Put Infinite Money in a Roth IRA

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Jay69
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Put Infinite Money in a Roth IRA

Post by Jay69 » Wed Jan 09, 2013 3:42 pm

I thought some may like to read thru this, somethings are just to fun not to share :wink:

Nor even sure I could call this investment porn

http://www.fatwallet.com/forums/finance/1249773/

Just a little taste:
The gist of it is you're going to open two Roth IRAs simultaneously and take completely opposite positions in the two. You will use a complex options strategy to make it very likely that one account will go broke while the other doubles in value. You will then "undo" the contribution to the loser account, while leaving the winning account intact. A contribution can be undone by simply contacting the broker who will return to you your original contribution plus any earnings or minus any losses. Once undone it's like you never made the second contribution so you just have one account with double the yearly contribution limit. The contribution limit for 2013 is $5,500 so the winning account will have $11,000. If that's all you want to do you stop, otherwise continue:
Enjoy
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Re: Put Infinite Money in a Roth IRA

Post by gotherelate » Wed Jan 09, 2013 3:49 pm

About two-thirds of the way down the thread is this post:

"Posts like this verify the adage that anyone can put anything on the internet."

LOL
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Re: Put Infinite Money in a Roth IRA

Post by camontgo » Wed Jan 09, 2013 4:17 pm

This seems to be a variation on the Roth conversion strategy described here:

http://fairmark.com/sophisticated-roth- ... -planning/

I don't know anything about tax law, but the economic substance doctrine mentioned in the fairmark.com article seems like it would apply to the "infinite contribution" variation of the strategy.

http://en.wikipedia.org/wiki/Economic_substance
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Re: Put Infinite Money in a Roth IRA

Post by bsteiner » Wed Jan 09, 2013 4:24 pm

When I speak on Roth conversions for continuing legal education programs for lawyers, or continuing professional education programs for accountants, I often say that you could put each asset class, or even each security (if the broker will let you do that) in a separate Roth IRA, keep the ones that went up in value, and recharacterize the ones that went down in value.

I then joke that you could open two IRAs, each for $1.1 million, convert them to Roth IRAs, go to Nevada where it's legal, bet one on the NFC team in the Super Bowl, bet the other one on the AFC team in the Super Bowl, keep the one that wins (which will be worth $2.1 million), and recharacterize the one that loses (which will be worth zero).

I then say that I don't think it will work, since the two investments are completely interdependent, and the transactions have no chance at all to make a profit without the tax benefit.

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Re: Put Infinite Money in a Roth IRA

Post by LiamLC » Wed Jan 09, 2013 5:26 pm

I'm confused, so you are trying to invest $11,000 rather than $5,500 with this strategy, correct?

If you can divide up $11,000 into 2 Roth IRAs of $5,500, why do you need to consolidate them into one? You might as well just run your half of your funds in each account and save yourself the trouble.

I could be wrong, but I was under the impression that you couldn't just create an unlimited number of IRA accounts. I thought that the limit was for IRA contributions in general. If that is the case, how would you contribute $5,500 to each account? you would have to divide the yearly contribution limited by 2 which would make only $2,750 in each account which when doubled would still only equal the original amount contribution limit of $5,500.

Maybe I just don't understand how Roth IRAs work, but this just doesn't make sense to me. Can somebody explain this?

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Re: Put Infinite Money in a Roth IRA

Post by Bacchus01 » Wed Jan 09, 2013 5:48 pm

Open two on January 1.

Bet on countering assets. One doubles. One goes to zero.

Close one on Dec 31 that went to zero and basically reverse the transaction.

In the IRS eyes, you only contributed $5,500 when in fact you now have $11,000 in the account.

If you just "bet" right with one account, you have the same impact.

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Re: Put Infinite Money in a Roth IRA

Post by Wagnerjb » Wed Jan 09, 2013 6:21 pm

Bacchus01 wrote:Open two on January 1.

Bet on countering assets. One doubles. One goes to zero.

Close one on Dec 31 that went to zero and basically reverse the transaction.

In the IRS eyes, you only contributed $5,500 when in fact you now have $11,000 in the account.
So you contribute $5500 to two different Roth IRAs, each with "countering assets". At the end of the year, your $11,000 is still worth $11,000 but it is all in the Roth. OK, assuming this magical pair of investments exists - with no costs - you have saved the income taxes on $5500.

