jIM wrote:
- quote -

Better yet, don't invest in something that you plan to lose money on.
Or invest in me, I'll spend it, and you can write off the loss...

put any investment you plan on losing money on in a taxable account to
write off the loss. Put any money you want to grow into a tax deferred
account.

zxcvbob wrote:
- quote -

Bob,
Keep in mind the conversion route. Extreme exampl: work a job awhile,
build up a fat 401k, take a year off, do a 401k to IRA Rollover, then
convert that IRA to a Roth - maybe at 0% tax, because you're off
trekking in Thailand living on $300 a year and earning zilch. THAT'S the
way to stuff a Roth, at least until the contribution limits get raised.

You can also do this with SEP-IRAs very easily, and without leaving the
job, if you're self-employed.

But you're right, you always want accessible savings/investments
alongside your retirement savings.

-Tad

Will Trice wrote:
- quote -

Most of my Roth IRA is in individual stocks. Most of them have done
well, and 2 of them have done extremely well. I just can't seem to pick
stocks right in a taxable account :-/

The biggest problem with a Roth IRA (any IRA) is you can't contribute
enough money to it every year to count on it for your total retirement
unless you start *very* young. So you might want to also have a
non-qualified account earmarked for retirement -- so you can draw from
it in an emergency or if you invest so well you want to retire early.

Best regards,
Bob

On 23 Aug 2005 04:50:02 GMT, Will Trice <wwtrice[at]paragondynamics.com> wrote:
- quote -

All the gains in a Roth IRA (long or short term) are not taxed at all
(unless withdrawn before qualified), and never has to be withdrawn at any
particular time (until you die). But you can only take a loss if you have
a negative total return when you draw the last of the money out (less
total withdrawl than total contributions). If your net gain after 15, 20,
30 years is negative you did not invest wisely.

Gains in a regular IRA are taxed at whatever your marginal tax rate is
when you draw the money out (likely higher tax than long term capital
gains rates). Likewise unless you have a net loss throughout the life of
your traditional IRA or 401k, there is no loss deduction, but you never
paid tax on that money anyway.

In a taxable account, long term gains might be taxed at a lower rate than
money drawn from a traditional IRA or 401k, depending upon what your
marginal tax rate is if retirement is many years away. But short term
gains would be at your current marginal rate.

Personally I am gradually converting some of my money from IRA to Roth
IRA, so every $1000 I convert (and pay $250 tax on now) will grow $1000
tax free instead of all any gains possibly being taxed at 25% or more
later. Hopefully with a wider selection of investments I can make 1/3rd
of my money in IRA's grow to more than 2/3rds of my money in limited 401k
funds.

Mike Stone wrote:

- quote -

[snip]

- quote -

This post (and others in this thread) make it sound like you can't
invest in individual stocks within a Roth. But, of course, you can. A
Roth does not provide an insurance policy against investing in
individual stocks. And doing well with individual stocks shouldn't lead
one to the conclusion that a Roth is the wrong way to go.

-Will

"Mike Stone" <mikews[at]gmail.com> wrote
- quote -

anecdote
- quote -

You're right. I was lucky in the sense that I entered the professional
workforce in the early 1980s, and things were peachy just buying blue chips
and blue chip mutual funds. There wasn't any particular obvious "popular"
investment for my age group. No bubble, though we had the anomaly of 1987 to
weather.

Or maybe the big difference was the youth of the net. So financial
information wasn't so accessible, and so people could not easily day trade
(or similar) without a lot of motivation.

snip
- quote -

As you must know, Gaussian distributions will always produce the handful.
The goal is to help people understand that there are two (Gaussian) tails
with which to be concerned....

- quote -

Perhaps not, but he must hear a lot about this recent market history, since
he talked about how he could lose it all and sounds somewhat frightened, or
at least unconvinced that he'll be fine come 30 years, if he leaves
everything in a Roth IRA.

Folks are shy about investing in the market today. I believe bond talk has
been way up for the last few years.

The result IMO is going to be a flat market for some time, which is good, if
the theory about P/Es being a bit inflated has any validity.

Slow steady growth seems to be Alan Greenspan's aim. This makes sense to me,
too.

All these folks going bankrupt... maybe this too will cause a major cultural
shift in personal finance mindset.

