Thread: Opening Roth IRA

hey CB,
is this your children's college funds you are speaking of? not to sound cold, but let them worry about that. save for your retirement first and foremost. don't share with them til you're sending money to their kids!

Howdy drewster,

Nope, this is for me, well us, and it didn’t sound cold. College (knock on wood) is well in hand now, between her academic scholarship and the 529 plan. I got some mutuals, but no ira, so I thought I’d open one up, just for some more diversity.

I found some comments elsewhere on the net, saying pretty good things about TR Price (plus the buy-in is very attractive as I mentioned earlier), but it never hurts to have as many data points as possible and the folks here sound pretty knowledgeable.

CB

Suggest you use the Roth IRA and build your own mutual fund with individual stocks - much more lucrative in the long run. Good stocks pay dividends four times a year and often increase their dividends on a regular basis. This way you participate on a DCA program with dividend reinvestment. You can also trade the account without generating a 1099 and there is no RMD time line. The best part is it can live long after you are gone - plan your beneficiary for optimum growth.

Thanks Birch,

I like the sound of the dividends. I've never even looked at buying individual stocks before, that's why I feel comfortable with the TSP and Mutual funds. I've got my mutuals with AG Edwards and to tell the truth, I feel like I got a better handle on muttuals than he does. They seem to only want to push a few. The last 2 mutuals I opened, he wasn't that enthusiastic about, since he wasn't familiar with them. My broker really is just a vehicle, that allows me to buy funds. That's one reason I wanted to go with someone else on the Roth. Since it's my money I'd just as soon lose it myself on my own research/selections.

Being a newbie on stocks, any suggestions on good stocks, I can research or a good company or site that would be useful? I may even be able to purchase the stocks thru TR, I've just never considered it, probably be of the intimidation factor of selecting a stock and even knowing the lingo.

Thanks
Rus

Look at companies you might have familiar with - including the work place. A web site called Sharebuilders has a low price set up and is owned by Warren Buffet. You can select stocks by industry sectors. One I own is GE, another is DUK, I actually own about 175 in my outside portfolio and I'm presently on the search for a few more. Here is a few that are on my current list: AIT, DRC, ROLL, SJI, TFR, BRS, CBI, ENS, KG, MLR, AB, ARII, BNE, FWLT, GPX, HUN, ROG, SHS, URS, WTI, BVF, CGT, THS, UDRL, AE, BAS, LTD, LDG. They are all making money and I have plenty more. Well since you asked here are a few more in case there are lurkers: RBC, ATW, AVA, CBG, CPX, GNA, GFF, MTD, NRP, PKD, PCR, PAA, SCS, BKE, DLM, GEF, HEI, TRN, ESP, WR, GDP, HW, PVA, SEN. There are so many good wall flowers out there looking for the shelter of a portfolio. Good luck. If anybody wants I have another bunch.

Hey Birch,

I really appreciate these stocks and I have heard of Sharebuilders, but never really looked at it, since I was more geared to looking at mutuals. I’ll definitely give this information a long, serious look and check about purchasing some of these as part of my Roth, if that can be an option. I’m guessing I can purchase some of these as part of a Roth, thru Sharebuilders? Is that a correct assumption? I sure do like the idea of me being able to select what I want in my Roth.

Edit: I think I answered my own question after making a quick look at the Sharebuilders site, it looks like at straight stock purchase option and not a Roth option, but I like the idea of building my own portfolio and I'll be able to do more research tomorrow. Thanks again.

This will give me plenty to do at work next week, since I do my best research there.

Thanks for the info,
CB

The primary disadvantage of a Roth IRA is the ceiling limit - it takes a lifetime to build a position. With a taxable account there is no limit and you have the benefit of possibly lower taxation and step up in basis for beneficiaries. Here are a few more to look at: BUCY, ACI, TAC, TNB, AXE, ARW, CSL, CPO, GLW, CR, WAB, AVX, CXG, FCL, GDI, BGC, HRS, HES, MDP, UNT, WLL, AEM, AVZ, AHG, BMS, BWA, CEN, CVG, GMT, GGG, GVA, HP, JAH, KEX, LMS, MPS, MTW, RRC, COL, TNL, TGI, WLV. This will keep you busy - I've been doing it since 1972. It's all a matter of information and familiarity. Have fun.

Im considering opening a Roth IRA also, and have a few questions. If some are obvious, forgive me in advance.

Originally Posted by Birchtree

The primary disadvantage of a Roth IRA is the ceiling limit - it takes a lifetime to build a position.

Could you not just invest max into Roth and then remainder into dividend earning stocks? This is surprising to me because I would think that the tax-free growth of Roth would exceed the quarterly dividends.

Originally Posted by Birchtree

With a taxable account there is no limit and you have the benefit of possibly lower taxation and step up in basis for beneficiaries.

How is investing in dividend yielding stocks generate a lower tax position? It seems that both money invested is post tax, so that is moot. I am not familiar with the taxation of stocks, but are their dividends not taxed? What if dividends are reinvested instead of withdrawn?

Can you explain your system a bit more (if you dont mind)? From what Ive seen you post, you buy dividend yielding stocks and then reinvest the dividends back into those stocks with the intention to turn the dividends into income once you retire. Is this right? How does your stock portfolio fit into your retirement package? (TSP, 401s, Roths, et al.)

I have 30 years until retirement and am trying to learn the pros/cons of each option and talk to as many smart people about it as would listen. So I appreciate in advance in comments you may add.

ChemEng,

With a 30 year horizon you are perfect for a Roth - so much flexibility available. Currently you are held to a $4,000.00 ceiling that expands to $5,000.00 in 2008 and then is indexed to inflation in 2010. There is a catch up provision that goes from an $500 to $1000 this year for those of us over 50 years wise. So my limit would be $5000.00 and then goes to $6,000.00 in 2008.
First there are no 1099s generated - the IRS will not know you exist. You can borrow these funds at will and trade with abandon under the no tax banner. There is no required minimum distribution date like in a regular IRA and a younger beneficiary can draw from this account tax free. It's really a designer program that can last a very long time.
You generate gains in several ways - first is capital gains as the stocks increase in value and then dividend reinvestment. Most good companies increase their dividends yearly and some even split their prices. I saw GE split twice in one year back in the late '80s. With the dividend payments every 4 months the system becomes self feeding. It's the slow way to grow, but over time can be very beneficial - and the gains are tax free.

My objective is to have my market gains and income taxed at 5%. I don't want an annuity but rather a defined contribution plan - and I think it will eventually be offered as a voluntary mechanism. How you control your money during retirement is the goal - protect your gains.

ChemEng,

With stocks inside a Roth IRA you can trade and there are no records kept - you just can't borrow against gains until you retire. Any money you put in you can take out without penalty and eventually it's all tax free. All you need is time to build the resources but there is also no tax loss write offs if you have a loss. Presently, my capital gains are taxed at 15% and my dividend income is also taxed at 15% - but eventually I'd like to be in position to be taxed at 5%. It does require planning. Call Sharebuilder and see if they offer a Roth IRA - TR probably does. Most of the time dividends are invested for free. Eventually I'm confident that Uncle will offer on a voluntary basis a defined contribution plan instead of an annuity. TSP is the perfect plan for such a change - the infrastructure is in place.

Dennis - permabull #1

Ive put a response in my allocation talk thread to discuss this more. Its specific to my situation so I wanted to move it out of the general discussion area. I woudl appreciate it if everyone gave it a look... Thanks.