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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (50153)	11/24/2012 5:50:51 PM
From: Paul Senior	Read Replies (2) \| Respond to of 78717

On ira to Roth conversion: You've covered the salient points imo. "Consider to minimize Tax and conserve portfolio value" As one of the articles suggests, it's not so clear that one can be assured of minimizing taxes since we don't know how tax law changes will affect what we might do now in converting or not. I am making the Roth conversion for two reasons: 1. Right now most of my financial resources are in my ira by far. Since I can't see what an optimum choice might be because the upcoming tax law changes are unknown, I figure a better split of my finances (moving money from ira to Roth) might be the best tactic for me. I just believe I will feel more comfortable or in better balance if I somewhat more even out the money piles. So I am willing to pay the ira conversion taxes, throw the dice, and hope future years show that having more monies in a Roth was a good decision for me/my wife. 2. Like many people, I hold stocks that have been poor performers ("fallen angels"--- dropped maybe substantially, from my purchase price), and yet that I hope can turn around. My idea is that if I liked the stock at the price I bought it, and I like it maybe, or maybe even more, even though it's dropped, why don't I move that stock into the Roth, and if the stock does turn around and appreciate, that gain -- or at least the recapture of losses if the stock moves back to where I bought it -- that rise is all mine -- tax-free --I don't have to share it with the fed/state governments. Here's what I am doing, I haven't rechecked the rules in a year or so and I may have things not-so-right, so you might want to confirm what I say is actually what the rules permit. About "Set up a separate account for each transfer" so you can recharacterize if you want (i.e. you can change your mind and put the transferred stock back into the ira). I say for me, no. That seems to be too many Roths for me to deal with. I have created one Roth in 2012 into which I have put each transfer I've made this year. I have made 23 transfers out from my ira this year so far. I figure if the whole market crashes and I want to recharacterize, I'll recharacterize the entire 2012 Roth. (An idea for someone else might be to create several sector Roths -- a 2012 Roth for oil stocks, another for financial stocks. In this way, if financials are transferred from ira into a financial Roth, and financials keep moving down, and the person wants to move monies back from just the financial Roth, then it's just the financial Roth that the person will recharacterize.) Again though, for me, my hope is that the downtrodden stocks I am moving from my ira into my 2012 Roth will appreciate, and overall, I'll show a gain in that 2012 Roth and I won't want to recharacterize it. Here's where I am: Created a Roth in 2011 (my 2011 Roth): I'm guessing about 20 ira stocks were transferred into it in 2011. I have sold some stocks in it and have bought some others. There are now 26 stocks in that Roth. 10 stocks are losers for me ( SVWYF -83%, DGIT -18%,AEYIF -8% having fallen the most %-wise even from the low points when I decided to move them from the ira). Created a Roth in 2012 (my 2012 Roth). Right now I have 23 stocks in it -- 10 stocks continue to be losers (IDSA down 45% from transfer-in date, CAAEF -24%, IONAF -8%, TOO -5%). Latest to be moved into this Roth: partial ira positions in BIG and TAOIF. You may recall that BIG has been a favorite of mine for more than a decade and so at its current relatively low price, it's a good candidate for me to move from ira to Roth. I've sold some stocks in this Roth, but have not bought anything---just kept the cash balance. Because, in case I decide to recharacterize, and I want to move the whole 2012 Roth back into the ira, I don't want (and don't know how) to deal with new stock purchases/their cost basis or gain/loss, etc. in a recharacterization. If the market and this Roth hold up, I won't be considering recharacterization anyway, and so I'll start putting the cash in the 2012 Roth to work next year. 2013: I will establish another Roth (my 2013 Roth), in which I will place some losing shares of stocks that are in my ira, ones that I have confidence/hope that they might revert in the Roth to show a gain in that Roth. I'm sure I'll have plenty of losing stocks in 2013 in my ira to select from -g-. (I won't be moving any ira monies anymore into the 2011 or 2012 Roths because there's a five year holding period required or else a tax consequence ensues if monies are taken out of the Roth. The five-year clock resets to zero for a Roth each time an ira transfer is made into it.) Tax Consequence: Well, I'm paying to be able to do this. My fed/state tax rates are at the highest level.