The other day I learned of a second (within a few months!), personal
acquaintance who not only is in debt but is in financial trouble with legal
repercussions. This time, the IRS is involved. The guy talks big, bought a
fancy new truck (the preferred transportation out West) last month, and
tries to buy dinner for friends. Clueless. He's going to learn the hard way.

snip
- quote -

To double check: Did the stock market bubble bursting c. 2000 help in your
decision-making on the house?

If so, then perhaps you got something important out of the stock bubble
bursting...

- quote -

8-10 is a full-time job?

Hm.

Maybe this was a pre-internet viewpoint. :-)

- quote -

lol

- quote -

You're too wise to be only in your early 30's.

- quote -

That is, they are either telling fictions or are outnumbered by the many
people losing money and too ashamed to admit it.

Elle <elle_navorski[at]nospam.earthlink.net> wrote:

- quote -

I work in technology & a few of the companies I worked at outside of
the DC area had roughly 1/2 the staff holding onto a few million in
stock. I never hit the jackpot like that and most of those people from
that time lost their shirts after 3/2000.

Every time there's an asset bubble there's the "fever" that everyone has.
I was very young and new to this whole thing & really felt invincible.
It's eery how many similarities there are between real estate and equities
in the 90's right now.

I read a lot about how investors were making a ton of money in stocks
and everyone was upset that they didn't have more investment options
in their 401k's. Most people I knew were moving out of the S&P 500
because it's > 10% gains were *NOT ENOUGH*!!! So I cashed out the IRA's
and 401k plans and took some money in savings and started gambling
with my etrade account.

This was the conventional wisdom - new rules are at work, the Internet
has changed everything. The Dow will hit 30k!

Everyone around DC had the "fever" you could say. Everyone discussed
this at lunch. I knew a lot of guys who made greater than 100K a year
trading stocks. I put in about $40K and quadrupled it. Then I lost it
in 1999 prior to the 3/2000 crash. I can only think of a handful of
people who beat the system and almost all of them did it via pure,
dumb luck. They had made so much money that they just stopped caring
about it making more money and moved out to hawaii, denver or some
other vacation place to retire in their 30's.

BTW, I don't think the OP has this mindset.

Just the other day, I was reading a money mag at the book store. One
of their "success stories" had a very affluent couple in their 50's
retiring early (largely due to a pension plan). They lost 80% in
the 3/2000 crash.

This loss was a huge blow to my ego. I figured I'd be a millionaire by
the age of 30. 30 was getting closer and closer & I was nowhere
near that goal.

I re-assessed things, spent a LONG time reading and ressearching how
people do make money (starting their own business, savings, compound
interest etc..etc..etc...) and a lot about how market bubbles work.

There is no reasoning with people though. The very things I heard
about equities I started hearing about real estate. I sold my place
in Virginia and moved out of the area.

People laughed at me for selling in 2003. My house had doubled in
value and 6 months later Sully Station (my neighborhood) was on the
cover of the WSJ. Now I know my neighbors are stuck and can't sell.
They're desperate to get out of their ARM loans which go up every
month and can't afford their over priced homes without them.

To the OP: I don't think you're as stupid or uneducated as I was at
your age ;-) According to Buffet, tracking 8-10 stocks is a full
time job but a good number to work with.

I would do the ROTH IRA & 401k 1st and then invest outside of it as
a 2nd priority. If you find yourself to be invincible in stocks then
after a few years stop your ROTH and keep investing in stocks. Better
yet, try to get a job as a mutual fund manager :-)

In my short experience as an investor (I'm only in my early 30's)
I don't know anyone who can do this. Everyone's gotten burned.
You may be the exception to the rule and if you are what's wrong
with a ROTH IRA for a few years as an insurance policy?

The only people I seem to see being a huge hit at investing are
on the 'Net on a disucssion board or managing a mutual fund
somewhere.

If you hit 30 and your 8-10 stocks have quadrupled in value, then
maybe you're one of the rare few people who really don't need
the ROTH.

Whatever you do, don't let your emotions get the best of you :-)

-Mike

"Mike Stone" <mikews[at]gmail.com> wrote
- quote -

Do tell more. I sense a great story here that will help others.

