Td Ameritrade Roth IRA question
"Your broker, Ameritrade, offers a variety of Exchange Traded Funds (ETFs) that you can buy and sell with zero commission.  An ETF is like a mutual fund, but you buy and sell shares the same way you buy and sell shares of stocks.  From your point of view, the relevance of this is that you can buy and sell as many or as few shares as you like, even down to a single share.  Note that to get the commission-free trades on the available ETFs you have to sign up for it in your account profile.  Be sure to do that before you enter any buy orders. You'll want to start by looking at the Ameritrade's list of commission-free ETFs.  Notice that they are divided into different categories:  stocks, bonds, international, and commodities.  Which categories you pick from will depend on your personal investing goals, time horizon, risk tolerance, and so on.  There are lots of questions and answers on this site that talk about asset allocation.  You should read them, as it is the most important decision you will make with your portfolio. The other thing you want to be aware of is the expense ratio for each fund.  These expenses reduce the fund's return (they are included in the calculation of the net asset value of the shares), so lower is definitely better.  Personally, I wouldn't even consider paying more than about 0.10% (commonly read ""10 basis points"" or ""10 bp"") for a broad-based domestic stock fund.  For a sectoral fund you might put up with as much as 20 bp in expenses.  Bond funds tend to be a little more expensive, so maybe allow as much as 25 bp, and likewise for international funds.  I've never invested in commodity funds, so I'll let someone else opine on appropriate expense ratios for those. Once you've decided what funds you want (and have signed up for commission-free trades), all you have to do is enter the trade orders.  The website where you manage your account has tutorials on how to do that.  After that you should be all set. Good luck with your investing!" Failing some answers to my comment, I am going to make some assumptions: Based upon a quick review of this article I'd probably be in the Russell 2000 Value Index Fund (IWN).  Quite simply it gives you broad market exposure so you can be diversified by purchasing one fund. One of the key success factors is starting, not if you pick the best fund at the onset.  I can recall, 20 years ago being amazed (and it was quite a feat) at someone who was able to invest $400 per month.  These days that won't get you to the ROTH maximum and smart 20 somethings are doing just that. Since you're 20-30 years out of retirement, you should be 90% to 100% in stocks, and in one or two broad stock market funds likely. I'm not sure about the minimums at TD Ameritrade, but at Vanguard even $3k will get you into the basic funds. One option is the Targeted Retirement Year funds, which automatically rebalance as you get closer to retirement.  They're a bit higher expense usually than a basic stock market fund, but they're often not too bad.  (Look for expenses under 0.5% annually, and preferably much lower - I pay 0.05% on mine for example.)   Otherwise, I'd just put everything into something simple - an S&P500 tracker for example (SPY or VOO are two examples) that has very low management fees.  Then when your 401(k) gets up and running, that may have fewer options and thus you may end up in something more conservative - don't feel like you have to balance each account separately when they're just starting, think of them as one whole balancing act for the first year or two.  Once they're each over $10k or so, then you can balance them individually (which you do want to do, to allow you to get better returns).
"You didn't have a situation of ""excess contribution"". If you have proof that someone in Fidelity actually told you what you said, you might try to recover some of your losses through a lawsuit. However, their first (and main) defense would be that they're not in the business of providing tax advice, and it is your problem that you asked random person a tax question, and then acted on an incorrect answer. By the way, that only goes to say that anything you might read here you should, as well, take with a grain of salt. The only one who can give you a tax advice is a licensed tax professional. I explained it in details in my blog post, but in short - it is either an EA (Enrolled Agent, with the IRS credentials), or a CPA (Certified Public Accountant) or Attorney licensed in your State. Back to your question - ""Excess Contribution"" to a IRA is when you contribute in excess to the limits imposed. For Traditional IRA in 2012 the limit was $5000. You contributed $4000 - this means that you were not in excess. There's nothing they can ""correct"", the 1099-R you got seems to be correct and in order. What you did have was a case of non-deductible contribution. Non-deductible contribution to your IRA should have been reported to the IRS on form 8606. Non-deductible contribution creates basis in your IRA. Withdrawals from your IRA are prorated to the relation of your basis to your total value, and the taxable amount is determined based on that rate. It is, also, calculated using form 8606. So in short - you should have filed a form 8606 with your 2012 tax return declaring non-deductible IRA and creating $4000 basis, and then form 8606 with your 2013 tax return calculating which portion of the $4000 you withdrew is non-taxable. If your total IRA (in all accounts) was that $4000 - then nothing would be taxable. Talk to a tax adviser, you might need to amend your 2012 return (or send the 2012 form separately, if possible), and then do some math on your 2013 return. If 60 days haven't passed, you might want to consider depositing the $4000 in a Roth IRA and perform what is called ""Conversion""." I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock.  