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Author: DarrellK One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 81564  
Subject: Re: Fool Four Appropriate for Self-Dir Roth? Date: 9/11/1998 11:13 PM
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XanaduPrime writes:
I've finally decided to get off my arse and start a Roth IRA at a discount broker. Then I find out that all commissions for online trades MUST come from the IRA account itself and cannot be paid for separately (i.e. credit card or personal check). At least 2 online brokerages (DLJDirect and Fidelity) have told me that this is just the way IRAs work. Has this been the case for others out there?

Yes, that's the way it works, as far as I know. If there are custodial fees for the IRA, those can be paid from outside the account, but commissions are paid from within.

I was incredulous when I first heard this...it eats into my compound growth!!

So it does.

Fool-Four trading every 18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual funds...

Well, it depends on the size of the IRA. If you're just starting out, then yes, you may be better off using a mutual fund until you have enough in the IRA that the trading commissions are small (relatively).

Or should I just bite the bullet and pay beyond the $2k limit (maybe $50 extra a year), take the penalty hit, and move on?

Just what is the tax penalty on the excess amount? Do they just tax the excess or the entire sum?

You pay 6% excise tax per year on amount of the excess contributions until you fix the overcontribution by withdrawing the excess contribution and all earnings from it. Not a good plan, I think.

See IRS Publication 590 for more details:

- Darrell
(not a tax expert)
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