<<<<
Let's futher say that in 10 years or so, I am no longer able to contribute to a Roth IRA due to my income. (Dare to dream!!!) Then what? Are all my IRA options used up and/or am I stuck with regular taxable accounts?
>>>>>

Everyone is allowed to make a $2000 traditional IRA contribution. As your income rises, you lose the ability to take a deduction on your taxes for that contribution.

<<<<<
Also, unrelated question, the Roth vs. Traditional IRA calculators use tax rate at retirement as a parameter. How the heck do I know what my tax rate will be at retirement??
>>>>>

You guess. Given that you're 26 and 33.5 years away from withdrawls, it's a big guess. Lots can change over three decades.

As a rough guide, there are three basic retirement scenarios-
1) Retire with an income less than that you made while working.
2) Retire with an income equal to what you made while working
3) Retire with an income greater than while you were working.

Assuming you're in the 28% bracket while working, you could use 15%, 28%, and 36% for the three scenarios above.

A hint- if, at 26, you choose scenario 1, I'd suggest you aim a little higher.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10382 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 5:20 PM
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mtcunnin: You wrote, "I'm 26 years old and contribute to a 401k. Let's say I open a Roth IRA. (Starting young, very Foolish) Let's futher say that in 10 years or so, I am no longer able to contribute to a Roth IRA due to my income. (Dare to dream!!!) Then what? Are all my IRA options used up and/or am I stuck with regular taxable accounts?"

First, congratulations on starting young; you have the advantage of time to compound. I am no expert, but I believe that under the current rules you still could put $2,000 in a regular IRA, but it would not be deductible; it would have to be after-tax dollars. It would still compound tax-deferred, but you would owe income taxes upon withdrawal. All ussual disclaimers about earned income, $4,000 if marries, penalties for early withdrawal, etc.

In addition, buy and long-term hold of non or low dividend stocks that appreciate substantially lets you control the timing of the gain and payment of the lower long-term capital gains tax.

You also wrote, "Also, unrelated question, the Roth vs. Traditional IRA calculators use tax rate at retirement as a parameter. How the heck do I know what my tax rate will be at retirement??

Welcome to the wonderful world of financial planning. Make your best guess and run the numbers, then vary the guess and re-run the numbers to see how it changes and what you would do differently as a result. Revisit periodically (annually, maybe?) to see whether your assumptions have changed. Same goes for estimated returns, inflation, etc.

Good luck, JAFO

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10386 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 5:37 PM
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If you're not eligible for a Roth, you can still contribute to a regular IRA.

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10388 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 5:38 PM
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I almost forgot. You can also contribute to the 401k your company offers.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10389 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 6:02 PM
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mtcunnin wrote,

Also, unrelated question, the Roth vs. Traditional IRA calculators use tax rate at retirement as a parameter. How the heck do I know what my tax rate will be at retirement??

Most people are in a lower tax bracket when they retire, so a Roth IRA is a bad idea for "most" people. You should only invest in a Roth IRA instead of a deductible IRA if you believe you'll be in a higher tax bracket in retirement.

However, since you're becoming Foolish at such a young age there is a good chance you'll be in a higher tax bracket when you retire if you decide to work until age 55 or 60. One way to manage your tax bracket in retirement is to retire early. I looked at what I'd be paying in taxes at age 65 and decided to retire 5 years ago at age 38.

Fool on!

intercst



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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10390 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 6:55 PM
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Previous post #10389 intercst said,

Most people are in a lower tax bracket when they retire...

It should have read "Most people are in the SAME or lower tax bracket when they retire..."

It only makes sense to fund a Roth IRA if you expect to withdraw the money when you're in a higher tax bracket than when you made the contribution.

intercst

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Author: aq67sceb One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10391 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 7:28 PM
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It only makes sense to fund a Roth IRA if you expect to withdraw the money when you're in a higher tax bracket than when you made the contribution.

Or if you are unable to make a contribution to a traditional IRA and are left with the choice of a non-deductable IRA or a Roth IRA.

