planning idea- would it work?

[kathyc2]

I have never heard of a brokerage that does not charge you a transaction fee to sell securities in an after-tax account, or to buy securities inside an IRA account.

Well, now you have. AF Class A funds have a one-time load charge from 5.75% to 0% depending on the combined value of all accounts you have with them. Other than a $10 annual fee per account type (i.e. SIMPLE, traditional, Roth, non-retirement) there are NO transaction fees.

Prior to 9/18/08 I didn't pay much attention to which funds I was invested in. I had an intuition with the collapse of Lehman that things were going to get ugly. For the first time on that day I moved about 1/2 of my Roth investments from mutual funds to Gov't bonds and money market. Then on days when S&P had big declines I would buy some back in to mutual funds, and on days when S&P had big gains I would sell some from mutual funds and purchase money market. Since it was all in a Roth, no tax reporting and I did not incur one penny of transaction fees.

I had around 5K sitting in an old non AF 401K, and by accident (gov't regulations) I got a tax deduction for load. The 401K was put into a AF traditional IRA which is where I paid the load, and then the amount of the 401K less load was rolled the same day into my Roth.

[kathyc2]

I understand what you are proposing to do, and based on the info in your post re AF load charges, it should work. You are calculating a tax savings of 26%. It will definitely only benefit those in higher income tax brackets (your state is 3.4%?). A NY taxpayer for instance, would have a higher savings on the transaction. And I guess you would have to factor in the loss in future investment earnings as a cost on the $195 not transferred over.

I made liberal use of rounding, starting with 3% load. AF does not have a 3% load, but since majority of my clients are at the 3.5% or 2.5% load I rounded. For 2015 IN rate is 3.3% and will be 3.23% in 2016. In addition every resident pays a county income tax, the average of which is 2%.

Even if a person is in the 15% marginal rate, if they receive ACA credit that needs to be taken into account. Higher AGI may mean 9.5% of that AGI does toward insurance. So... 15% FIT, 9.5% ACA and 5.3% IN puts a person at 29.8%.

[FEDUKE404]

My 5498 question

Still unanswered:

What amount goes onto the relevant Form 5498 for the year involved ? ?

$6,500 ?

$6,305 ?

Market value of assets in closed "non-qualified account" at time when when transferred ("markets fluctuate") ?

As others have stated, I'm not sure you can transfer shares in a mutual fund or similar from a regular investment account into a retirement account such as a Roth IRA. This is a totally separate question from having a Roth account containing American Funds X and you want the same account to change from American Funds X to American Funds Y. If I am wrong, so be it.

Related question: Let's say you did the end-run and last week bought 100 units of an American Fund for your "non-qualified account" with your ~$6,500. Today, thanks to a pharmaceutical stock within that fund, those 100 units are worth $8,000. Are you saying that your brokerage fund and/or American would allow you, tomorrow, to put those 100 units worth $8,000 on that date into your Roth IRA? I think not. . .

Unless you have a very clear green light as to the answers to all of the questions raised here, I would proceed with caution.

Quite frankly, I would personally just put the $6,500 into the Roth account and move onward.

FE

[kathyc2]

In the example 6,305 is the amount being put to the Roth account, so that is what will show on 5498.

You are correct, in that you can not transfer shares, but you can transfer dollar amounts. I never said anything about transferring shares.

I understand how AF fees work, I was more looking to make sure my idea was not violating anything in the tax code. The conversation seems to have gone to fees, and no one is pointing out that my ideal may be in violation of any part of tax code.