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Hello,

I am new to this board. I did a search to see if this topic was covered, but did not find much information.

My husband and I plan to start Roths in both our names ASAP. We know that withdrawals are tax free at
59 1/2. The decision we have to make at present is whether or not to fund the Roths with stock from individual companies, or choose some type of mutual fund.

Are we Foolish in thinking that it would be a good idea to fund the Roths with stocks that are not particularly tax efficient (since no taxes will be due at a later date?)

Do most of you with Roths fund them with "safe" stock, or agressive growth stock? Ideally, since no taxes will be due, it would seem great to go with riskier stocks that might generate larger returns (if we choose Wisely.) But, the downside would be that you would risk a penalty for withdrawal at an earlier date if these more volatile stock(s) began to take a dive.

I know a lot of what we do will be based on our tolerance for risk, but am curious to know what some of you have done and how successful your strategy has been?
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I have decided that the "riskier" stocks with the greater potential for higher returns will go into the Roth because of the tax free withdrawls. When you sell stocks within the Roth, that is not a distribution from the Roth. You only get penalized for early withdrawl of returns, that is to say, you get penalized for withdrawing the money from the account - taking a distribution. You can buy and sell all you want within the Roth, but penalities would not be assessed. The penalities are just on money from your returns taken out of the Roth IRA account.

Hope that made sense.

Taylor
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Are we Foolish in thinking that it would be a good idea to fund the Roths with stocks that are not particularly tax efficient (since no taxes will be due at a later date?)

You may not fund any IRA, be it SEP, Traditional, Roth or Educational with stocks. The funding must come from cash, checking, money market funds, etc. You will need to sell either your mutual funds or stocks to fund the IRA wish cash.

Donna
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Taylor,

Thanks very much for the information. I'm glad to know there is no penalty for selling within a Roth.

Donna,

Sorry for the incorrect wording... I did not mean to say "fund" the Roth with stocks, etc., as I know you need to fund it with cash to buy whatever you're going to buy. Thanks for clearing up the confusion.

- Connie
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I would fund with mutual funds until you get the account big enough to make stock purchase worth the cost. There is no such thing as safe stock. No No NO such thing.

Buy mutual fund.
www.vanguard.ocm
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<< Are we Foolish in thinking that it would be a good idea to fund the Roths with stocks that are not particularly tax efficient (since no taxes will be due at a later date?)

Do most of you with Roths fund them with "safe" stock, or agressive growth stock? >>

You can't really answer this in a vacuum. The best strategy depends on what mix you have, both of types of investments and types of accounts (IRA vs. taxable).

Keep in mind that long-term buy and hold gains are taxed at a maximum of 20%, so if you have more investments than your Roth can accomodate, it may be wise to keep your long-term stocks in the taxable account and the ones that produce current income, through dividends or short-term cap gains, in the IRA.

TMF ExRO
Phil Marti
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