In that case it is a no-brainer.

- Ted


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10393 of 76392
Subject: Re: not eligible for roth Date: 5/6/1999 8:18 PM
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aq67sceb wrote,

Or if you are unable to make a contribution to a traditional IRA and are left with the choice of a
non-deductable IRA or a Roth IRA.

In that case it is a no-brainer.


I agree.

Also, if you're not eligible for a Roth, there may be some advantages to forgoing a non-deductible IRA and just investing for retirement in a taxable account.

If you're a LTB&H investor with mostly stocks in your retirement portfolio an IRA may actually reduce your after tax return. You pay ordinary income tax on your IRA gains (max=39.6%) whereas capital gains in a taxable account are taxed at a maximum of 20%. Of course, this only works if you keep your trading to an absolute minimum.

It also avoids all the IRA restrictions regarding early withdrawals and minimum distributions after age 70 1/2.

intercst

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Author: JLC Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10418 of 76392
Subject: Re: not eligible for roth Date: 5/8/1999 3:47 PM
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<<Most people are in a lower tax bracket when they retire, so a Roth IRA is a bad idea for "most" people. You should only invest in a Roth IRA instead of a deductible IRA if you believe you'll be in a higher tax bracket in retirement.>>

I have to fully and totally disagree on this point. I'll pay Uncle Sam his little pittance now on $2000 to keep his hands of my millions latter. No way, no how would I miss the fabulous invention of the Roth IRA. I'm only @@#$%&^%! off that I don't qualify. The reason? my wife and I both have a J-O-B!

JLC

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Author: aq67sceb One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10419 of 76392
Subject: Re: not eligible for roth Date: 5/8/1999 4:28 PM
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I'm only @@#$%&^%! off that I don't qualify. The reason? my wife and I both have a J-O-B!

That fact alone does not disqualify you from contributing to a Roth.

Unless you and your wife have an AGI of $160,000, you are still eligible to contribute to Roth IRAs. If your AGI is less than $150,000, you can each contribute a full $2000. Between $150,000 and $160,000, you can contribute a reduced amount.

- Ted


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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10420 of 76392
Subject: Re: not eligible for roth Date: 5/8/1999 6:50 PM
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JLC wrote,

<<Most people are in a lower tax bracket when they retire, so a Roth IRA is a bad idea for
"most" people. You should only invest in a Roth IRA instead of a deductible IRA if you believe
you'll be in a higher tax bracket in retirement.>>

I have to fully and totally disagree on this point. I'll pay Uncle Sam his little pittance now on
$2000 to keep his hands of my millions latter. No way, no how would I miss the fabulous
invention of the Roth IRA. I'm only @@#$%&^%! off that I don't qualify. The reason? my wife
and I both have a J-O-B!


JLC,

While I understand your wrath at paying taxes, you shouldn't be willing to "cut off your nose to spite your face." If you are in a lower tax bracket when you retire, you will actually have MORE AFTER TAX INCOME with a deductible IRA rather than a Roth IRA.

Of course, if your wage and salary income is high enough, you're not eligible for either a deductible or a Roth IRA.

intercst



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Author: jvanscoy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10421 of 76392
Subject: Re: not eligible for roth Date: 5/8/1999 8:34 PM
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<<While I understand your wrath at paying taxes, you shouldn't be willing to "cut off your nose to
spite your face." If you are in a lower tax bracket when you retire, you will actually have MORE
AFTER TAX INCOME with a deductible IRA rather than a Roth IRA.>>

You are exactly right! The ROTH IRA is not the "no brainer" that most most people believe.

Regards, Jim

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10422 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 1:17 AM
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JLC: You wrote, in part, "I'll pay Uncle Sam his little pittance now on $2000 to keep his hands of my millions latter.