In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out.  I prefer to do this in my IRA account as the trading creates no tax issue. I remember reading in an earlier version of Pub 590 (or possibly the Instructions for Form 8606) that timely contributions for Year X to an IRA are deemed to have been made on January 1 of Year X regardless of when they were actually made, but I don't seem to be able to find it now in current versions of Pubs 590a or 590b and so cannot include a citation of chapter and verse. Be that as it may, the calculations on on Form 8606 Part I effectively track basis on an annual basis rather than on a daily basis, and so the fact that the Traditional IRA has a zero balance (and basis 0 too) at some time during the year doesn't matter in the least.  In detail (though you didn't ask for it) Note that the whole $6500 that you put in remains non-deductible in its entirety, but you owe taxes on only $93,900 of that $100K that you rolled over into a Roth IRA and not on the whole $100K as you were assuming would have been the case. So, in effect, of that $6500 nondeductible contribution to your Traditional IRA, you did really get to deduct $6100 from your taxable income for 2016, and make only a $400 nondeductible contribution, exactly equal to your basis in your Traditional IRA as per the Form 8606 calculations.  I can only assume that the software package that you are using reproduces the above calculations exactly and does what the IRS says you must do on Form 8606 rather than what you get by tracking the basis on a daily basis. IRS regulations and instructions are not necessarily the same as what the tax law says; they are interpretations of the tax law based on what the IRS understands the tax law to say. People have challenged various specific IRS regulations and interpretations as being different from what the law says in Tax Court and been successful in some cases and failed in others. If you believe that tracking basis on a daily basis is what the law says (instead of just being reasonable and rational: reasonableness and rationality are not required either of Congress in the laws that they write or the IRS regulations that interpret the laws), you should take up the matter with the IRS or the Tax Court. "You can have as many IRA accounts as you want (whether Roth or Traditional), so you can have a Roth IRA with American Funds and another Roth IRA with Vanguard if you like. One disadvantage of  having too many IRA accounts with small balances in each is that most custodians  (including Vanguard) charge an annual fee for maintaining IRA accounts with small balances but waive the fee if the balance is large. So it is best to keep your Roth IRA in just one or two funds with just one or two custodians until such time as investment returns plus additional contributions made over the years makes the balances large enough to diversify further. Remember also that you cannot contribute the maximum to each IRA; the sum total of all your IRA contributions (doesn't matter whether to Roth or to Traditional IRAs) for any year must satisfy the limit for that year. You can move money from one IRA of yours to another IRA (of the same type) of yours without any tax issues to worry about. Such movements (called rollovers or transfers) are  not contributions and do not count towards the annual contribution limit. The easiest way to do move money from one IRA account to another IRA account is by a trustee-to-trustee transfer where the money goes directly from one custodian (American Funds in this case) to the other custodian (Vanguard in this case). The easiest way of accomplishing this is to call Vanguard or go online on their website, tell them that you are wanting to  establish a Roth IRA with them, and that you want to fund it by transferring money held in a Roth IRA with American Funds. Give Vanguard the account  number of your existing American Funds IRA, tell them how much  you want to transfer over -- $1000 or $20,000 or the entire balance as the case may be -- and tell Vanguard to go get the money.  In a few days' time, the money will appear in your new Vanguard Roth IRA and the American Funds Roth IRA will have a smaller balance, possibly a zero balance, or might even be closed if you told Vanguard to collect the entire balance.  