I contribute $5500 to my Roth and I invest the other $5500 in my taxable account. Like we saw in 2012, the assets appreciate 20%. I win, because you got no appreciation on your $11,000 in principal. You got some tax savings, but not enough to offset my market gains. In the real world, you have costs and imperfect pairs, so I don't think there is a workable way to manage this (even if the IRS allowed it).

Best wishes.
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Re: Put Infinite Money in a Roth IRA

Post by ThatGuy » Wed Jan 09, 2013 6:36 pm

Bacchus01 wrote:Bet on countering assets. One doubles. One goes to zero.
I'm interested in the idea that one of the two will double in value. How do I go about selecting two assets in an investment account that are guaranteed to either go to zero or to double?* Or at least to get very close to doubling in one years time frame.

*I don't think you can purchase gambling chits inside an IRA. Am I wrong?
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Re: Put Infinite Money in a Roth IRA

Post by Wagnerjb » Wed Jan 09, 2013 6:41 pm

ThatGuy wrote:
Bacchus01 wrote:Bet on countering assets. One doubles. One goes to zero.
I'm interested in the idea that one of the two will double in value. How do I go about selecting two assets in an investment account that are guaranteed to either go to zero or to double?* Or at least to get very close to doubling in one years time frame.
Why would you want to own two assets that are guaranteed to generate a combined zero return?
Andy

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Re: Put Infinite Money in a Roth IRA

Post by dragoncar » Wed Jan 09, 2013 6:48 pm

I'm interested in the idea that one of the two will double in value. How do I go about selecting two assets in an investment account that are guaranteed to either go to zero or to double?* Or at least to get very close to doubling in one years time frame.
You might be able to construct the +/- 100% scenario with options.
Why would you want to own two assets that are guaranteed to generate a combined zero return?
You sacrifice a year of returns (or more likely, take a small negative return) for the ability to get an extra $5500 in your Roth. That extra $5500 gets tax-free compound growth.
Last edited by dragoncar on Wed Jan 09, 2013 6:51 pm, edited 1 time in total.

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Re: Put Infinite Money in a Roth IRA

Post by nisiprius » Wed Jan 09, 2013 6:50 pm

Wagnerjb wrote:
ThatGuy wrote:
Bacchus01 wrote:Bet on countering assets. One doubles. One goes to zero.
I'm interested in the idea that one of the two will double in value. How do I go about selecting two assets in an investment account that are guaranteed to either go to zero or to double?* Or at least to get very close to doubling in one years time frame.
Why would you want to own two assets that are guaranteed to generate a combined zero return?
In order to expand your Roth IRA space, and, once you have it, invest in profitable stuff. So that you can have all of your investments sheltered in the Roth instead of just $5,500 worth.
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Re: Put Infinite Money in a Roth IRA

Post by ThatGuy » Wed Jan 09, 2013 6:55 pm

Wagnerjb wrote:Why would you want to own two assets that are guaranteed to generate a combined zero return?
If I can select two investments that are guaranteed to either double or go to zero, nothing in between, it's only a short hop to select more than two investments that generate a positive return in any 1 year time frame :D

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Re: Put Infinite Money in a Roth IRA

Post by FinancialDave » Wed Jan 09, 2013 7:35 pm

gotherelate wrote:About two-thirds of the way down the thread is this post:

"Posts like this verify the adage that anyone can put anything on the internet."

LOL

I'm not sure everyone on the thread understands the LOL here.

I suspect it is because you can not undo just one Roth account, as they all act as an aggregate -- besides of course the obvious fact that there are no sure things in investing, otherwise we would all be rich.

:oops:
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Re: Put Infinite Money in a Roth IRA

Post by Jack » Wed Jan 09, 2013 8:46 pm

Well, we know there is at least one way to put a lot of money in an IRA. Become a hedge fund manager, take your carried interest, give it a book value of near zero so that it is under the contribution limits, and then put it in your IRA. That is the way you get a $100 million IRA.

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Re: Put Infinite Money in a Roth IRA

Post by archbish99 » Wed Jan 09, 2013 10:46 pm

FinancialDave wrote:
gotherelate wrote:About two-thirds of the way down the thread is this post:

"Posts like this verify the adage that anyone can put anything on the internet."