I second all the other posters who have responded but feel obliged to add because you have trigged of one of my personal irritants. <<start rant>>

Everyone seems to assume that there will be no changes to the rules regarding Roth IRAs. I am not elegible for a deductible IRA, so it is, in fact, a "no brainer" for me, but I would think long and hard about giving a current deduction (a bird in hand) for the future withdrawals without income taxes (two in the bush).

I am concerned that sometime in the future when Congress is looking for a funding source, all those nice Roth IRA dollars will look mighty inviting (and because of the rules governing Roths, many of the wealthy [and politically powerful] will not have them, and thus will not oppose the change) and change the rules on a going forward basis that withdrawals from a Roth IRA will be governed by the same rules that have governed non-deductible regular IRAs. Those who had previously withdrawn money from a Roth would be fine, but future withdrawees would owe income taxes.

Not something I lose any sleep over because of my ineligibility for a deductible IRA, but nonetheless a real concern of mine. I am not sure that Roth IRAs will ever reach the so-called "third rail" status that social security has. <<end rant>>

Regards, JAFO

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10423 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 10:27 AM
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JAFO31 wrote,

I am concerned that sometime in the future when Congress is looking for a funding source, all
those nice Roth IRA dollars will look mighty inviting (and because of the rules governing Roths,
many of the wealthy [and politically powerful] will not have them, and thus will not oppose the
change) and change the rules on a going forward basis that withdrawals from a Roth IRA will
be governed by the same rules that have governed non-deductible regular IRAs. Those who
had previously withdrawn money from a Roth would be fine, but future withdrawees would owe
income taxes.


JAFO,

That's an excellent point and a very insightful analysis!

Your observation that since high income taxpayers are ineligible for the Roth IRA they will be unlikely to dispatch thier highly paid lobbyists in support of the Roth IRA is something I hadn't thought of.

Regards,

intercst

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Author: dharmadollars Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10424 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 10:57 AM
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I second JAFO's word of concern. I haven't elevated my sentiments to the level of a rant yet, but I do harbor them as dark thoughts.

Here's my additional input. I think Congress may in the future move to restrict the advantages of Roths. But Congress has, in effect, entered into a contract with those who have converted to/created Roth IRAs. And they have been/are being/will be paid for the contract they have entered into. For them, at a later date, to decide to renege on their promise under the contract would constitute, in effect, an abrogation of contract. The sticky part would be in how to prosecute such a claim. But that is what it would mean. It would result in a clear, de facto, de jure (is my legalese passable?) double taxation. The fight would have to be joined on many fronts but Congress is a life size experiment on the Darwinian progression of the species known as Chicken. There will be a lot of voters with Roths who can fight back.

I think the likelier scenario will be that at some point in the future Congress will say, "OK, the existing Roths get the free ride, but only on money contributed up to a certain date". In this event, the earlier the money goes in the lower the risk.

But the worry does persist.

Regards--dharmadollars


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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: 10427 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 1:54 PM
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Dharmadollars sez:

<<I think the likelier scenario will be that at some point in the future Congress will say, "OK, the existing Roths get the free ride, but only on money contributed up to a certain date". In this event, the earlier the money goes in the lower the risk.>>

Precisely. I've expressed the same sentiment far too many times every time this subject comes up in this folder. I'm glad you did this time. Why we continue beating this dead horse instead of enjoying what is totally escapes me. I guess railing about what some future Congress might do is more fun. :-)

To all you pessimists out there, please don't use the Roth IRA for your annual contributions. That will give it a much longer life for those of us who do, thus allowing us to get more money in before it's cut off.

Regards..Pixy

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Author: DarkOut Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10429 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 2:15 PM
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dharmadollars wrote:
I think the likelier scenario will be that at some point in the future Congress will say, "OK, the existing Roths get the free ride, but only on money contributed up to a certain date". In this event, the earlier the money goes in the lower the risk.

This makes much more sense to me. And while Congress could decide to stop off the Roth, that's a move that's likely to NOT get a politician re-elected. It would be like committing political suicide. The Roth is targeted at the middle class, which is a huge constituency(sp?). I know I wouldn't vote for anyone who tries to do away with the Roth.

