On Dec 17, 12:33*pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -

Really ? It seems like putting as much after-tax money into a Roth
as possible is a no-brainer. We're not talking Roth *conversion*
here,
where there is a trade-off between paying taxes now and paying 'em
later.

- quote -

I've already tax-loss harvested WAY more than enough to offset my
gains
(not much this year !), CGDs, $3K of ordinary income, and plenty of
carry-forward. So that potential $2K cap-loss missed means nothing to
me.

But I guess I see your point. If you have gains, having 'em tax-free
within
your Roth is a good thing; if you have losses, having inside the Roth
is a
negative. But we're taking long-term, and I don't think anyone
seriously
thinks a Roth will have net long-term losses; if you do, maybe just
forget
all this discussion and put your money in the mattress !

- quote -

Yes, this is a very good point, and I think I'll probably drop the
whole
idea because of it (and the risk of being out of the market).

Thanks for the great discussion ...

John

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Mark Bole wrote:
- quote -


--
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Alan wrote:
- quote -

Use the formula in my posting, this one is missing the denominator, just
a typo I'm sure.

-Mark Bole

--
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Harlan Lunsford wrote:
- quote -


(4) Contributions returned before due date of return
Paragraph (1) does not apply to the distribution of any
contribution paid during a taxable year to an individual
retirement account or for an individual retirement annuity
if -
(A) such distribution is received on or before the day
prescribed by law (including extensions of time) for
filing such individual's return for such taxable year,
(B) no deduction is allowed under section 219 with
respect to such contribution, and
(C) such distribution is accompanied by the amount of
net income attributable to such contribution.

Notice 2000-39 stated the earnings could be negative and that was
embodied in the final regs (TD 9056, published 5/2/03).

These final regulations retain, without change, the methods
provided in the proposed regulations. Thus, under these final
regulations, for purposes of returned contributions under section
408(d)(4) and recharacterized contributions under section
408A(d)(6), the net income attributable to a contribution is
determined by allocating to the contribution a pro-rata portion
of the net income on the assets in the IRA (whether positive
or negative) during the period the IRA held the contribution.
This new method is represented by the following formula:
Net Income = Contribution x (Adjusted Closing Balance - Adjusted
Opening Balance)

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Harlan Lunsford wrote:
- quote -

Yes. I embedded this in a post several generations back, here it is
again. There was an "old method" (based on beginning of tax year and no
negative earnings) which was phased out a few years back, best I can tell.

- quote -


-Mark Bole

--
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Mark Bole wrote:
- quote -

I must have missed something along the line. Can you point me to a
cite for so called "negative earnings" having to be considered in the
calculation?

ChEAr$,
Harlan Lunsford, EA n LA

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JGE wrote:

- quote -

Because there is no immediate tax benefit from contributing to a Roth --
in contrast to the process of recharacterizing a Roth conversion
(do-over), where there *is* an immediate refund of tax paid.

Whether money in a Roth has an overall *financial* benefit (includes
earnings and tax effects) compared to money left outside, over your
given time line, is a subject for a financial planning discussion.

I could turn the question around and ask, how was putting in the first
$6K this year a tax benefit? You don't even have the option of using the
$2K capital loss, unless you close out your entire Roth. My point is
that contributing the max to a Roth is not always an unconditional good
thing.

- quote -

That's a big one, yes. If the rules allowed you to simply "top up" your
Roth IRA balance by sending in additional cash, none of this would be
a big deal. It's not so much the contribution to the Roth that I
question, but whether the marginal benefit outweighs the hassles of
getting the custodian and the IRS to do the right thing.

If you follow through on this, please post the results. Maybe the
1099-R's and 5498's will flow much easier than I imagine.

-Mark Bole

--
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- quote -

Obviously, but thanks for the reminder.

- quote -

Oh no. But I still have to decide which ones to sell, if I don't have
the
earnings-adjusted $6000 sitting in cash (which I don't). Which I
think kinda
turns me off about the whole thing - having to keep the money out of
the
market for the time it takes to make all this happen.

- quote -

I don't get that. How is putting approximately $2000 additional
investment
dollars into my Roth not a tax benefit ? Are you referring to my
concern
that I might get screwed by having the money out of the market for
awhile ?

John

--
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In article <F_G1l.2132$7I6.2119[at]nwrddc01.gnilink.net> ,
Phil Marti <prm20871[at]verizon.net> wrote:
- quote -


And how would that be any differnt from fine print saying, "We know
bupkes about taxes?" :^)
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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Phil Marti wrote:
- quote -

That would be incorrect, and would spoil your plan. To meet the
requirements, earnings (even if negative) must be included in the return
of contribution.

- quote -

And as I mentioned earlier, for purposes of determining the earnings,
you cannot cherry pick just the investments that lost the most money,
unless you carefully kept the contribution segregated from other Roth
investments.

- quote -

I wouldn't go that far! ;-) The "normal" scenario as described in the
Pub is a withdrawal from a Roth of *excess* contributions, which this is
not. Then, he's going further outside the box by re-contributing for a
second time in the same year -- all legal, but not routine. Be prepared
to file a substitute 1099-R if your custodian doesn't get it right, and
to include an explanation with your return in any case.

