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    upsis88's Avatar
    upsis88 Posts: 2, Reputation: 1
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    #1

    Oct 31, 2007, 06:31 PM
    Roth ira
    My wife and I not contributed to our Roth IRA this year, thinking we would be over the $160k/year MAGI income limit. We have now figured out that isn't going to happen. Our ~ MAGI will be about $148k. So, should we take money out of one of two mutal funds (VGIRX) we have been putting $100/month in for many years (triggering somewhat of a small tax event) to take full advantage of the Roth. The balance in VGIRX is $10,000.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    Nov 1, 2007, 08:41 AM
    You don't tell us how old you are, and whether you have already utilized other savings opportunities you may have. For example, do you have a 401(k) at work, and if so, have you maxed out your contributions there? That's the first place to put your retirement investments, as it reduces your taxes this year and grows tax free, and if you have a company match that's free money for the taking.

    Back to the Roth question - I would indeed do what you're suggesting, especially of your current investment spins off income and/or capital gain distributions each year. The tax event that you mention is most likely minimal, given the you've been in the fund for years and so any gains realized should be long-term gains, right? So you lose 20% on the exchange into your Roth IRA, but then it gets to grow tax free and without any further taxes due ever. If you kept it in VGRIX then each year you owe taxes on the capital gain distributions plus income distributions, and remember that income distributions are taxed at ordinary income rates even if they are immediately reinvested. By putting income producing investments into your Roth IRA they get to compound and grow more quick than if you kept them in a taxable account.

    One other point - I see that VGRIX carries a very steep front end load plus pretty high annual expenses. Do yourself a favor and look into funds from Vanguard, Fidelity, or other investment houses that are no load, low cost funds. This fund you have from JP Morgan has below average returns and high costs - a double whammy to your results, and you are not getting your money's worth.
    upsis88's Avatar
    upsis88 Posts: 2, Reputation: 1
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    #3

    Nov 1, 2007, 06:31 PM
    Sorry about leaving out some info. My wife and I are 42. We both have 401k's. Mine has been maxed for years >12. My wife's is usually close to the max. Also the mutual fund I listed incorrectly. Its VIGRX - we only consider Vanguard. We have had this fund for about 8 years. We have two kids which we are saving to pay for college (they are 12 and 8). We have $25k balances in our Roths, but couldn't fund them in the last two years. We were considering this move from the mutual fund so we could grow the money tax free, as well as use the Roth as a back-up to fund only some the kids college if needed.

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