LOL
I suspect it is because you can not undo just one Roth account, as they all act as an aggregate -- besides of course the obvious fact that there are no sure things in investing, otherwise we would all be rich.
No, it's perfectly legitimate to undo just one of your two contributions. Now, the IRS might come after you for doing the bet-on-opposing-teams approach, since they're interrelated. But a pair of IRAs invested in, say, emerging market small-caps and US Treasury bonds might be a more reasonable scenario to consider.
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Re: Put Infinite Money in a Roth IRA

Post by Wagnerjb » Thu Jan 10, 2013 9:11 am

nisiprius wrote:
Wagnerjb wrote:
ThatGuy wrote:
Bacchus01 wrote:Bet on countering assets. One doubles. One goes to zero.
I'm interested in the idea that one of the two will double in value. How do I go about selecting two assets in an investment account that are guaranteed to either go to zero or to double?* Or at least to get very close to doubling in one years time frame.
Why would you want to own two assets that are guaranteed to generate a combined zero return?
In order to expand your Roth IRA space, and, once you have it, invest in profitable stuff. So that you can have all of your investments sheltered in the Roth instead of just $5,500 worth.
Well, we all know that this magical pair of investments doesn't exist since all such potential pairs have transactions costs, imperfect correlations, or other risks. But let's make believe such a pair actually existed. I believe you would be smarter to use the paired investments for tax loss harvesting. Invest $5500 in each investment at the beginning of the year. At the end of the year, sell the loser (for $0) and take a $5500 tax loss. Hang on to the $11,000 winner - do not sell and trigger capital gains. Use those shares for charitable donations or gifts to children who pay no tax, or eventually bequeath to heirs. Use a separate $5500 to contribute to a Roth at year-end.

Best wishes.
Andy

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Re: Put Infinite Money in a Roth IRA

Post by FinancialDave » Thu Jan 10, 2013 9:30 am

archbish99 wrote:
FinancialDave wrote:
gotherelate wrote:About two-thirds of the way down the thread is this post:

"Posts like this verify the adage that anyone can put anything on the internet."

LOL
I suspect it is because you can not undo just one Roth account, as they all act as an aggregate -- besides of course the obvious fact that there are no sure things in investing, otherwise we would all be rich.
No, it's perfectly legitimate to undo just one of your two contributions. Now, the IRS might come after you for doing the bet-on-opposing-teams approach, since they're interrelated. But a pair of IRAs invested in, say, emerging market small-caps and US Treasury bonds might be a more reasonable scenario to consider.
I still don't get it ---- To UNDO the over contribution of $5500, you have to actually send $5500 out - if it doesn't exist in one account you have to take it from whatever money you have in the other account -- if you lose it all, I am not sure what happens??
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Re: Put Infinite Money in a Roth IRA

Post by archbish99 » Thu Jan 10, 2013 11:32 am

FinancialDave wrote:
archbish99 wrote: No, it's perfectly legitimate to undo just one of your two contributions. Now, the IRS might come after you for doing the bet-on-opposing-teams approach, since they're interrelated. But a pair of IRAs invested in, say, emerging market small-caps and US Treasury bonds might be a more reasonable scenario to consider.
I still don't get it ---- To UNDO the over contribution of $5500, you have to actually send $5500 out - if it doesn't exist in one account you have to take it from whatever money you have in the other account -- if you lose it all, I am not sure what happens??
No, that would be true if you just withdrew $5500. You're not undoing the investment which tanked, only the fact that it was inside a Roth IRA. If you put in $5500 and it declined to $1200, you get your $1200 back.

Which leads to an interesting question -- if the entire exchange was treated as not being in a Roth, can one take a capital loss on the declining one, since it has essentially been transmuted into a taxable investment?
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Re: Put Infinite Money in a Roth IRA

Post by HardSphere » Thu Jan 10, 2013 2:41 pm

This strategy is insane and somewhat confusing. I mean, it took me a while to actually understand the premise behind it and why it might be a terrible idea (besides needless complexity and transaction costs), and I'm not sure if I still do.

The underlying idea is that trades on the market are like a zero-sum game, that for each trade there is one winner and one loser, so you can get around the total $5500 contribution limit by setting Roth #1 to be the winner and Roth #2 up to be the loser. Similar to how you can rig the outcome of a chess game by playing both White and Black at the same time. Or, how you can win a poker game by playing all hands at the table at once by yourself, and controlling all the bets such that the game reaches its natural conclusion of one "player" with all of the money and the rest totally broke.