DO NOT approach American Funds and tell them that you want to transfer money to a new Roth IRA with Vanguard: they will bitch and moan and drag their heels about doing so because  they are unhappy to lose your business, and will probably screw up the transfer. Talk to Vanguard only. They are eager to get their hands on your IRA money and will gladly take care of the whole thing for you at no charge to you. DO NOT cash in any stock shares, or mutual fund shares, or whatever is in your Roth IRA in preparation for ""cashing out of the old account"". There is a method where you take a ""rollover distribution"" from your American Funds Roth IRA and then deposit the money into your new Vanguard Roth IRA within 60 days, but I recommend most strongly against using this because too many people manage to screw it up. It is 60 days, not two months; the clock starts from the day American Funds cuts your check, not when you get the check, and it is stopped when the money gets deposited into your new account, not the day you mailed the check to Vanguard or the day that Vanguard received it,  and so on. In short, DO NOT try this at home:  stick to a trustee-to-trustee transfer and avoid the hassles." "Forbes has an article investigating this. Here are the key parts: On line at the bottom of the list of funds there is an entire screen   of grey-faded micro print which includes this telling disclosure: TD Ameritrade receives remuneration from certain ETFs (exchange-traded     funds) that participate in the commission-free ETF program for     shareholder, administrative and/or other services. In other words, TD Ameritrade is now enforcing a pay-to-play for their   so-called commission-free exchange-traded funds. They are willing to   forego their $6.95 trading commission in favor of remuneration   directly from the ETF vendors. Because Vanguard refuses to pay such   money to custodians, they are no longer being allowed to play. and Joseph Giannone, a TD Ameritrade spokesman, was quoted as saying,   ""With any business decision, client needs are paramount, but the   underlying economics of programs can’t be ignored. ... In line with   industry practices, certain providers pay servicing, administrative or   other fees. Vanguard elected not to be a part of the new program."" So basically it sounds like Vanguard, and presumably iShares as well, were unwilling to pay TD Ameritrade to continue offering their ETFs commission-free." I was going to comment on the commission-free ETF answer, which I agree with, but I don't have enough reputation. TD Ameritrade has a list of commission-free ETFs and has no minimum deposit required to open an account. Another idea is to keep gifts in cash until a certain threshold is reached. For instance, $100 for birthday, $100 for Christmas, $100 for next birthday, $100 for next Christmas, now execute the trade. Sharebuilder has $4 scheduled trades, so you'd be at about 1% overhead for that. If other people give money, you'll reach the threshold faster of course. For what it's worth, I do something similar for my 2 nieces. I combined their account and prepay Christmas plus birthday, so I do 1 trade a year. I have my account at Sharebuilder because my idea predated the commission-free ETFs that are now pretty popular. I should really transfer the account... hm. "I frequently advise to go 401(k) up to the match. With no match, I'm not so sure.  If you are in the 15% bracket, I'd skip the 401(k). Your standard deduction is $5800 this year, do you itemize? I ask because the 15% bracket ends at $34,500, and I don't know if you manage enough deductions to get under that.  But - I'd only pt into the 401(k) what would otherwise be taxed at 25%, no more. Even then only if the 401(k) expenses were pretty reasonable. Will all the hoopla over retirement accounts, we easily forget the beauty of the investment in ETFs long term. You buy the SPY (S&P 500 ETF) and hold it forever. The gains are all deferred until you sell, and then they have a favored rate. You control the timing of the sale with no risk of penalty. The expenses are low, and over time, can make up for the lack of tax deduction (The pretax deposit) vs the 401(k) account. You die and the beneficiaries have a stepped up basis with no tax due (under whatever the limit is that year).  Long term, I'd go with low cost ETFs and pay the mortgage at the minimum payments. Even without itemizing, 4.2% is pretty low compared to the expected return over the next decade in stocks.  I recommend a look at Fairmark to help understand your marginal rate. Your gross doesn't matter as much as that line on 1040 ""taxable income."" This will tell you if you are in the 25% bracket and if so, how deep.  Edit - If one's taxable income, line 43 on your 1040, I believe, puts him into the 15% bracket, there are issues using a pretax 401(k). The priority should be to use a Roth IRA or Roth 401(k). Being so close to that 25% bracket at 26 tells me you will grow, and/o marry into it over time, that's the ideal time to use the pre-tax 401(k) to stay at 15%. i.e. deposit just enough to bring your taxable income right to that line of 15/25%." "Your real question, ""why is this not discussed more?"" is intriguing. I think the media are doing a better job bringing these things into the topics they like to ponder, just not enough, yet.  You actually produced the answer to How are long-term capital gains taxed if the gain pushes income into a new tax bracket? so you understand how it works.  I am a fan of bracket topping. e.g. A young couple should try to top off their 15% bracket by staying with Roth but then using pretax IRA/401(k) to not creep into 25% bracket.  For this discussion, 2013 numbers, a blank return (i.e. no schedule A, no other income) shows a couple with a gross $92,500 being at the 15%/25% line. It happens that $20K is exactly the sum of their standard deduction, and 2 exemptions.  