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Greetings, Xan, and welcome. You wrote:

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?

That's true. If you pay for trades with money outside the IRA, tax rules will say that payment is an additional contribution to the IRA, which could push you over the annual $2K limit. Therefore, all trade charges will be paid for with money already in the account.

I was incredulous when I first heard eats into my compound growth!! Fool-Four trading every 18 months at $20 a trade (DLJ rates) is insane. I guess IRAs are better suited for mutual funds...which brings me to my other questions.

Until the account builds up some (usually about $4K at a discounter), it may indeed be better to keep the money in an index fund to keep your annual charges down. Around Fooldom we believe your costs of trading should never exceed about 2% to 2.5% of your portfolio, and the lower the better. With one of the Dow strategies, that's about $4K at a discounter. As the portfolio grows, those trading costs -- as a percentage -- plunge. But with small sums, they are high initially.

Is the Fool-Four investment method really suited for self-directed Roth/Regular IRAs?

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?

Yes, the FF is a good method for an IRA of any type IMHO, but only when the trading costs can be held below 2.5% per year. And no, you shouldn't pay extra unless you want to pay the tax man 6% per year until that extra deposit is removed from the account. That's the penalty for excess IRA contributions.


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