Bottom line? On the plus side, this is simply a market timing exercise
with no guarantee of any tax benefit. You might as well wait until next
April to see if the market has gone back up (don't try to make the
second contribution before withdrawing the first one, since returns of
contributions are done LIFO). On the minus side, you've already had a
taste of the potential cost and hassle of trying to get the paperwork
properly filed and accepted.

-Mark Bole

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"JGE" wrote:

- quote -

It is.

- quote -

That's why their fine print says "We don't know bupkes about taxes."

Request a return of your 2008 contribution and earnings as calculated by the
custodian. You'll also have to tell them what to sell if there isn't enough
cash.

I appreciate your unease, but if you've read Pub 590 it should have gone
away. If it didn't and you want someone you can blame legally if your plan
goes awry and costs you money in the form of tax penalties, hire someone to
give you a written opinion.
--
Phil Marti
Clarksburg, MD

--
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- quote -

EXACTLY. Sorry if I did not make that clear. Also, I am NOT
trying to get a capital loss (believe me, I've already "harvested"
enough capital losses to avoid any capital-gains taxes for some
years to come

- quote -

Thanks, Sorry, but after reading all the responses (which I DO
appreciate, I am no closer to knowing if this plan is legal/possible
than I was before. I did call my broker, and was absolutely unable
to convince the moron of what I was trying to do; all he could do was
say "if you ask for a return of this year's contributions, we'll send
you
$6000."

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Mark Bole wrote:
- quote -

not put it in a Roth and have it grow tax-free and later
distribute it tax-free.

I would code it J8.

--
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Alan wrote:
[...]
- quote -

Not according to the "new method" established in TD 9056 (based on
Notice 2000-39):

Net Income = Contribution x
(Adjusted Closing Balance - Adjusted Opening Balance)
/ Adjusted Opening Balance.

Net income can be negative under this method. Worksheets 1-3 and 1-4 in
Pub 590 illustrate this calculation for withdrawing Trad. IRA
contributions or recharacterizing a conversion.

- quote -

It's a realized loss, isn't it? If this were your entire Roth IRA
investment, you would actually be able to include the loss as a
miscellaneous 2%-AGI deduction on schedule A (but only if you didn't
turn around and re-contribute, thus making your year-end balance greater
than zero).

It might be tricky to get the custodian to recognize this as un-doing a
contribution, rather than a normal non-taxable distribution of a regular
contribution, which is always allowed with a Roth IRA using the ordering
rules for distributions. I'm still wondering, what distribution code
would you expect to see on the 1099-R?

I still don't see any real benefit to this "scheme", as the OP referred
to it. Unlike recharacterizing a conversion, there is no immediate tax
savings. Why not just take the extra $2K and invest in an ordinary
(non-retirement) account?

-Mark Bole

--
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Mark Bole wrote:
- quote -

you can make a contribution and then withdraw an excess
contribution. As long as it all takes place before the filing
deadline, each contribution & its subsequent withdrawal is
treated as if it never happened. What we use to call on the
streets of New York.. a do-over.

--
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Harlan Lunsford wrote:
- quote -


- quote -


- quote -

Not necessarily, you might have multiple custodians, or even with a
single custodian, IRA investments are often kept in separate accounts
(Fidelity and T. Rowe Price are two such custodians I know of who do
this for mutual fund investments).

Again, this is all spelled out pretty clearly when it comes to
recharacterizing a conversion to a Roth, but not so when we are talking
about an original contribution. It makes sense to recharacterize a Roth
conversion in a market downturn, but it is limited to once per tax year.

Where does it all end? Do you withdraw your contribution (including
negative earnings) now, immediately re-invest it plus an additional
ante, and then do it again next April if the market has continued to go
down?

-Mark Bole

--
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Harlan Lunsford wrote:
- quote -

you only get back $4000 as the earnings were negative. If you
decide to make a contribution of $6000 to another Roth IRA, then
at that point in time, you have a Roth with $6000 and a paper
loss of $2000 that is not recognizable for tax purposes.

--
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Mark Bole wrote:
- quote -

But any contributions are immediately co mingled, so it doesn't matter
what actual securities were purchased with the funds. Not even
reasonable for the custodian to have to keep track.

ChEAr$,
Harlan

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Alan wrote:
- quote -

right back where you started from.
Then if you're feeling lucky..... !

ChEAr$,
Harlan Lunsford, EA n LA

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JGE wrote:

- quote -

Ay, there's the rub. Pub 590 spells out the rules for a conversion,
recharacterization, and reconversion (the later of the tax year
following the conversion or 30 days). But there is no indication one
way or another if the same waiting period applies to contributions,
"un-"contributions, and re-contributions.

Fortunately, there is a relatively low dollar cap on annual
contributions, unlike conversions.

Another twist, which also shows up in conversions, is this: what if your
first contribution was made into Security A and Security B, and since
then A has gone up in value and B has gone down. Can you freely cherry
pick and only ask for the withdrawal of the contribution that was used
to purchase B, so that you can re-invest that one while leaving winner A
alone? If you segregated your contributions by asset purchased, that
might help.

Yes, the 1099-R's you get may prove interesting, especially since a
withdrawal of a current-year contribution by the due date of the return
still needs to be reported on Form 1040. There's that pesky distribution
code 8 (or P) to deal with...

-Mark Bole

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