The last clean Distribution of Income Data is from 2006, but since wages haven't exploded and inflation has been low, it's fair to say that from the $92,000 representing the top 20% of earners, it won't have many more than top 25% today. So, yes, this is a great opportunity for most people.  Any married couple with under that $92,500 figure can use this strategy to exploit your observation, and step up their basis each year. To littleadv objection - I imagine an older couple grossing $75K, by selling stock with $10K in LT gains just getting rid of the potential 15% bill at retirement. No trading cost if a mutual fund, just $20 or so if stocks.  The more important point, not yet mentioned - even in a low cost 401(k), a lifetime of savings results in all gains being turned in ordinary income. And the case is strong for 'deposit to the match but no no more' as this strategy would let 2/3 of us pay zero on those gains.  (To try to address the rest of your questions a bit - the strategy applies to a small sliver of people. 25% have income too high, the bottom 50% or so, have virtually no savings. Much of the 25% that remain have savings in tax sheltered accounts. With the 2013 401(k) limit of $17,500, a 40 year old couple can save $35,000. This easily suck in most of one's long term retirement savings. We can discuss demographics all day, but I think this addresses your question.) If you add any comments, I'll probably address them via edits, avoiding a long dialog below." "All transactions within an IRA are irrelevant as far as the taxation of the  distributions from the IRA are concerned. You can only take cash from an IRA, and a (cash) distribution from a Traditional IRA is taxable as ordinary income (same as interest from a bank, say) without the advantage of any of the special tax rates for long-term capital gains or qualified dividends even if that cash was generated within the IRA from sales of stock etc. In short, just as with what is alleged to occur with respect to Las Vegas, what happens within the IRA stays within the IRA. Note: some IRA custodians are willing to make a distribution of stock or mutual fund shares to you, so that ownership of the 100 shares of GE, say, that you hold within your IRA is transferred to you in your personal (non-IRA) brokerage account. But, as far as the IRS is concerned, your IRA custodian sold the stock as the closing price on the day of the distribution, gave you the cash, and you promptly bought the 100 shares (at the closing price) in your personal brokerage account with the cash that you received from the IRA. It is just that your custodian saved the transaction fees involved in selling 100 shares of GE stock inside the IRA and you saved the transaction fee for buying 100 shares of GE stock in your personal brokerage account. Your basis in the 100 shares of GE stock is the ""cash_ that you imputedly received as a distribution from the IRA, so that when you sell the shares at some future time, your capital gains (or losses) will be with respect to this basis. The capital gains that occurred within the IRA when the shares were imputedly sold by your IRA custodian remain within the IRA, and you don't get to pay taxes on that at capital gains rates. That being said, I would like to add to what NathanL told you in his answer. Your mother passed away in 2011 and you are now 60 years old (so 54 or 55 in 2011?). It is likely that your mother was over 70.5 years old when she passed away, and so she likely had started taking Required Minimum Distributions from her IRA before her death. So, You should have been taking RMDs from the Inherited IRA starting with Year 2012. (The RMD for 2011, if not taken already by your mother before   she passed away, should have been taken by her estate, and distributed to her heirs in accordance with her will, or, if she died intestate, in accordance with state law and/or probate court directives). There would   not have been any 10% penalty tax due on the RMDs taken by you on the grounds that you were not 59.5 years old as yet; that rule applies to owners (your mom in this case) and not to beneficiaries (you in this case). So, have you taken the RMDs for 2012-2016? Or were you waiting to turn 59.5 before taking distributions in the mistaken belief that you would have to pay a 10% penalty for early wthdrawal?  The penalty for not taking a RMD is 50% of the amount not distributed; yes, 50%. If you didn't take RMDs from the Inherited IRA for years 2012-2016, I recommend that you consult a CPA with expertise in tax law. Ask the CPA if he/she is an Enrolled Agent with the IRS: Enrolled Agents have to pass an exam administered by the IRS to show that they really understand tax law and are not just blowing smoke, and can represent you in front of the IRS in cases of audit etc," "They may be confused. The combination of ""my wife received stock when younger"" and ""her father just died"" leaves questions. A completed gift, when she was a kid, means she has a basis (cost) same as the original owner of that stock. This may need to be researched. The other choice is that she gets a price based on the date of dad's death, a stepped up basis, if it was his, but she got it when he passed.  No offense to them, but brokers are not always qualified to offer tax advice.  