Buying & Selling Within an IRA

[Guest augustineregal@yahoo.com]

Recently on another forum I encountered the following:

However, the bigger disappointment was figuring out that everytime I exchanged out of my original TRP fund (in a Roth IRA) into a new fund, TRP established a completely new Roth IRA for the second account. The second account was given a whole new start date for the purposes of the five years you must hold a Roth IRA. Before I figured out what they were doing, I had five different Roth IRAs in existence with them (because I exchanged out of the original fund into four other funds and kept the original open too) with the five year periods of the IRAs ending from early 2012 to late 2016. At Vanguard and Dodge Cox, you can exchange into a new fund and the new fund falls under the original Roth IRA "envelope" with the same date for the end of the 5 year period.

This sounds strange to me. As I understand it, an IRA is merely a container for investments. As long as one follows the contribution limits and doesn't violate the distribution rules, it's my understanding that one can trade within an IRA as often as one wishes. Further, I've never read or heard anything saying that trading from one fund to another within an IRA, Roth or otherwise, restarts the IRA holding period.

What am I missing here?

[ETA Consulting LLC]

You are correct. The initial period for a Roth IRA is the January 1st of the year in which the Roth IRA was first funded. Typically, this will be measured when the first Form 5498 (hope this is the right form) was issued. Anything else happening within the account is irrelevent.

Good Luck!

[GMK]

I agree. For the purposes of the 5-year holding period on Roth contributions, think of all of your Roth accounts as one account, and the 5-year period starts with the year of your first Roth contribution.

There is a second 5-year rule for rollovers to a Roth and conversions of a traditional IRA to a Roth, and each rollover or conversion has its own 5-year period (to avoid the 10% penalty).

http://www.money-zine.com/Financial-Planni...RA-5-Year-Rule/

[John G]

Three cheers for this website! Ok, maybe mild applause....

The story seems bogus to me. Absolutely an IRA or Roth is just an accounting bucket which after receiving funds, can buy and sell investments. It makes no sense to me that someone would take the partial sale of an asset and purchase of new assets as if the person is creating new IRA/Roths. You don't need new buckets...one will generally do just fine.

And what is TRP anyway?

Benefits Link is a great site to post questions about IRAs and Roths...those other sites...no so much.

[masteff]

And what is TRP anyway?

Perhaps T Rowe Price? I'd suspect user error or a missing fact (like the exchanges were in fact conversions).