Question regarding IRAs

[LuckyTaxi]

Keeping it simple, let's say I hold 100 shares of Catepillar in my IRA account. In 10 years (way before my retirement date), it goes up to $200/share, can I sell and have it sit in my "cash reserve" or whatever it's called? Do I have to tie my money to a fund or funds in order for it to not get hit by a penalty? My understanding is that if i withdraw, I will have to pay a penalty if I pull it out before my retirement age.

 

[Genx87]

afaik provided you dont take the money out of the account. You are free to trade within the account. This is how it works with my 401k,Roth IRA, and Rollover 401k accounts.

 

[Schfifty Five]

Keeping it simple, let's say I hold 100 shares of Catepillar in my IRA account. In 10 years (way before my retirement date), it goes up to $200/share, can I sell and have it sit in my "cash reserve" or whatever it's called? Do I have to tie my money to a fund or funds in order for it to not get hit by a penalty? My understanding is that if i withdraw, I will have to pay a penalty if I pull it out before my retirement age.

Yes, you can do that. You can trade/buy/sell whatever you want without taking any penalty hits as long as you don't take a distribution.

 

[vi edit]

With a Roth you can even withdrawl the original investment if you want.

Say you paid $100 a share for your 100 shares. That's $10,000.
It goes up to $200 a share. It's now worth $20,000 and you sell your shares.

You can withdrawl your original $10,000 without penalty and leave the earned $10,000 in there.

 

[LuckyTaxi]

Great thanks guys. So as far as reporting things to Uncle Sam, if I sell and buy within the account without withdrawing money, do I need to report any of that?

Sell 10 shares of CAT and buy shares of FB.

 

[kranky]

Great thanks guys. So as far as reporting things to Uncle Sam, if I sell and buy within the account without withdrawing money, do I need to report any of that?

Sell 10 shares of CAT and buy shares of FB.

No.

 

[DaveSimmons]

Keep in mind that any trading fees will eat away at your growth. Since this is an investment over decades most people will do better putting the IRA money into an index fund and leaving it alone.

 

[Schfifty Five]

Keep in mind that any trading fees will eat away at your growth. Since this is an investment over decades most people will do better putting the IRA money into an index fund and leaving it alone.

That depends on how often and how much they are trading with.

If he's buying 100 shares of a $100 stock, then a $5-10 trading fee is not going to be significant.

 

[HardcoreRobot]

the IRA will have a money market fund you can move the money into if you want it out of stocks. as long as you don't withdraw from the account you wont pay any penalties.

common guidance would be to not put your retirement funds on individual accounts. mutual funds, index funds would be the usual recommendation. save the gambling for money you can afford to lose.

 

[stlc8tr]

That depends on how often and how much they are trading with.

If he's buying 100 shares of a $100 stock, then a $5-10 trading fee is not going to be significant.

True. A good rule of thumb that I use is that a round trip (buy/sell) should not be more than 0.25% of the total invested.

 

[chowderhead]

With a Roth you can even withdrawl the original investment if you want.

Say you paid $100 a share for your 100 shares. That's $10,000.
It goes up to $200 a share. It's now worth $20,000 and you sell your shares.

You can withdrawl your original $10,000 without penalty and leave the earned $10,000 in there.

make sure you differentiate between a Roth IRA and a traditional IRA. The above refers to the Roth IRA.

 

[jagec]

the IRA will have a money market fund you can move the money into if you want it out of stocks. as long as you don't withdraw from the account you wont pay any penalties.

common guidance would be to not put your retirement funds on individual accounts. mutual funds, index funds would be the usual recommendation. save the gambling for money you can afford to lose.

It kinda depends on what his total portfolio looks like. If the IRA doesn't contain all of his investments, it's best to divide up investments based on tax efficiency, with the least efficient going into tax-advantaged accounts. So, he would put taxable bonds, REITs, dividend stocks etc. in the IRA, and put index funds, muni bonds etc. in a taxable account.

If all he's got is the IRA...well, he needs to save more money.

 

[Scarpozzi]

You can buy and sell stocks and mutual funds in your IRA without penalty and without withdrawing from the account.