Doesn't this ignore the fact that markets are efficient, with many thousands of players, each of whom possess different bits of information which you do not, and may already have trading strategies or positions which would stand to benefit from whatever complex options scheme you cook up to try to weasel around the IRA contribution limits?

I mean... if one other human being is sitting at the poker table where I'm playing all of the other hands (let's pretend that it's not obvious; that it's a poker table where nobody can see who is sitting in each chair) and figures out what is going on, he'll punch me in the face and take all of the money because I'm cheating. But if I'm only playing two hands and six other people are also playing, they may know I'm cheating and that I possess more information than they do, but they may not care as much because I can still lose the game; one or both of my hands may get wiped out because I don't realize that one of the non-cheating players had the best hand.

See, the maximization in tax-advantaged space could be valuable to some people; so valuable that they are willing to incur the cost of options and brokerage charges and the time required to set up and take advantage of this scheme. But that's not really the stupid part about it (though it is pretty stupid for most people); the stupid part is that some other guy could win part or all of the money you are trying to lose to yourself. Or at least I think that's what the stupid part is.

Am I wrong?

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Re: Put Infinite Money in a Roth IRA

Post by LiamLC » Thu Jan 10, 2013 2:59 pm

HardSphere wrote:This strategy is insane and somewhat confusing. I mean, it took me a while to actually understand the premise behind it and why it might be a terrible idea (besides needless complexity and transaction costs), and I'm not sure if I still do.

The underlying idea is that trades on the market are like a zero-sum game, that for each trade there is one winner and one loser, so you can get around the total $5500 contribution limit by setting Roth #1 to be the winner and Roth #2 up to be the loser. Similar to how you can rig the outcome of a chess game by playing both White and Black at the same time. Or, how you can win a poker game by playing all hands at the table at once by yourself, and controlling all the bets such that the game reaches its natural conclusion of one "player" with all of the money and the rest totally broke.

Doesn't this ignore the fact that markets are efficient, with many thousands of players, each of whom possess different bits of information which you do not, and may already have trading strategies or positions which would stand to benefit from whatever complex options scheme you cook up to try to weasel around the IRA contribution limits?

I mean... if one other human being is sitting at the poker table where I'm playing all of the other hands (let's pretend that it's not obvious; that it's a poker table where nobody can see who is sitting in each chair) and figures out what is going on, he'll punch me in the face and take all of the money because I'm cheating. But if I'm only playing two hands and six other people are also playing, they may know I'm cheating and that I possess more information than they do, but they may not care as much because I can still lose the game; one or both of my hands may get wiped out because I don't realize that one of the non-cheating players had the best hand.

See, the maximization in tax-advantaged space could be valuable to some people; so valuable that they are willing to incur the cost of options and brokerage charges and the time required to set up and take advantage of this scheme. But that's not really the stupid part about it (though it is pretty stupid for most people); the stupid part is that some other guy could win part or all of the money you are trying to lose to yourself. Or at least I think that's what the stupid part is.

Am I wrong?
No I think he means to actually take opposite positions, such as a long and short position of the same security so if one goes up the other goes down. It would have to be something very volatile so that it doubles within a year from one of the positions.

Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?

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Re: Put Infinite Money in a Roth IRA

Post by HardSphere » Thu Jan 10, 2013 3:13 pm

LiamLC wrote:No I think he means to actually take opposite positions, such as a long and short position of the same security so if one goes up the other goes down. It would have to be something very volatile so that it doubles within a year from one of the positions.
Well, the opposite positions part I think is what he's saying also, but what I think he's advocating is that you take opposite positions on yourself, not on any particular security.

As in, it's a form of insider trading which may not actually be called "insider trading": You know with 100% certainty that you will bet $5500 on something, so you bet the other $5500 on the opposite outcome. You know that one of the two positions will gain $5500 because one of the two positions must lose $5500. The idea isn't to take opposing bets and hope one of them pays off; the idea is to do a money transfer around obnoxious tax laws without it being called a money transfer, so you lose the money to yourself.

In either case though, nothing stops some third person or thousands of third persons in the market from taking the $5500 you are trying to lose to yourself.

