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Hi,
I am self employed 40 yr old and have managed to accumulate @40K in traditional IRA spread amongst 3 mutual funds. My plan is to get out of the mutuals and split my savings into a combined UV4 trading once every 18 months and Unemotional Growth trading every 3 months.

Can I convert all of my existing to Roth Ira and follow this strategy? Can I continue to add my IRS limit of $2,000/yr to my mew self directed plan? Can I add money to my portfolio in excess of the IRS tax defereed allowance and if so how is the tax owed calculated when starting to withdraw?

Thanks in advance for any coments.

markf2
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Greetings, markf2, and welcome.

<<I am self employed 40 yr old and have managed to accumulate @40K in traditional IRA spread amongst 3 mutual funds. My plan is to get out of the mutuals and split my savings into a combined UV4 trading once every 18 months and Unemotional Growth trading every 3 months.

Can I convert all of my existing to Roth Ira and follow this strategy? Can I continue to add my IRS limit of $2,000/yr to my mew self directed plan? Can I add money to my portfolio in excess of the IRS tax defereed allowance and if so how is the tax owed calculated when starting to withdraw?>>

You may convert your traditional IRAs to follow the strategy of your choice within the Roth umbrella. If the Senate version of the technical corrections to Roth law EVER pass and get enacted, then you may add your annual contribution to your conversion Roth account. Right now under existing law the vast majority of brokerages will not permit this due to IRS guidance based on that law. We'll just have to wait and see on that one. I hope not too long, though.

If you add more than $2K (other than a qualified rollover) to a traditional or a Roth IRA, you will have made an excess contribution that will be subject to a 6% penalty per year until it is withdrawn. You have until April 15 of the year following the year for which the contribution was made to withdraw the excess and avoid being assessed that penalty.

Regards….Pixy
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<<You may convert your traditional IRAs to follow the strategy of your choice within the Roth
umbrella. If the Senate version of the technical corrections to Roth law EVER pass and get enacted,
then you may add your annual contribution to your conversion Roth account. Right now under
existing law the vast majority of brokerages will not permit this due to IRS guidance based on that
law.>>


Uh-oh, confusion again. I was planning on rolling an existing SEPP IRA (around $30K) into a new Roth, then adding $2K into it next month. Can't do?
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HI Pixy,
>>If you add more than $2K (other than a qualified rollover) to a traditional or a Roth IRA, you will have made an excess contribution that will be subject to a 6% penalty per year until it is withdrawn. You have until April 15 of the year following the year for which the contribution was made to withdraw the excess and avoid being assessed that penalty.<<

Thanks for your response! I am wondering how one would structure thier portfolio to take advantage of Roth tax advantage, still put additional savings into thier portfolio and not get soaked by excess trading costs and confused by elaborate tracking of multiple accounts.

In other words, I want to hold a 10 stock portfolio with weightings adjusted periodicly. Some of this would be my roth conversion money some would be additional savings. The 6% penalty you detailed seems like something to be avoided at all costs. TIA
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Hi,
Did anybody reply to your message? I have similar questions? I am in the military and have about $60K in a Standard IRA. I was in Bosnia for six months and that income is tax free. Is it a good idea for me to convert? STEVE
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TheOthermfa,

You wrote:
QUOTE <<You may convert your traditional IRAs to follow the strategy of your choice within the Roth umbrella. If the Senate version of the technical corrections to Roth law EVER pass and get enacted, then you may add your annual contribution to your conversion Roth account. Right now under existing law the vast majority of brokerages will not permit this due to IRS guidance based on that law.>>


Uh-oh, confusion again. I was planning on rolling an existing SEPP IRA (around $30K) into a new Roth, then adding $2K into it next month. Can't do? UNQUOTE

There is no law that says you CAN'T do that, but based on the withdrawal penalties under existing law the IRS has recommended that Roth providers not permit the mingling of converted and contributory Roth IRA money. In general, Roth providers have followed that recommendation and written their IRA contracts to prohibit contributions to a conversion Roth IRA. The Senate version of the pending technical corrections will make that practice unnecessary. However, those provisions are not yet law, so most Roth providers still follow the IRS recommendations.

KAT in Chicagoland has recommended that when folks open a Roth IRA, they simply line out the offending language prohibiting mingling of conversion and contributory money. That might work, but far more likely is the refusal of the Roth provider to accept the IRA agreement unless that language is retained.