How/when exactly did she get to own the stock. Upon second reading it appears I answered this from a tax perspective. You seem to have issues of ownership. What exactly does the broker tell you? In whose name is the statement for the account holding these shares? Scott, saw your update. For the accounts I have for my 13 year old, I am custodian, but the tax ID is her social security number. When 21, she doesn't need my permission to sell anything, just valid ID. What exactly does the broker tell her?" With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k. Too little information to give any kind of advice. What is your age, goals, other monies, other investments etc... You need to look at the whole thing. Are you investing already in tax-deferred IRA. Spend the time to learn to be your own investment advisor. Many investment professionals may disagree with me on this, but since you can't trust many of them better you do your own research first. Same with Stocks or ETF, you try to be the expert. Better you have the time to follow your own investments ideas, do not depend on a human or robot to tell you when to buy or sell. Their job is to part you from your money. If you do not have the time to this yourself, save yourself the money, and just do something else with it. I have been investing in the Stock Market since 1986, I have made more money than I lost. Good runs and bad. Today it is all about trading, you can not trust the financials given by anyone, or know what is going to happen in the markets in general. So unless you want to play the game every day, don't be in it. You probably bought the cross listed WestJet stock.  If you wanted to buy shares on the TSE, I'd suspect you'd have to find a way to open a brokerage account within Canada and then you'd be able to buy the shares.  However, this could get complicated to some extent as there could be requirements of Canadian tax stuff like a Social Insurance Number that may require some paperwork.  In addition, you'd have to review tax law of both countries to determine how to appropriately report to each country your income as there are various rules around that. TD Waterhouse would be the Canadian subsidiary of TD Ameritrade though I haven't tried to create a Canadian brokerage account. "I'm not following what's the meaning of ""open a mutual fund"". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's  - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades." Immediately move your Roth IRA out of Edward Jones and into a discount broker like Scottrade, Ameritrade, Fidelity, Vanguard, Schwab, or E-Trade.  Edward Jones will be charging you a large fraction of your money (probably at least 1% explicitly and maybe another 1% in hidden-ish fees like the 12b-1).  Don't give away several percent of your savings every year when you can have an account for free.  Places like Edward Jones are appropriate only for people who are unwilling to learn about personal finance and happy to pay dearly as a result.  Move your money by contacting the new broker, then requesting that they get your money out of Edward Jones.  They will be happy to do so the right way.  Don't try and get the money out yourself. Continue to contribute to your Roth as long as your tax bracket is low.  Saving on taxes is a critically important part of being financially wise.  You can spend your contributions (not gains) out of your Roth for any reason without penalty if you want/need to.  When your tax bracket is higher, look at traditional IRA's instead to minimize your current tax burden.  For more accessible ways of saving, open a regular (non-tax-advantaged) brokerage account. Invest in diversified and low-cost funds.  Look at the expense ratios and minimize your portfolio's total expense.  Higher fee funds generally do not earn the money they take from you. Avoid all funds that have a nonzero 12b-1 fee. Generally speaking your best bet is buying index funds from Fidelity, Vanguard, Schwab, or their close competitors.  Or buying cheap ETF's.   Any discount brokerage will allow you to do this in both your Roth and regular accounts.  Remember, the reason you buy funds is to get instant diversification, not because you are willing to gamble that your mutual funds will outperform the market.  Head to the bogleheads forum for more specific advice about 3 fund portfolios and similar suggested investment strategies like the lazy portfolios.  The folks in the forums there like to give specific advice that's not appropriate here. If you use a non-tax-advantaged account for investing, buy and sell in a tax-smart way.  At the end of the year, sell your poor performing stocks or funds and use the loss as a tax write-off.  Then rebalance back to a good portfolio.  Or if your tax bracket is very low, sell the winners and lock in the gains at low tax rates.  Try to hold things more than a year so you are taxed at the long-term capital gains rate, rather than the short-term. Only when you have several million dollars, then look at making individual investments, rather than funds.  In a non-tax-advantaged account owning the assets directly will help you write off losses against your taxes.  But either way, it takes several million dollars to make the transactions costs of maintaining a portfolio lower than the fees a cheap mutual/index fund will charge.