JMHO...

--DarkOut

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10433 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 4:36 PM
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DarkOut wrote,

This makes much more sense to me. And while Congress could decide to stop off the Roth, that's a move that's likely to NOT get a politician re-elected. It would be like committing political suicide. The Roth is targeted at the middle class, which is a huge constituency(sp?). I know I wouldn't vote for anyone who tries to do away with the Roth.

One problem is that while the Roth is targeted at the middle class, onlya minority of people eligible for a Roth IRA have actually opened one.

It's certainly possible that a socialist politician could propose expanding Medicare to include free perscription drugs, paid for by taxing the Roth IRA, and drum up a lot of support.

intercst

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Author: DarkOut Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10437 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 8:05 PM
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intercst wrote:
One problem is that while the Roth is targeted at the middle class, onlya minority of people eligible for a Roth IRA have actually opened one.

How do you know that? Not disputing your claim, just looking for some backing evidence. That said, these types of things take quite a while to work themselves into the mainstream. It takes time to digest and weight the implications and since retirement is far off for many folks, it takes longer to appear on the radar screens of the average person. Or so it would seem to me.

It's certainly possible that a socialist politician could propose expanding Medicare to include free perscription drugs, paid for by taxing the Roth IRA, and drum up a lot of support.

Is this something you just made up, or something that's been proposed by someone? Given a few minutes I can come up with any number of "possible" scenarios to drain the benefits of the Roth, but they're not real. While it's available (hopefully till I die), I intend to take advantage of it. Even if its tax free gains are taken away at some point, it's no worse than a non-deductable IRA (I don't qualify for a deductable IRA).

Granted, a taxable account with LTB&H is a better choice than a non-deductable IRA if you're in the 28% tax bracket after retirement (which I intend to be), but I already have one of those. To throw away the opportunity of tax-free gains seems foolish to me. Congress could just as easily hike the tax rate, or the capital gains rate, which would have a big effect on the alternatives.

Again, JMHO...

--DarkOut

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10438 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 8:42 PM
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DarkOut wrote,

intercst wrote:
One problem is that while the Roth is targeted at the middle class, onlya minority of people
eligible for a Roth IRA have actually opened one.

How do you know that? Not disputing your claim, just looking for some backing evidence.


I remember reading an article in the Wall Street Journal in January or February of this year. Said that only 2% to 3% of people eligible to rollover a regular IRA to a Roth IRA had done so. I don't remember if they had a figure for how many people were opening a Roth IRA with $2,000 of new money.

That said, these types of things take quite a while to work themselves into the mainstream. It takes
time to digest and weight the implications and since retirement is far off for many folks, it takes
longer to appear on the radar screens of the average person. Or so it would seem to me.

It's certainly possible that a socialist politician could propose expanding Medicare to include free perscription drugs, paid for by taxing the Roth IRA, and drum up a lot of support.

Is this something you just made up, or something that's been proposed by someone?


The Prez is already proposing perscription drug benefits for Medicare, I don't know how he's planning on "paying" for it.

The point I was making with regard to the Roth IRA was that the middle class constituency for "perscription drug benefits" is likely larger than the Roth IRA constituency. Just about everyone takes pills as they age, but not everyone has a Roth IRA.

However, I agree that speculating on future tax policy is probably a waste of time.

Regards,

intercst

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Author: tmackfool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10439 of 76392
Subject: Re: not eligible for roth Date: 5/9/1999 11:04 PM
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It's certainly possible that a socialist politician could propose expanding Medicare to include free perscription drugs, paid for by taxing the Roth IRA, and drum up a lot of support

And maybe some future politician who will bring America to its knees by entering us in the New World Order will start taxing Roth IRAs to pay for all the black helicopters to shuttle United Nations troops around the country to collect all our stock certificates!!! Heck, maybe they'll even torture people who opened Roth IRAs!!!!