Life would be so much simpler if Congress would get off their dead rears and take the action necessary to correct the more blatant flaws in current Roth law. Right now, it's hung up in the overall bill that includes IRS "reforms," so I fear we will all be old and decrepit before anything works its way into law. But don't mind me. I've just lived in this seat of power for far too long and have grown quite cynical through watching the insane machinations of those who wield it.

Regards….Pixy




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Markf2,

<< I am wondering how one would structure thier portfolio to take advantage of Roth tax advantage, still put additional savings into thier portfolio and not get soaked by excess trading costs and confused by elaborate tracking of multiple accounts.

In other words, I want to hold a 10 stock portfolio with weightings adjusted periodicly. Some of this would be my roth conversion money some would be additional savings. The 6% penalty you detailed seems like something to be avoided at all costs. TIA>>

As to avoiding the 6% excess contribution penalty to an IRA, I agree with you. Seems to me to be too expensive regardless of the return I might get by absorbing it. I guess you're just going to have to reach some sort of compromise with yourself on how to manage your accounts if you want 10 stocks equally weighted within the total money available. And it will require some juggling on your part. Until your IRA reaches a sufficient size to make the task somewhat easier, you may want to consider just letting those funds build up in an index fund of some sort or even in a different stock strategy like one of the Dow methods.

Regards….Pixy
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Greetings, Steve, and welcome.

<<I am in the military and have about $60K in a Standard IRA. I was in Bosnia for six months and that income is tax free. Is it a good idea for me to convert?>>

Conversion to a Roth may or may not be good for you depending on a number of factors. These include from where and how you intend to pay the taxes due on the conversion; what you think the tax rate will be in the future versus what it is today; when and how you intend to withdraw money from the IRA; and what you want to leave to heirs. For a comprehensive discussion of these issues, read this post: http://boards.fool.com/Registered/Message.asp?id=1040013000441002&sort=postdate

That discussion will assist you in your planning.

Regards….Pixy

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Hi Pixy,
THanks for the helpful reply.

>>I guess you're just going to have to reach some sort of compromise with yourself on how to manage your accounts if you want 10 stocks equally weighted within the total money available. And it will require some juggling on your part. Until your IRA reaches a ufficient size to make the task somewhat easier, you may want to consider just letting those funds build up in an index fund of some sort or even in a different
stock strategy like one of the Dow methods.<<

This speaks directly to the nature of my confusion/lack of experience. I plan to use a strategy combining UV and UG as outlined in The UnEmotional Investor. THis is a "DOw Method" isn't it?

I am trying to understand how I can manage my intended portfolio and stick to my strategy after converting my existing IRA (@ $40K) to Roth, making annual $2K contributions and additional contributions.

I believe the conversion makes good long term sense and further believe that this is the year to convert. Comingling sounds like an accounting problem I would like to avoid. Can one have a Roth IRA account and an additional account but still trade and adjust overall portfolio weightings etc on a periodic basis in keeping with UV and UG methods?

Forgive my confusion I am new to this but I am determined to be Foolish. Should I be posting this to the managing your portfolio board? TIA for your help!

regards,
markf2
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. . . based on the withdrawal penalties under existing law . . .

Actually, based on withdrawal penalties in a proposed law that never was, and never will be, enacted.

KAT in Chicagoland has recommended that when folks open a Roth IRA, they simply line out the offending language prohibiting mingling of conversion and contributory money. That might work, but far more likely is the refusal of the Roth provider to accept the IRA agreement unless that language is retained.

Sorry if I was unclear here. I'm not suggesting lining out any language in the form. I'm just saying you shouldn't check the box that designates it as a conversion Roth IRA. If you read the form carefully you'll see that there's no requirement to check the box because they refer to Roth IRAs that contain both rollover and non-rollover money. It's just an optional way of keeping things straight -- but with the negative consequence of preventing you from keeping rollover and non-rollover money in the same IRA. If you don't check the box, you should be able to make non-rollover contributions to the same Roth IRA that received the rollover -- assuming the broker is smart enough to understand this.

Life would be so much simpler if Congress would get off their dead rears and take the action necessary to correct the more blatant flaws in current Roth law. Right now, it's hung up in the overall bill that includes IRS "reforms," so I fear we will all be old and decrepit before anything works its way into law.

Could be (I'm already pretty decrepit) -- but I'm happy to see that Senator Roth has announced agreement on the major points concerning this legislation, and there's some hope Congress will vote on the final bill this week. No promises, though . . .