Was this a mindset within the company for which you worked at the time? Did
you and your buddies used to chatter about how "cashing out one's 401(k) was
a great way to buy that new 2006 Mustang Convertible; the penalty wasn't
that great compared to the fun of having a sports car"?

- quote -

The contributions to a Roth may be withdrawn without penalty at any time.
The earnings may not.

- quote -

Indeed.

Good post.

I'm thinking every now and then we should have a thread titled "Most
regretted investing mistakes... " It would be instructive.

- quote -

You can take your *contributions* out of Roth at any time without
penulties, however the earnings must stay until retirement with a few
exceptions.


- quote -

xyzer[at]hotmail.com wrote:
- quote -

Well keep in mind that loss deductions aren't really "tax benefits" -
they just make your losses a little less than they would otherwise be.
And unless your income is high a $3k offset to income doesn't reduce
your loss by much - maybe $500? If it's $500, you've still lost $2500,
and your bottom line would be better if you had gains (that you were
paying taxes on).

And not that it should ever come to this, but you DO get a deduction if
your Roth truly tanks. When you fully liquidate all of your Roth or
Traditional IRAs, any losses become deductible as miscellaneous itemized
deductions. That may be one of the least-used deductions on the tax
return, it rarely comes up (and rarely meets the 2%-of-AGI threshhold
for being deductible). But it's there if you flush the account out
somehow. Info on this is on the link below, see the section on
"Recognizing losses on your investments".

Of course at 24 you really shouldn't be thinking in terms of losing
money in a Roth - you'd really need to be awful at investing to do that!

RE: accessibility - you might read up on the rules for Roth
distributions, you can actually get at at least some of the money before
retirement age. It's all laid out in IRS Publication 590, see the html
version at http://www.irs.gov/publications/p590/


- quote -

That 15% rate is relatively new, and is historically low. I wouldn't
assume that it will survive even the next revision to the tax code. Andi
if not that one then the next one, and so on. The gov't needs to make up
revenue somewhere, and that capital gains rate is easy to paint -
politically - as a gift to wealthy taxpayers. How that debate pans
out...who knows? But I wouldn't assume that you'll have 15% long-term
capital gains rates 20 years from now.

That's the nice thing about the Roth, it's the only truly tax-free
account that you can tap into while you're alive, at least among the
alternatives where you can invest in anything you want (individual
stocks, mutual funds, etc). If you pass up a Roth you're giving up a
great opportunity to advance your wealth, by taking the tax piece out of
the picture. A $100,000 Roth is like a ~$150,000 traditional IRA,
because when you take money out you aren't slapped with state & federal
taxes. It lowers the amount you need to save to Stop Working For The Man.

RE: 8-10 stocks spread over $5k...it's your money, but you'd better be a
good stock-picker to make that worthwhile, factoring costs & account
fees that will probably come into play, and the risks of picking wrong
(try picking off the top of your head 10 companies that were even around
20 years ago?). You might consider letting the Roth tick along in some
well-diversified mutual funds until there's enough money there to bother
with individual stocks. And some people never bother - remember, at age
24 time is on your side, and the main thing you need to achieve
investment-wise is "don't blow it!"

-Tad

xyzer[at]hotmail.com wrote:
- quote -

You're in a tough place to really reason with because of your age.
At age 24, I didn't do a ROTH & cashed out my 401k. I invested directly
in the market and did well for a few years until the stock market
& my own greed got the better of me. I was shell shocked from
investing and saving for a while until I started up around age 31.

I wish I had done a ROTH IRA every year since I was 23 and maxed it
out instead of investing foolishly. I'm not saying that you'll do
the same, but I can say that almost 90% of my colleagues did the
same.

- quote -

The ROTH IRA I have is very flexible, I can pick up stocks, bonds, funds
etc...thousands are available to me. The only real limitation I have
is that I can't touch the funds until I'm retiring. Which is ok with
me.

The ROTH will let you cash out under certain circumstances (hardship)
and also at a taxed rate if you do it early.

So, what's the harm?

-Mike

- quote -

$3000 is the maximum loss deduction allowable per year. How much were you
going to put into a Roth each year? This year the maximum contribution is
$4000. Why are you planning on losing money? Wouldn't you rather be planning
on accumulating wealth? If you're going to retire at 45, then you will need
to save significantly more than you can contribute to a Roth. Why not use
the Roth as tax-deferred savings, and also use a taxable account for the
money you'll need to start using at age 45?