But just in case we don't enter an alternate universe, I'll keep investing in a Roth. I am ineligible for a traditional IRA that I can deduct from my current taxes, so the $2000/year in a Roth makes sense. Maybe it isn't for everyone, but by scaring people away with conjecture about what future "socialist" politicians might do (do you actually know how many "Socialists" have actually been elected to the House and Senate in the USA?) is really a waste of time. And when Congress is considering such things as raising the limit on all IRAs and even starting such things as Roth 401Ks, it's not likely that in the near future they will get around to stealing all our money.

And the Wall Street Journal Article only referenced "rollover" Roth IRAs from traditional IRAs. My Roth was not a rollover, so it wouldn't have been counted.

If you don't want a Roth, don't invest in one. I'll grant that for some people who qualify for a traditional IRA that they might come out ahead over a Roth, but for many of us, the Roth is a great deal.

And remember, most people are probably Wisely investing their Roth's in managed mutual funds, and not the Foolish 4. So the money probably won't look all that tempting.

Taylor

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10440 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 12:13 AM
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tmackfool wrote,

do you actually know how many "Socialists" have actually been elected to the House and Senate in the USA?)

I believe Congressman Sanders from Vermont,(who's listed as an independant) actually runs under the "progressive" or "socialist" banner. He's been in Congress for years.

However, the point of my post was not to advance the conservative agenda (I'm a registered Democrat) or warn of the arrival of "black helicopters", it was simply to say that tax laws change. If there are votes to be got by taxing the Roth, it'll be taxed. I'm not even sure old Roths would be grandfathered. Folks who lost money in real estate partnerships in the 80's when the tax laws changed learned that the old rules aren't always grandfathered.

Regards,

intercst



intercst

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10447 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 9:35 AM
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Well, actually for me, I may as well put it into a Roth. I can't take any deductions on IRAs anymore. I make too much. So it's a no brainer. I can't take a deduction for an IRA now, so why put it into something where I'm going to have to pay taxes when I take it out?

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Author: jlast Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10453 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 6:02 PM
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And remember, most people are probably Wisely investing their Roth's in managed mutual funds, and not the Foolish 4. So the money probably won't look all that tempting.

Uh, that would be me, actually. :-)

I'm pretty new to Foolishness and these boards, so please bear with me...

I openned a Roth at the beginning of this year and [perhaps Wisely] began investing in the Pioneer Independence mutual fund as per my financial advisor's suggestion. I'm distinctly middle class, so I'm putting in the $166.66 every month plus another $150 in a "regular" fund account. This allows me to total the payments and get a discount on some fee or something. (I forgot which fee.) Oh yeah, it's a front-loaded fund, BTW.

Lately I've been have serious second thoughts about this whole thing. A) the fund is not even a year old yet, so there's no history, B) it is currently under-performing the S&P-500, but not by a whole lot, C) I'll be out about $2000 at the end of the year after the load is paid, and D) I'm worried that I'll be dinged big time by the trading that's ocurring in the regular (non-tax protected) fund account. (Taxes, comissions, and such.)

My question then is this: would it be Foolish of me to open a ROTH account with my online broker, transfer the balances from the Pioneer accounts (and suck up the fees for doing so), and then simple invest the money in the Foolish Four? I think I'd feel better managing my own Roth, but I'm not sure.

I'm a little naive in this whole process, I'll admit, which is why I'm asking you, the Foolish Vetrans, for your collective 2 cents.

Thanks much for your help,

jlast

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Author: jocave One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10457 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 7:08 PM
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jlast wrote (paraphrased)

I openned a Roth at the beginning of this year and began investing in the Pioneer Independence mutual fund as per my financial advisor's suggestion. I'm putting in the $166.66 every month plus another $150 in a "regular" fund account. This allows me to get a discount on some fee or something. Oh yeah, it's a front-loaded fund, BTW.

I reply

Well, it looks like you may have received a raw deal. Since there's a financial advisor in the picture, it may be helpful for you to ask him or her why they suggested this fund. I cannot find a prospectus for it, so I cannot say for sure, but I doubt it accomplishes anything that couldn't be done much more cheaply with an index fund.

