Worth the cost??

[RJB1180]

I currently own a small <$2k portfolio at scottrade in a non retirement account. I wanted to transfer these stocks into a ROTH IRA account, but Scottrade will not let me transfer the securties, just the cash.

It would cost me $56 to sell and recreate my portfolio in the Roth account, along with the capital gains I will pay as the stocks are up almost 30%, just lucky do't ask me how.

Note I am 26 so transfering now will have coimpounding effects but?

just looking for a little advice, and maybe so hints on how to tell DW it will cost that, to have what we already have

[Scanner]

Well, disclaimer first - none of us, as I am aware are financial advisors, just an informal club.

But I think you are splitting hairs at $2000.

Let' say your stock is worth $1800.

If it was up 30%, that' um. . .(bad at math). . .well, you started with around $1400 and made about $400.

Capital gains tax is going to be about $70 depending on your tax bracket, not a hell of a lot of money but most people drop that on drinks on a weekend. Yeah, it sucks but now you pay it and put it into your Roth, where it will grow tax free and exit tax-free.

It's either that or just put $2000.00 into your account and just hold onto the investment. If you think the stock will stay put where it's at , try to wait a year - the tax is only 15% ( a relative bargain in the tax world - see what inheritance tax is over 3 million) - I think, check with an accountant. If you cash out under a year, it's taxed at the same rate you pay income tax on (kinda sorta double taxed).

Tax shielding is all about declaring that money "earmarked" for a goal (retirement, college).

Welcome to business/investing - you need to treat the IRS as a business partner.

Uncle Sam and I are in business together - he gets the oil for me to use by invading countries and I operate the business and assume risk.

Hint for the future - for Roth IRA's, I think it's better to start with mutual funds vs. stocks or ETF's - the trading fees will kill you. And sure, you can hold stocks long term but really, how long can you really hold something? You can't - companies come and go. You can usually buy mutual funds for free. Stocks will charge a trading fee each time, thereby eating your return.

So, if you are buying on a monthly basis, an ETF or stock can really eat your return. Instead of getting in at $100/month, you are only getting in at $93.00.

I simply use mutual funds as an "entry point" into my portfolio and then 1x/year "rebalance" with ETF's. I just bought a silver ETF so it will cost me $7.00 for the whole year. At the end of the year, if my Overseas Fund or Blue Chip fund has done well, I'll buy some more silver.

If silver has done well, I sell it off and transfer some assets back into the weaker performer.

If they both tank, well then I'm doing this:



If they all do great, I'll do this:



MORAL OF STORY:

1. Don't move things around often.
2. Pay attention to trading fees.
3. Take advantage of tax shielding as much as you can when appropriate.

[disneysteve]

Originally Posted by RJB1180

Scottrade will not let me transfer the securties, just the cash.

I just wanted to comment on this. It isn't Scottrade that won't let you transfer the securities. Nobody will. Only cash can be invested in IRAs.

Should you switch to an IRA? Well, if this is money intended for retirement, then yes, I think you should. Better in the long run to have your retirement money tax-sheltered for as long as possible.

I also agree with Scanner about sticking to mutual funds to avoid trading costs. Presumably, you will add to your IRA each year. If you are buying indidual stocks, that means a commission every time you buy shares and again every time you sell shares. With a mutual fund, you avoid that which can really help your bottom line over time.

[JBinKC]

Unfortunately, you have to use cash. I had a similar situation in January of this year with a stock I really didn't want to sell but with a 60 day rollover period approaching I had to sell it and sure enough it cost me $8500 in cap gains while the transaction was in limbo.

If you also have a 401K plan at work, I think there is nothing wrong with choosing an individual stock in the IRA . If you don't have a 401K I agree with the group and I would choose a mutual fund to invest in.

[RJB1180]

thanks, i thought it was just scottrade being stupid. I have a 401k at work, a trad. IRA at scottrade (my rollover from my old job) and a this other account lying around and wanted to make it a ROTH so that i had my bases covered. my goal was to shelter the gain but since i cant i will definately be switching since the saver's credit is worth more than the commisions.

ot but close: if a chose a no transaction fee no load fund, i know there is still expense ratio but are there other catches to it.

I was using this as "play" $$, so I might keep it as stocks to "time the market" JK

[anonymous_saver]

I would at the very least change your Traditional IRA to a Roth IRA. Overall, I just like things simplified, so I would probably just take the hit with your Scottrade account as well. That's just me though.

I prefer Vanguard b/c of their low fees & expenses.

[bjl584]

Right. Any security must be liquidated into cash before transferring it into a Roth. I just went through something similar. I switched my Roth from one brokerage firm to another and first had to liquidate the account.

[jIM_Ohio]

My comment would be this... if you want to own individual stocks, keep them in a taxable account.

IRA's are GREAT for anything which shoots off dividends, captial gains and distributions.

The taxes you will pay on the capital gains (now or in retirement) on the 2k at Scottrade are much lower than the taxes you will pay on a distribution from an traditional IRA.

Roth's have the best distribution (tax free)
Taxable accounts have the next best tax situation (10% or 15% long term capital gains rates)
Dividends from taxable accounts are next best (10% or 15% I THINK)
Traditional IRAs and 401ks are "worst" from a distribution standpoint (pay marginal tax rates, could be 25% or higher taxes)

[disneysteve]

Originally Posted by jIM_Ohio

My comment would be this... if you want to own individual stocks, keep them in a taxable account.

IRA's are GREAT for anything which shoots off dividends, captial gains and distributions.

Stocks pay dividends (or at least some stocks do). Also, if you do any trading, you generate (hopefully) capital gains which are taxable. So I think which type of account is best depends on which stocks you are talking about and how active of a trader you intend to be.