Kaye Thomas, author
Fairmark Press Tax Guide for Investors
http://www.fairmark.com
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Markf2,

<<This speaks directly to the nature of my confusion/lack of experience. I plan to use a strategy combining UV and UG as outlined in The UnEmotional Investor. THis is a "DOw Method" isn't it?

I am trying to understand how I can manage my intended portfolio and stick to my strategy after converting my existing IRA (@ $40K) to Roth, making annual $2K contributions and additional contributions.

I believe the conversion makes good long term sense and further believe that this is the year to convert. Comingling sounds like an accounting problem I would like to avoid. Can one have a Roth IRA account and an additional account but still trade and adjust overall portfolio weightings etc on a periodic basis in keeping with UV and UG methods?

Forgive my confusion I am new to this but I am determined to be Foolish. Should I be posting this to the managing your portfolio board? TIA for your help!>>

The unemotional value (UV) strategy is a Dow approach, but the unemotional growth is not. You may want to do some additional reading over in the Dow and Foolish Workshop areas of Fooldom to learn a bit more about what each strategy entails before you jump in with both feet. The UG strategy can be quite unnerving for those not used to a do-it-yourself approach to investing. You can maintain separate Roth accounts and try to manage them as one, but after a few years rebalancing becomes a problem. Thus, confining a particular strategy within one account is far simpler.

If and when the Senate corrections are enacted, maintenance of separate accounts for Roth conversions and contributions will be a moot issue. That, too, should help make things easier for you - and for everyone else in a similar situation for that matter.

Regards….Pixy

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KAT,

<< If you read the form carefully you'll see that there's no requirement to check the box because they refer to Roth IRAs that contain both rollover and non-rollover money. It's just an optional way of keeping things straight -- but with the negative consequence of preventing you from keeping rollover and non-rollover money in the same IRA. If you don't check the box, you should be able to make non-rollover contributions to the same Roth IRA that received the rollover -- assuming the broker is smart enough to understand this.>>

It's not that simple in many cases. For example, the fund family sponsored by my employer requires you to indicate the source of the deposit by checking a box for conversion of traditional IRA, rollover of a contributory Roth, rollover of a conversion Roth, or an annual contribution. A box MUST be checked, and that check determines what type of Roth account is being opened. So sayeth the corporate lawyers, and we all know what a pain in the butt lawyers are. <vbg> This family is not the only Roth provider doing so, either.

Regards…..Pixy
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Hi Pixy,

>>The UG strategy can be quite unnerving for those not used to a do-it-yourself approach to investing. You can maintain separate Roth accounts and try to manage them as one, but after a few years rebalancing becomes a problem. Thus, confining a particular strategy
within one account is far simpler.If and when the Senate corrections are enacted, maintenance of separate
accounts for Roth conversions and contributions will be a moot issue. That, too, should help make things easier for you - and for everyone else in a similar situation for that matter.<<

Thanks for the clarification. DO you suggest that the UG strategy is unerving because of having to do a bit more complicated screening process or because of the more volitile nature of the stocks that come from the screen or both? I am reluctant to put all of my eggs in a 4-5 stock UV approach. I feel that while UG is a highe rrisk strategy than the Dow approach combining it with UV4+ minimizes the risks to some degree due to diversification. As I said I am new to this and not certain of my conclusions.

I guess I'll wait and study a bit in hopes of new legislation that clears this up. I intend to take advantage of this years conversion benefits so hope to be able to start the process in time, say November at the latest. Thanks again.

markf2
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Markf2,

<<DO you suggest that the UG strategy is unerving because of having to do a bit more complicated screening process or because of the more volitile nature of the stocks that come from the screen or both? >>

IMO it's a much more volatile strategy than the UV plus it requires more active trading. To those used to neither the disconcerting swings in the market or the more active trading, it can be unsettling to say the least.

Regards.....Pixy
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Markf2,

<<DO you suggest that the UG strategy is unerving because of having to do a bit more complicated
screening process or because of the more volitile nature of the stocks that come from the screen or
both? >>

Surf over to the Workshop page & read up on the various growth stock strategies covered there, among them the UG5. My $0.02 is to get your feet using a growth screen which only trades annually, such as Formula 90 &/or Keystone before attempting UG5. One person who uses UG5 recommended staying away from it unless you already enjoy slamming doors closed on extremely sensitive parts of your anatomy, nudge, nudge. The returns are great but it's definitely not for newbies.

Chris
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