Roth, daytrading, and Taxes

[Guest ToddWebb]

I want to "play" with my Roth money and was considering moving it to an online trading account.

Am I correct in believing that this account, despite heavy trading activity, is completely free of taxes?

Say I get lucky and my Roth portfolio doubles - this growth is tax-free?

------------------

www.ToddWebb.com

[John G]

Technical answers: Roth gains are tax free under current rules, plus unlike your normal (taxable) account you do not have those fun Schedule D forms to fill out each year. You clearly want a system to keep track of how you are doing, but you don't have to prep and file and forms each year. In that regard, the Roth eases one of the obvious burdens of a very actively traded account.

Additional advice: don't assume that you can make money day trading, many folks lose money (a real shame in a tax shelter) and lots of others underperform. Some very good recent studies based upon thousands of brokerage accounts found the following two interesting facts: (1) more frequently trading accounts underperform by 1+ percent, and (2) women out perform men by about 1 percent a year. If you are a guy involved in day trading, this research suggests you have two trends against you. And guys have this nasty tendency to think their actual market returns are higher then they are.... self deception.

It's your money, go ahead and plunge in. But, don't bet the farm. What you are probably doing is paying real dollar tuition to learn that making a fast buck is just not that easy. You don't need spectacular annual results to amass a fortune, time and compounding are an investors friends.

"my Roth portfolio doubles" was the phrase that made me post these cautionary notes.