Cataphract said:I have a very basic question about a Roth IRA. I have been researching the difference between a traditional and a Roth IRA and understand most key points b/w the two.

However, one issue I am finding is about the clarity on withdrawl of contributions from a Roth IRA. There are a lot of explanations around but none in plain english. I even read the IRS pub 590 on it but it is the most cryptic. May be one of you can clarify it.

I read that distributions from "Contributions" can be withdrawn penalty and tax free from a Roth IRA even if the account is not 5 years old and the participant is not 59 1/2 years of age.

I want to know exactly how this works, lets say I contributed $ 4K for the next 3 years - $ 12K worth of "Contributions" earned $ 3K in earnings over the 3 years, so the total in the account is $ 15K.

Does this mean that I can potentially withdraw all of the $ 12k that is classified as original "contributions" without any penalties and would not pay any taxes on them either in the year that I withdraw them?

I would appreciate if someone can clarify this.

Yes.

tobands said:But the contributions have to remain in the account for 5 tax years before you are eligible to withdraw. For example, in March 2004, you have contributed for 2003 tax year and possibly for later years. You are eligible for withdrawal of all your contributions starting from Jan 1st, 2008 (or is it the April 15th?)
From Vanguard Website
For accounts held less than 5 years and the owner is under age 59 1/2: Distributions from contributions are tax-free and penalty-free.
I think this is the confusing part, from what I read here in the withdrawl penalties line, it is implying that contibutions can be withdrawn without penalties or tax liability even if the account is not 5 years old and you are suggesting that it is not the case.

Edit - fixed the link.

tobands said: But the earnings (not contributions) have to remain in the account for 5 tax years before you are eligible to withdraw.

Ok. That makes sense.

ScootyPuffSr said:So I finally decided I was throwing money away paying .18% and because Roth's are contribution limited I won't be reaching Admiral shares any time soon. So I wanted to switch to Fidelity for some tasty .1% action.

Is anyone else alarmed by Fidelity's casual mention of:
Once Fidelity receives your paperwork and determines it is in good order, most transfers take 3 - 5 weeks to complete.


So even if my paperwork is in "good order" my precious IRA could be in the ether for 3-5 weeks. If those are the "wrong" 3-5 weeks it could take my IRA decades if ever to "earn back" the lost growth at .08% per year.

You can transfer over index funds from Vanguard to Fidelity. However, to sell Vanguard funds and purchase Fidelity funds there is a $75 fee. Again, it could take 3-5 years to recover that fee with my $20,000 level and a .08% differential.

Anyone figure out a way to convert without getting hosed on conversion time or fees?

Is that $75 fee to move the same index funds with Vanguard to Fidelity's brokerage account? or is there a redemption fee for cashing out your IRA with Vanguard and sending it over as cash to Fidelity (to purchase whatever you want)?

As far as the 3-5 weeks:
Legally once Fidelity receives the physical check from Vanguard, they must process the financial item the same day it is received (assuming everything is in good order: you have a Fidelity account and the paperwork set up, the check properly references the right account to put the money in, you have investment instructions with Fidelity), or if they cannot, it still must receive that day's trade date.

It isn't always 3-5 weeks of limbo to process a transfer of assets. The actual amount of time the money is out of an IRA account should only be a few days, the amount of time it takes for Vanguard to process a redemption/sale, and to send the check to Fidelity. The 3-5 weeks is to cover their backs in case the paperwork portion takes more time. Different custodians will not always accept requests for transfers, or have their own paperwork requirements, and sending rejection letters and correspondence can take time. The fastest way would be to contact both sides to ensure your request is accepted at the resigning company and/or if you need to submit specific paperwork yourself.

-edit-
want to clarify even if the paperwork takes 3-5 weeks to clear, the money will only leave an account for the few days it takes to mail out the check. It still will incur all gains/losses up until Vanguard determines its ok to send the money onward, even if the paperwork sorting takes weeks or months.

ScootyPuffSr said:

The transfer is free but to sell Vanguard funds inside of a Fidelity IRA it will cost $75 per transaction.


Why can't you sell the Vanguard funds before the transfer? Anyway, if you transfer more than $25,000 you will receive six months of commission-free trades-- not sure if it applies to mutual fund trading.

free trades for up to a year

bbz said:ScootyPuffSr said:

The transfer is free but to sell Vanguard funds inside of a Fidelity IRA it will cost $75 per transaction.


Why can't you sell the Vanguard funds before the transfer?

Because then the funds are not in the market for 3-5 weeks. What is the point of saving .08% if I could potentially miss a 2% or more rally?


Anyway, if you transfer more than $25,000 you will receive six months of commission-free trades-- not sure if it applies to mutual fund trading.

Nope, doesn't apply to mutual fund trading. I asked and they were very clear it was stocks only.

your welcome Scooty It's been awhile since i did that (about 3 years ago) but i did recall that there is no fee to redeem shares when you buy other fund family mutual funds through fidelity brokerage...just the one time $75 transaction fee to buy...

If it is a NTF (No Transaction Fee) fund then there is no fee from fidelity at all....however, in that case, i think if you redeem early (like within 6 months) then Fidelity grabs the $75 when you redeem....but that only applies to the NTF funds that you buy outside of fidelity)...

Just wanted to clarify the two different situations with that...