Using Roth funds to buy into an IPO?

[Guest jc7032]

I have the opportunity to buy into an IPO and I was wondering if it is against any government rules to buy the shares through my existing Roth IRA? I have asked multiple people at the firm handling the IPO as well as my own IRA custodian but seem to get different answers depending on who I talk to. Obviously I am hoping that the IPO does well and any gains would be tax-free because of the Roth.

I appreciate anyones insight into the question. - JC

[John G]

Been there, done that. The answer is of course you can buy and IPO.

However, not every custodian supports the IPO option. Some do not offer IPOs, some like Wit Capital and Etrade directly connect you to IPOs. Charles Schwab has IPOs for their big customers (looks like the asset cutoff is moving higher in March). Other online brokerages are starting to add IPOs.

Do not expect to get into every IPO or even get many shares. The trend is that brokers spread around the shares, so don't get your hopes up for getting anything more than 100 shares (in some cases 50 shares) of any "hot" offerings. And, you only will get an allocation perhaps one time for each five requests. Of course, you often can get lots of shares of a lousey IPO.... but who wants to lose money.

I know that Schwab will allow you to get a check issued for an IPO that is outside their system, such as a mutual savings and loan or mutual insurance firm going public. These are IPOs where you have some option to directly participate, not IPOs from another broker. They need the prospectus and be comfortable that the stock will be listed on a major exchange, etc.

IPOs can be interesting... introduces you to a new firm. But like any investment, you need to evaluate them. Lots go down. Some go up spectacularly. Good hunting.

[This message has been edited by John G (edited 02-03-2000).]