OT: Personal finance experts, what are costs associated with "sale of fund shares"

[echappist]

One of my personal finance goals is to contribute to Roth IRA while I still can. While exploring fund options, I come across "return after taxes and sale of fund shares." The former I understand, and will be a moot point on a Roth IRA. The latter, I'm not sure why there would be such a significant difference (~0.75% annualized). What additional expenses goes into the actual sale of the shares, and why does it cost so much money?

Also, a corollary to this would be what happens when I rebalance my account (say by selling a large cap ETF and purchasing some long term treasury ETF), am I taking a hit on the "sale of fund shares" aspect when I rebalance? I assume this is not applicable to purchase and sale of stock shares as part of a Roth IRA, correct? Lastly, anyone got recommendation on readings for investing for Roth IRA and making additional investments when Roth is no longer an option (already maxing out 401k)

Many thanks in advance

[NYCfixie]

https://www.quickenloans.com/blog/ro...-plain-english

Originally Posted by echappist

One of my personal finance goals is to contribute to Roth IRA while I still can. While exploring fund options, I come across "return after taxes and sale of fund shares." The former I understand, and will be a moot point on a Roth IRA. The latter, I'm not sure why there would be such a significant difference (~0.75% annualized). What additional expenses goes into the actual sale of the shares, and why does it cost so much money?

Also, a corollary to this would be what happens when I rebalance my account (say by selling a large cap ETF and purchasing some long term treasury ETF), am I taking a hit on the "sale of fund shares" aspect when I rebalance? I assume this is not applicable to purchase and sale of stock shares as part of a Roth IRA, correct? Lastly, anyone got recommendation on readings for investing for Roth IRA and making additional investments when Roth is no longer an option (already maxing out 401k)

Many thanks in advance

[Peter P.]

Duplicate post. Deleted.

[Peter P.]

What "sale of fund shares" means is, there is a sales charge for selling the shares to you; something like a sales tax, although it's not a tax. Some people think "sale" means when YOU sell the shares. That's possible, and is called a "back loaded" fund. If you pay when you BUY the shares, it's called a "front loaded" fund.

You should be looking for a fund which is a "no-load" fund which means no front or back loading, then look for the lowest annual fund charges, although I forget what term is used for that.

I am not a personal finance expert, but do have an involvement in my investments and retirement accounts.

[dem]

This is just them being explicit that the capital gains is calculated including the sale of fund shares:

"In calculating the capital gains taxes (or the benefit resulting from tax losses) on a redemption of fund shares, the federal tax law netting rules should first be applied to losses and gains from the sale of fund shares. A fund should only assume that a shareholder has sufficient gains of the same character from other investments to offset any capital losses from the redemption after the fund has netted all gains and losses from the sale of fund shares."

https://www.sec.gov/divisions/invest.../mutualq-a.htm

As you indicate, it shouldn't matter within a tax sheltered account.

Also, I suggest you immediately go to https://www.bogleheads.org and spend some time in the wiki: https://www.bogleheads.org/wiki/Getting_started

(normally I stay off OT threads, but this is a quasi-PSA

[echappist]

grazie mille for the answers!!! learn something new everyday. While @dem's post was most on point, I also learned from @NYCfixie's response that I still have time to contribute for 2017 and from @Peter P's post re: loading (all new concepts to me).

as a follow up question for @dem, why are the rates different for return after tax and return after tax + sale of fund? Does the latter also factor in taxes on short term capital gain and dividends?

they really ought to teach this sort of stuff in high school or college. I mean, if schools like Cornell require people learn how to swim, schools might as well require people learn how to swim figuratively in the ocean of personal finance .

heck, I didn't even know that I could qualify for Roth IRA until i read a post on another cycling-related forum. I had thought that I wouldn't qualify, as I already participate in a 401(k) type plan

[NYCfixie]

Originally Posted by echappist

heck, I didn't even know that I could qualify for Roth IRA until i read a post on another cycling-related forum. I had thought that I wouldn't qualify, as I already participate in a 401(k) type plan

Double check on non-cycling forums to make sure you can actually contribute even for 2017. The answer is based on a few factors:
- Do you have a 401k that you contribute to?
- What is your adjusted gross income?
- Do you file as married or joint and what is the combined AGI?