How is the financial advisor paid? If you pay a flat fee for his advice, he's much more likely to be looking out for you. If he's paid by comission from the fund company, he's more likely to be acting like a salesman.

jlast wrote

Lately I've been have serious second thoughts about this whole thing.
A) the fund is not even a year old yet, so there's no history,
B) it is currently under-performing the S&P-500, but not by a whole lot,
C) I'll be out about $2000 at the end of the year after the load is paid, and
D) I'm worried that I'll be dinged big time by the trading that's ocurring in the regular (non-tax protected) fund account. (Taxes, comissions, and such.)

I reply

From A&B, I'd be concerned. If the fund is attempting to beat the S&P 500 (different funds have different goals and different benchmarks-- check the prospectus), be aware that very few funds manage this with any consistency. If the fund is new and the manager doesn't have a track record of doing really well managing another fund, I doubt this fund will beat the S&P 500 any time soon. My bet is that you have a mediocre fund that will return a couple of points less than the S&P 500-- you can probably do better.

Double check your math on C). You're going to be putting in < $4000 by the end of the year. Unless the fund has a 50% load (which would set off alarms in every SEC office), this seems unlikely. Might you have meant $200 (a ~5% load)? I suppose your advisor might be really bilking you (or he's managing a lot of other monies for you), but I'd be shocked if $2000 is correct.

With respect to D), managed mutual funds certainly tend to have annoying tax consequences. Index funds generate much smaller distributions and thus much smaller tax bills each year. On the list of things I dislike about this fund, though, the tax consequences rank way behind the load and expenses.

jlast writes
My question then is this: would it be Foolish of me to open a ROTH account with my online broker, transfer the balances from the Pioneer accounts (and suck up the fees for doing so), and then simple invest the money in the Foolish Four? I think I'd feel better managing my own Roth, but I'm not sure.

I reply

My general feeling is that those who *think* they'd feel better managing their own money *do* feel better managing their own money. I would certainly tend to be in favor of moving the money elsewhere.

That said, it's certainly a good idea to figure out what the costs of moving are. Earlier, you wrote that the fund had a front load (i.e. pay whenever you put money in). Does it also have a back-load (i.e. pay whenever you take money out)? If so, ouch! If not, you should be able to move without losing a % of your money. There may be 'termination fees' on the IRA, though, which could be significant. Find out what fees would be charged and run the numbers through a spreadsheat to see what makes the most sense for you.

If you do move, you might want to consider other apporaches than the Foolish 4, which is best done with about $4k to start. Buying no-load index funds (Vanguard is among the cheapest) would dramatically reduce fees, increase performance, and be better tax-wise. In a year or two, the Fool 4 would be much easier.

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Author: jlast Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10460 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 8:15 PM
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jocave wrote:
Double check your math on C). You're going to be putting in < $4000 by the end of the year. Unless the fund has a 50% load (which would set off alarms in every SEC office), this seems unlikely. Might you have meant $200 (a ~5% load)? I suppose your advisor might be really bilking you (or he's managing a lot of other monies for you), but I'd be shocked if $2000 is correct.

Thanks for the insight. Alas, however, the $2000 loss is about right. It's set up so 50% of the first 12 payments go out the door as fees and such. $2000 paid out to the R-IRA plus another $1800 ($150x12) equals $3800. And since only half those payments are actually going to the fund, I'm essentially loosing $1900.

FYI, I don't pay for the financial advice. My brother-in-law is in the Army, so I'm riding his coat-tails so to speak for this service. But I am pretty sure the agent is paid by the insurance and fund companies for his business.

I have an appointment this week with him... I'll post what happens.

Thanks again,

jlast

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10461 of 76392
Subject: Re: not eligible for roth Date: 5/10/1999 8:48 PM
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My rant started a lengthy discussion so I feel compelled to respond.

