I've been wanting to start investing for quite some time now, and after about 6 months of researching, reading, learning, listening, and thinking, the time has come. I was all ready to roll with Scottrade until I realized that Dec. 31st is quickly approaching and I have no idea what effect that will have on my future first investment. That first investment will be in the form of an index fund held in a Roth IRA account. Do I need to / Should I wait until after Jan 1 to make this purchase? What are the tax implications of investing prior to / after the new year. Thanks and Happy Holidays.-IF
If the investment is in a tax deferred account (IRA or 401K) you do not need to worry about any tax consequences of declared dividends or capital gains.Debra
That first investment will be in the form of an index fund held in a Roth IRA account. Do I need to / Should I wait until after Jan 1 to make this purchase? What are the tax implications of investing prior to / after the new year.You have the option, but not the obligation, to open an IRA account directly with the fund company that distributes the index fund that interests you. The fund companies prefer direct investors, and they offer services to their direct investors that they don't offer to their indirect investors. Additionally the stock brokerages offer mutual funds as loss leaders. They can modify or terminate their mutual fund programs at any time for any reason.David JacobsTMFDj111
To buy a stock has no tax implications. Or a bunch of stocks in a mutual fund. To try to second guess whether the price will be better before or after the New Year is called market timing. If a pattern emerged, everybody would either delay their purchase or accellerate it, to get the better price, and the advantage would promptly go away. If you know what you want to buy and you have the money, go ahead. The price will subesquently go up and down. Don't worry about it. Especially, for goodness sake, within a Roth IRA (or any kind of IRA) you buy and sell without worrying about tax consequences. Best wishes, Chris
The fund companies prefer direct investors, and they offer services to their direct investors that they don't offer to their indirect investors.Could you detail the mutual fund companies and the services they offer direct investors because I don't recall any from Vanguard, Janus, T Rowe Price or whatever's Invesco's become these days.rad
Ahhh, but one of the down falls are account maintenance fees and low balance fees. And very high trading fees if you want to buy and sell stocks through their brokerages. I know Vanguard has them. Scottrade does not. At least for now.Yea, I am a happy Scottrade customer. 401K at Vanguard, so know about them too. The best thing is to go to the different companies web sites and read all of their account information. And I agree as you are going for a long term investment, the timing is not so important. You have until April 15 to fund a 2004 IRA/ROTH IRA remember. But make sure you designate it for 2004.
Thank you for all the replies. I know now that I should have made it clearer that i'm looking for tax reporting consequences rather than money saving consequences. Market timing is definitly not my thing, where as long term buy and hold is. The thing is that this year will be the first year that I am no longer claimed as a dependant and am planning on filing my taxes myself so I didnt want ot cause too much extra paperwork that could have been avoided. Thanks again allIF
Greetings, IF, you have already received many useful replies. I just want to underscore a few points:In your age and income bracket, the Roth IRA is essentially the no-brainer way to go for investing. Pay the taxes now rather than defer them, so that the EARNINGS remain tax-free and you will not face taxes on them many years later when it is time to live on the proceeds. The inheritance characteristics of a Roth are far kinder and gentler than are a traditional IRA. For what it's worth, investing in a Roth does not require any special forms to report on your annual tax return.You can contribute to your 2004 Roth up to tax day 2005 (generally April 15th) so long as you DESIGNATE the contribution is for the prior year - most forms from brokers for IRA contributions allow you to indicate this directly, as it is a common maneuver to contribute for the prior year in the first 4 months of the subsequent year. This has bought you 4 more months to learn about retirement vehicles and you keep the opportunity to invest in 2004 without rushing. Once the deadline for the year has passed, it is gone forever and you can't retroactively invest. So between now and April would be the ideal time to spend some time educating yourself, and what better place than here at the Fool? In reality, you'll need a little lead time to open an IRA account somewhere, so do this before April.The website www.irs.gov is a treasure trove of essential information on taxes, along with providing printable forms and instructions. Long before the Internet, I learned about taxes in my early 20's (I've always done my own and I am now 48), by acquiring a copy of PUBLICATION 17 from the IRS. This is a guide to taxes and is published annually. On the website, you can request a free copy to be sent to you - not all of it (most of it, in fact) will not be pertinent to your own situation but the information will be there if you want to do some worthy bedtime reading. It also may be a payoff to borrow or buy an annual tax guidebook such as by J. K. Lasser or other authors who pre-date TurboTax software and concentrate on the do-it-yourself individual tax preparer.Clearly you are going to enjoy doing your own taxes - have fun!xraymd
Thank you as always xraymd. I will check out those two publications you mentioned. And I never thought i'd hear myself call taxes "fun"!IF
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