EDIT:
Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?
It is my understanding that you can only contribute $5500 (or whatever the catch-up limit is for old people) to all IRAs you possess.

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Re: Put Infinite Money in a Roth IRA

Post by LiamLC » Thu Jan 10, 2013 3:53 pm

HardSphere wrote:
LiamLC wrote:No I think he means to actually take opposite positions, such as a long and short position of the same security so if one goes up the other goes down. It would have to be something very volatile so that it doubles within a year from one of the positions.
Well, the opposite positions part I think is what he's saying also, but what I think he's advocating is that you take opposite positions on yourself, not on any particular security.

As in, it's a form of insider trading which may not actually be called "insider trading": You know with 100% certainty that you will bet $5500 on something, so you bet the other $5500 on the opposite outcome. You know that one of the two positions will gain $5500 because one of the two positions must lose $5500. The idea isn't to take opposing bets and hope one of them pays off; the idea is to do a money transfer around obnoxious tax laws without it being called a money transfer, so you lose the money to yourself.

In either case though, nothing stops some third person or thousands of third persons in the market from taking the $5500 you are trying to lose to yourself.

EDIT:
Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?
It is my understanding that you can only contribute $5500 (or whatever the catch-up limit is for old people) to all IRAs you possess.
Oh ok that makes sense

Yeah so how could one possibly do this? You would have to open 2 roth iras each with $2750 and when one doubles it will become $55000 which is the same as just contributing $55000 in the first place

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Re: Put Infinite Money in a Roth IRA

Post by dad2000 » Thu Jan 10, 2013 3:58 pm

LiamLC wrote:
HardSphere wrote:
LiamLC wrote:No I think he means to actually take opposite positions, such as a long and short position of the same security so if one goes up the other goes down. It would have to be something very volatile so that it doubles within a year from one of the positions.
Well, the opposite positions part I think is what he's saying also, but what I think he's advocating is that you take opposite positions on yourself, not on any particular security.

As in, it's a form of insider trading which may not actually be called "insider trading": You know with 100% certainty that you will bet $5500 on something, so you bet the other $5500 on the opposite outcome. You know that one of the two positions will gain $5500 because one of the two positions must lose $5500. The idea isn't to take opposing bets and hope one of them pays off; the idea is to do a money transfer around obnoxious tax laws without it being called a money transfer, so you lose the money to yourself.

In either case though, nothing stops some third person or thousands of third persons in the market from taking the $5500 you are trying to lose to yourself.

EDIT:
Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?
It is my understanding that you can only contribute $5500 (or whatever the catch-up limit is for old people) to all IRAs you possess.
Oh ok that makes sense

Yeah so how could one possibly do this? You would have to open 2 roth iras each with $2750 and when one doubles it will become $55000 which is the same as just contributing $55000 in the first place


You open up IRAs at different brokerages, each for $5500. You correct one of them by withdrawing the money (or what's left of it) before April 15. Then you've officially only contributed $5500 for the year.

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Re: Put Infinite Money in a Roth IRA

Post by archbish99 » Thu Jan 10, 2013 4:33 pm

HardSphere wrote:
LiamLC wrote:
Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?
It is my understanding that you can only contribute $5500 (or whatever the catch-up limit is for old people) to all IRAs you possess.
The limitation is a tax-construct, and generally the custodian won't stop you from depositing as much as you want. (Though they'll likely warn you.) After all, consider the case of a rollover -- you get a $200k distribution from your 401k, then deposit a $200k check in your IRA. All Vanguard knows is that you deposited $200k in 2013, with no idea where it came from. That's not their job -- it's the IRS's job. They'll report that you deposited $200k in an IRA, and it's up to you to convince the IRS that was legitimate. If not, there's a penalty on your taxes for overcontribution.

Technically, you can contribute as much as you want, so long as you undo enough contributions by your filing date to be below the limit. If you're still over the limit, then you file form 5329 to figure the tax. If you choose to leave it in and pay the tax, then it counts as a contribution for the following year, which if you also contribute the maximum can put you over, and the cycle continues.
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Re: Put Infinite Money in a Roth IRA

Post by magician » Thu Jan 10, 2013 5:02 pm

I'm still trying to figure out how doubling your money is equivalent to having infinite money.