My earlier post discussed what I thought the worst case scenario might be. I agree with all the other posters that there are interim steps, including as dharmadollars said: <<in the future Congress will say, "OK, the existing Roths get the free ride, but only on money contributed up to a certain date".>>

I am neither a tax expert not a consitutional law expert, but I do not think that there is a viable "breach of contract" claim against Congress.

I also acknowledge that TMFPixy has been on record with his position for a long time.

For those not eligible for a deductible regular IRA, I truly beleive that it is a no brainer. The real thrust of my comment was directed at (i) those who forgoing a deductible IRA to open a Roth IRA and (ii) those who were converting existing IRAs, and then it was not determinitive but only one of many issues to consider in the analysis.

Also, AARP can be a potent lobbying force, so the whole issue may reach "untoucchablel" status, but the really wealthy and high income earners are not likely to be active players on this issue because it will not be of personal concern to them - they are frozen out by the current rules.

If I recall correctly, was is not 1981 or 1982 when Congress really opended the gates for expansive use of deductible IRAs and then only 4-5 years later in 1986 that it closed those gates considerably because it was losing to much current revenue?

I have no specific reason for my concern other than my general cynicism (sp) regarding this and every future Congress, but I continue to vote in every election.

Just my $0.02. Regards, JAFO



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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: 10466 of 76392
Subject: Re: not eligible for roth Date: 5/11/1999 8:04 AM
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Greetings, Jlast, and welcome. You wrote:

<<Thanks for the insight. Alas, however, the $2000 loss is about right. It's set up so 50% of the first 12 payments go out the door as fees and such. $2000 paid out to the R-IRA plus another $1800 ($150x12) equals $3800. And since only half those payments are actually going to the fund, I'm essentially loosing $1900. >>

Wow!!!! That is an absolutely unconscionalbe, greedy, gouging, confiscatory fee. It's water under the bridge now, but IMHO you were fleeced. Your brother-in-law certainly did you no favors with that recommendation. Before you do anything else, read some of the excellent materials available in the Fools School and throughout Fooldom. You need to get a tad more knowledge in how to invest and how to choose your providers to avoid losing money like this again.

Regards..Pixy

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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: 10467 of 76392
Subject: Re: not eligible for roth Date: 5/11/1999 8:15 AM
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JAFO writes:

<<If I recall correctly, was is not 1981 or 1982 when Congress really opended the gates for expansive use of deductible IRAs and then only 4-5 years later in 1986 that it closed those gates considerably because it was losing to much current revenue? >>

They may have curtailed the use, but they didn't disallow past contributions or change the rules regarding those contributions in the process. The changes were prosepective, not retroactive.

The Congress giveth and the Congress taketh away. At some point and IMHO a future Congress will take away the Roth. When that happens, it flies in the face of reason and legislative history to say that they will tax existing Roth IRAs. Obviously, Congress may do what it wants at any time, but nothing in legislative history leads me to believe there's anything but an extremely remote chance they'll levy an income tax on Roth distributions. No, they'll be smarter than that and do it indirectly through a VAT, a consumption or a national sales tax instead. And BTW, I also view any of those as remote (but not as remote) possibilities as well.

Regards..Pixy

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10514 of 76392
Subject: Re: not eligible for roth Date: 5/12/1999 5:20 PM
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Thanks for the insight. Alas, however, the $2000 loss is about right. It's set up so 50% of the first 12
payments go out the door as fees and such. $2000 paid out to the R-IRA plus another $1800 ($150x12)
equals $3800. And since only half those payments are actually going to the fund, I'm essentially loosing
$1900.

FYI, I don't pay for the financial advice. My brother-in-law is in the Army, so I'm riding his coat-tails
so to speak for this service. But I am pretty sure the agent is paid by the insurance and fund companies
for his business.


This is pitiful. You are paying $1900 for the privilege of contributing $2000
to a Roth IRA ?????

If that is actually the case, RUN, don't walk, away from those thieves !!!!!


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