Retirement Topics - IRA Contribution Limits

[echappist]

Thanks for the reminder. I do indeed qualify. I file as single, and my AGI allows me to contribute the full $5500. The latter is essentially another way of saying that I can't afford (and shouldn't buy) a Moots . Come to think of it, $5500 won't even be enough for a Moots. Back when I got my first real job, I blew $12k on two bikes. Just to think how much that'd have become now had I invested in some BRKB shares...

[NYCfixie]

I work in Tech. Many years in Advertising. Lots of Apple computers. When Apple was dying in the 90s due to John Sculley, I was waiting for them to go out of business. I purchased some shares on a whim and figured it was not that much too lose but I could always say that "I owned Apple". Should have bought more shares because I would be retired now.

No point in looking back. Continue to look forward as you are. Learn more about personal investing. And get a great accountant; worth every penny you pay them.

Originally Posted by echappist

Thanks for the reminder. I do indeed qualify. I file as single, and my AGI allows me to contribute the full $5500. The latter is essentially another way of saying that I can't afford (and shouldn't buy) a Moots . Come to think of it, $5500 won't even be enough for a Moots. Back when I got my first real job, I blew $12k on two bikes. Just to think how much that'd have become now had I invested in some BRKB shares...

[foo_fighter]

Anyone can put 5500 into a Roth. If one was over the limit for direct contribution, the back door conversion could be used.

Originally Posted by echappist

Thanks for the reminder. I do indeed qualify. I file as single, and my AGI allows me to contribute the full $5500. The latter is essentially another way of saying that I can't afford (and shouldn't buy) a Moots . Come to think of it, $5500 won't even be enough for a Moots. Back when I got my first real job, I blew $12k on two bikes. Just to think how much that'd have become now had I invested in some BRKB shares...

[NYCfixie]

Incorrect, not anyone can put 5500 into a roth. You are describing an after-tax traditional IRA contribution that immediately gets converted and moved into a roth. It is not the same.

- You put the same after tax $5500 into a traditional IRA
- You immediately convert the traditional IRA contribution and move it into a roth IRA
- You fill out all the tax forms for this conversion (assuming most do not know how to do it, you pay an accountant to do it for you)

Also, based on the new tax laws, a 2017 traditional contribution (made before April 15th) that then becomes a 2018 roth conversion does not make sense for all taxpayers.

Originally Posted by foo_fighter

Anyone can put 5500 into a Roth. If one was over the limit for direct contribution, the back door conversion could be used.

[foo_fighter]

How is that incorrect? Who would not be able to do it?

Originally Posted by NYCfixie

Incorrect, not anyone can put 5500 into a roth. You are describing an after-tax traditional IRA contribution that immediately gets converted and moved into a roth. It is not the same.

- You put the same after tax $5500 into a traditional IRA
- You immediately convert the traditional IRA contribution and move it into a roth IRA
- You fill out all the tax forms for this conversion (assuming most do not know how to do it, you pay an accountant to do it for you)

Also, based on the new tax laws, a 2017 traditional contribution (made before April 15th) that then becomes a 2018 roth conversion does not make sense for all taxpayers.

[Marc40a]

Word of caution: The backdoor Roth contribution method isn’t as simple as it seems.

If you have existing pre-tax IRA funds (even across multiple accounts) they’re figured into the conversion ratio. That can make a portion, if not all of your $5500 conversion a taxable event.

[foo_fighter]

Correct. Pro rata rules apply.
I never implied everyone should do the conversion or that it made sense for all only that it was possible.
Do your homework or consult with a tax professional to see if it makes sense for your situation.

Originally Posted by Marc40a

Word of caution: The backdoor Roth contribution method isn’t as simple as it seems.

If you have existing pre-tax IRA funds (even across multiple accounts) they’re figured into the conversion ratio. That can make a portion, if not all of your $5500 conversion a taxable event.

[NYCfixie]

That is not exactly what you wrote or implied earlier but the updated/corrected new post clears it up.

Originally Posted by foo_fighter

Correct. Pro rata rules apply.
I never implied everyone should do the conversion or that it made sense for all only that it was possible.
Do your homework or consult with a tax professional to see if it makes sense for your situation.