Want to sell Roth holding and purchase CD

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EvelynTroy
Posts: 244
Joined: Sat Jun 07, 2008 8:35 am

Want to sell Roth holding and purchase CD

Post by EvelynTroy » Fri Oct 06, 2017 8:03 am

My portfolio 40% equity / 60% fixed - my fixed is almost entirely CD's.
In the equity portion I hold 4% in a Roth account the only holding is VNQ - Vanguard Reit Index ETF - wanting to trim equities a bit and not convinced a less than 5% holding is even necessary.

If I sell VNQ in the Roth - I should not have any tax consequences correct?
If I take those proceeds and purchase a CD at a credit union - it would just be a normal purchase, it wouldn't be in a roll-over Roth correct.

This is probably a simple question I should know the answer to. Thanks in advance.
Evelyn

marcopolo
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Joined: Sat Dec 03, 2016 10:22 am

Re: Want to sell Roth holding and purchase CD

Post by marcopolo » Fri Oct 06, 2017 9:02 am

Do you want to keep the funds in the Roth IRA so it still grows tax free? If so, you should do a direct (custodian to custodian) transfer. You would sell (but not withdraw the money) at your current institution. Then ask the new bank to perform the transfer. There would be no tax consequences for that.

If you are wanting to move the money out of the Roth (Not sure what advantage there would be to doing this), then there may be some tax issues depending on when you open the Roth IRA.

As an aside, since money inside a Roth grows tax-free, you generally want assets that are expected to grow the most inside it. CDs may not be the best investments inside a Roth. Do you have tax-deferred accounts (traditional ira or 401k?)? Those might be better places to hold CDs.
Once in a while you get shown the light, in the strangest of places if you look at it right.

dbr
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Re: Want to sell Roth holding and purchase CD

Post by dbr » Fri Oct 06, 2017 9:22 am

The simplest and most practical adjustment depends on what and where your other holdings are. I would not move a Roth around in order to add CDs if they can be added more easily in another account. You could sell VNQ and buy some other fund and sell equities and buy CDs somewhere else. Maybe we need a list of what your accounts are and what is in each one and where you can add more CDs besides the Roth.

I also agree that for 4% of assets you could just liquidate the Roth at little tax expense and move on.

EvelynTroy
Posts: 244
Joined: Sat Jun 07, 2008 8:35 am

Re: Want to sell Roth holding and purchase CD

Post by EvelynTroy » Fri Oct 06, 2017 11:48 am

Thanks for the replies - hope I can reply clearly.
The 4% in VNQ - is 4% of my equity holdings, not my total assets.

My Portfolio - 60% Fixed Income / 40% Equity
Target Actual Difference
US Stocks 26.00% 27.42% 1.42%
Intern.Stk 10.00% 9.33% -0.67%
U.S. Reit 4.00% 3.75% -0.25%
CD's 60.00% 59.49% -0.51%

My goal is to reduce equity holdings a smallish amount and increase the fixed income. So I would be changing my asset allocation a small amount - kind of going against my Investor Policy Statement - but have thought it over long and hard after the long market rise.

I understand now about making a direct transfer (custodian to custodian) of the proceeds after selling VNQ - which is the only holding in this Roth account. I sell VNQ the proceeds go into money market in the Roth and then I do a direct transfer buying any CD I want with no tax implications.

Overall in my portfolio I have no other room to sell equities, lots in taxable with lots of capital gains. Other equities I just don't want to sell - Vanguard All World FTSE (VEU) and Vanguard Total Stock Market (VTI). I suppose I could sell VNQ in the Roth and replace it with Vanguard Total Bond (BND) or similar.
Evelyn

donoharm
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Re: Want to sell Roth holding and purchase CD

Post by donoharm » Fri Oct 06, 2017 12:02 pm

The simplest thing to do is to sell VNQ and use the proceeds to buy a brokered CD in your Roth account. Your brokerage firm should have a list of new issue and secondary CDs available at various maturities and yields. Generally the yields are better in the secondary CDs. They will be FDIC insured up to par but not the amount of any premium over par. Buy from a well rate bank and don't buy if selling much above par (e.g. over $101).

beebog
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Joined: Sun Aug 27, 2017 9:51 am

Re: Want to sell Roth holding and purchase CD

Post by beebog » Fri Oct 06, 2017 12:08 pm

Who is the custodian of your Roth? I ask because I use Fidelity and I can purchase brokered CDs from inside my Roth account. I have been putting a small fraction of my Roth in laddered CDs for some time and haven't had any issues.

Does your credit union have a particularly attractive rate or are your just looking for somewhere safe to put the funds in your Roth?

If you do have to transfer to a different custodian to get access to CDs you may want to consider one where you have access to both CD, funds, stocks, etc. If your needs in the future change, you will have more options available to you without having to transfer again.

I'm not sure if brokered CD rates are as good as IRA cd rates, so you should also keep that in mind. I've never looked into IRA cds.

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midareff
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Re: Want to sell Roth holding and purchase CD

Post by midareff » Fri Oct 06, 2017 12:17 pm

I think the most important money in retirement is Roth money. You can move it around however you like without tax consequences, buy and sell funds or stock without tax consequences and withdraw it as you like after a certain age without tax consequences. The most opportunistic and agressive part of my portfolio is in my Roth due to these factors. So let me understand, you want to get rid of this to buy taxable CDs?

EvelynTroy
Posts: 244
Joined: Sat Jun 07, 2008 8:35 am

Re: Want to sell Roth holding and purchase CD

Post by EvelynTroy » Fri Oct 06, 2017 1:33 pm

beebog -
My roth custodian is TdAmeritrade.
I am not a fan of brokered CD's - I prefer that my interest be reinvested back into the CD, rather than have it paid out to me. Brokered CD's you can't do this. I like my interest to compound. Also if you need to sell you will often pay quite a bit to sell early as opposed to credit union CD's you can find with low EWP's.
I checked TD's CD's anyway and none I would purchase.
I purchase CD's nationwide by keeping an eye out for good offerings via depositaccounts.com at credit unions or banks. depositaccounts.com is a great resource
IRA CD rates and non-IRA rates are the same at any credit union /bank I've done business with.

midareff -
So let me understand, you want to get rid of this to buy taxable CDs?

No, I want to sell the one holding VNQ a very small holding in my Roth account and purchase a CD - the CD purchase would be a custodian to custodian staying as a Roth so there would not be tax consequences. I want to sell this holding because I want to reduce my equity allocation and this is the only place I can do it that makes sense to me.
Evelyn

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