I must have missed something.
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Re: Put Infinite Money in a Roth IRA

Post by LiamLC » Thu Jan 10, 2013 5:12 pm

archbish99 wrote:
HardSphere wrote:
LiamLC wrote:
Also can somebody please answer my original question, are you allowed to have as many IRAs as you want each with their own limits? If that's the case, just spread your investments accross all the accounts you need. All this strategy does is take the money from one Roth and consolidates it into another. You would still have to deposit $11,000. So if the limit is 5500, then you could never do this in the first place, or am I missing something?
It is my understanding that you can only contribute $5500 (or whatever the catch-up limit is for old people) to all IRAs you possess.
The limitation is a tax-construct, and generally the custodian won't stop you from depositing as much as you want. (Though they'll likely warn you.) After all, consider the case of a rollover -- you get a $200k distribution from your 401k, then deposit a $200k check in your IRA. All Vanguard knows is that you deposited $200k in 2013, with no idea where it came from. That's not their job -- it's the IRS's job. They'll report that you deposited $200k in an IRA, and it's up to you to convince the IRS that was legitimate. If not, there's a penalty on your taxes for overcontribution.

Technically, you can contribute as much as you want, so long as you undo enough contributions by your filing date to be below the limit. If you're still over the limit, then you file form 5329 to figure the tax. If you choose to leave it in and pay the tax, then it counts as a contribution for the following year, which if you also contribute the maximum can put you over, and the cycle continues.
Oh I see! Thank you for clarifying

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Re: Put Infinite Money in a Roth IRA

Post by archbish99 » Thu Jan 10, 2013 5:17 pm

magician wrote:I'm still trying to figure out how doubling your money is equivalent to having infinite money.
The assertion isn't that you get infinite money, but that you can put infinite (i.e. unlimited) money into Roth IRA. Essentially, it's a way to theoretically expand your tax-advantaged space to encompass as much of your portfolio as you want.
I'm not a financial advisor, I just play one on the Internet.

madbrain
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Re: Put Infinite Money in a Roth IRA

Post by madbrain » Thu Jan 10, 2013 8:26 pm

archbish99 wrote:
The limitation is a tax-construct, and generally the custodian won't stop you from depositing as much as you want. (Though they'll likely warn you.) After all, consider the case of a rollover -- you get a $200k distribution from your 401k, then deposit a $200k check in your IRA. All Vanguard knows is that you deposited $200k in 2013, with no idea where it came from. That's not their job -- it's the IRS's job. They'll report that you deposited $200k in an IRA, and it's up to you to convince the IRS that was legitimate. If not, there's a penalty on your taxes for overcontribution.
It's not true that Vanguard has no idea where it came from.
When you deposit money into your IRA, you do designate it as a contribution. I believe Vanguard will stop you from contributing more than the annual limit into one account.
To get around the limit, you would have to have multiple accounts, likely at different custodians.

If you rollover money, you have to provide a rollover form to the custodian also. So you are telling them whether it's a contribution or a rollover.

I think the scheme is ingenious, but it seems to me that the IRS would disallow it if you bet on exactly opposite options. One could probably get around it by using options on slightly different securities such as some index ETFs, which tend to move together.

My guess is that if someone actually tries this, the IRS will try to crack down on people with multiple Roth IRAs and excess contributions throughout the year, even if they are withdrawn before the end of the year. 64 Roth IRAs certainly would catch their attention ...

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archbish99
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Re: Put Infinite Money in a Roth IRA

Post by archbish99 » Thu Jan 10, 2013 9:12 pm

madbrain wrote: I think the scheme is ingenious, but it seems to me that the IRS would disallow it if you bet on exactly opposite options. One could probably get around it by using options on slightly different securities such as some index ETFs, which tend to move together.

My guess is that if someone actually tries this, the IRS will try to crack down on people with multiple Roth IRAs and excess contributions throughout the year, even if they are withdrawn before the end of the year. 64 Roth IRAs certainly would catch their attention ...
It's a variant on a fairly well-understood tactic -- decide how much you want to Roth-convert in a given year, do two (or more) conversions for that amount, invested separately, and undo the least-performing investments. I've seen reports that the IRS is less confused if the recharacterization happens in the same calendar year as the original conversion, though you technically have more time. That approach has the advantage of capturing the "benefit" of any loss, as the loss can be pre-tax (rather than on afyer-tax investments in the above scheme.
I'm not a financial advisor, I just play one on the Internet.

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