Elizabeth Richardson

<xyzer[at]hotmail.com> wrote
- quote -

Okay. Just checking.

I gather you have not bought into a philosophy of "buy and hold." Too bad.

snip
- quote -

Twenty years is the long-run, but since you're only 24, and in theory it
seems more likely someone your age won't withdraw until any sooner than age
59.5, then you have a 30+ year window. That's really long.

- quote -

Nothing, as long as you can live with losing the tax advantage of the Roth
IRA, and as long as you're truly disciplined _not_ to day trade. As another
poster pointed out, assuming historical rates of stock growth, your earnings
are going to far exceed your orginal contributions, assuming you contribute
every year. The tax savings will be enormous.

- quote -

I bet the tax savings on earnings will still be too large to be concerned
about the above.

- quote -

I think John Weeks is referring to the "Rule 72(t) exception," also known as
Internal Revenue Service Code Section 72(t)(2)(a)(iv)). It says one may
withdraw from one's retirement plan (Roth IRA, Traditional IRA, among
others) any time prior to age 59.5 if they take annual amounts from it
based on the balance in the plan and one's life expectancy. There is no age
limit. One could start doing this at age 35 or age 25 or whenever. Google
for "Rule 72(t)," or see

http://www.moneymanagment.info/72T.htm

http://www.retireearlyhomepage.com/wdraw59.html

Elle wrote:
- quote -

Such as $3000 ordinary income deduction and then the ability to offset
other capital gains with your losses.


- quote -

Are you saying 20 years from now is not the long-run? What I plan on
doing is buying about $5K of 8-10 stocks in different
sectors/industries and see how they do over the next 10-20 years. And
what's wrong with wanting access to my _all_ (minus the capital gain
rate on the earnings) of my assets (not a trickle) 20 years from now?
The only problem I see is I'm not sure what capital gains/dividend
rates are going to do. But, I view 15% as close to being a deal, a
price worth it to me for access to all my assets, yet I will have to
read more about the details of the retirement exception (in which
supposedly one can get flows from his or her assets) to which the other
post refers.

<xyzer[at]hotmail.com> wrote
- quote -


Such as?

- quote -

As a 24-year-old, if you do not want to invest for the long-term, you should
not invest in an IRA.

Do you think you could accumulate wealth via stock trading with the assets
that would otherwise be in a Roth IRA? If so, don't put your money into a
Roth IRA. Start day trading, and the sooner the better. That way you'll lose
your shirt within a year or two and then start reading about how people
actually accumulate wealth, instead of gamble.

In article <1124638816.587843.275890[at]f14g2000cwb.googlegroups.com> ,
xyzer[at]hotmail.com wrote:

- quote -

- Do some math. Check out the power of having money grow
tax deferred, or in having no taxes at all when you withdraw.
In the case of a regular IRA, the government chips in 30 cents
of every dollar you put in, so it grows much more quickly than
a regular taxable account. And with the Roth, you get to keep
far more money since you don't pay taxes on the money when you
take it out.

- If you lose the value of a taxable account, you are still
in a pretty bad situation. You can only write off something
like $3000 per year in stock losses.

- If you want to retire at age 45, check out the IRA rule
about substantially equal payments. You will find out that
there is a back door to taking out your money early without
paying a penalty.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Everybody seems to love (or at least have assets in) a Roth IRA, and I
will probably eventually put assets into one as well. But, if I could
be guaranteed (which I can't, which makes Roth IRA look more
attractive) capital gains rates would stay at around 15% into eternity,
then I'm not sure I'd mess with Roth too much. For one, you can lose
your entire IRAs value, and still get no loss benefits like you would
if you hadn't classified those assets at IRA assets. Right? That's
how it works, no? Another thing is it sucks to have to wait (assuming
you don't utilize any of the exceptions) until one is around 60 to take
out the earnings. I might feel like taking everything out at age 45
(I'm 24 now) just because that's when I feel like doing it. I guess
15% (as of now, at least) is the "penalty" I would pay for wanting that
freedom in all cases, and not just in their exceptions. And, again, if
my stock/assets goes South, I'd like to have some loss benefits, which
I believe the IRA does not give.