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Question about Bonds in Roth IRA

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BrianJone
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Question about Bonds in Roth IRA  Reply with quote  

If someone buys bonds that pay dividends semi annually and puts those bonds in a Roth IRA, can that money be reinvested within the Roth?

To detail the question a bit more, assuming the maximum is invested annually in a Roth account with 30 year AAA corporate bonds. Over time those semi annual payments will total an amount large enough to buy an additional bond. Is this something that can be done, or must the cash just sit in the account? To add a more specific example, if I have earned $7,000 from bond interest payments by May 2013 (and all the cash is still sitting in the Roth account) and if I were to use that money to buy more bonds, can I still contribute my $5,500 for 2013 or will this take place of my contribution?
Post Wed Apr 10, 2013 1:36 pm
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oldguy
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Dividents, interest, cap gains, coupons, that the IRA earns do not count against the $5500 limit, that applies to 'new' money. Can you have your bond yields immediately used to buy more bonds, that's how mine is. But I have a bond fund, they buy some new shares for me at the end of every month.
Post Wed Apr 10, 2013 3:00 pm
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BrianJone
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quote:
Originally posted by oldguy
Dividents, interest, cap gains, coupons, that the IRA earns do not count against the $5500 limit, that applies to 'new' money. Can you have your bond yields immediately used to buy more bonds, that's how mine is. But I have a bond fund, they buy some new shares for me at the end of every month.


I have not yet earned enough on the semi annual coupon payments to test this yet. But I will need to buy the bonds on my own, these will be individual bonds (corporate), not a fund. Does that change your answer, or does that still not change the "new money" of $5,500 per year answer? Thank you for the reply
Post Wed Apr 10, 2013 4:23 pm
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clydewolf
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quote:
Originally posted by BrianJone
quote:
Originally posted by oldguy
Dividents, interest, cap gains, coupons, that the IRA earns do not count against the $5500 limit, that applies to 'new' money. Can you have your bond yields immediately used to buy more bonds, that's how mine is. But I have a bond fund, they buy some new shares for me at the end of every month.


I have not yet earned enough on the semi annual coupon payments to test this yet. But I will need to buy the bonds on my own, these will be individual bonds (corporate), not a fund. Does that change your answer, or does that still not change the "new money" of $5,500 per year answer? Thank you for the reply

Who is your IRA custodian? This would be a good question for you to ask your custodian.

When you send your annual contributions to your IRA custodian they should buy additional bonds for your IRA.

Most likely you do have automatic reinvestment of your interest and dividends. You should not have to do anything except read your statements.
Post Wed Apr 10, 2013 8:17 pm
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coaster
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If he buys an individual bond, I don't think the interest paid can be automatically reinvested, because you can't buy fractional shares of a bond, can you? (Unless the broker/custodian makes that option available, selling the fractional shares out of its own account). The interest will just accumulate in the cash/sweep account (still within the IRA of course), and he'll have to reinvest that when he has enough accumulated. Though I may be wrong....I'm a stock guy, not a bond guy. Wink

~Tim~
Post Thu Apr 11, 2013 2:42 am
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gilbertholdings
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you can reinvest dividends whether their from stocks or bonds in an roth ira and it won't count agianst your limits. that's the whole purpose of the roth ira, to let your earnings grow tax free.
Post Thu Apr 11, 2013 10:34 am
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BrianJone
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quote:
Originally posted by coaster
If he buys an individual bond, I don't think the interest paid can be automatically reinvested, because you can't buy fractional shares of a bond, can you? (Unless the broker/custodian makes that option available, selling the fractional shares out of its own account). The interest will just accumulate in the cash/sweep account (still within the IRA of course), and he'll have to reinvest that when he has enough accumulated. Though I may be wrong....I'm a stock guy, not a bond guy. Wink


I was not buying a portion of a bond, my question (which I think you partly answered already) is about accumulating the payment coupons until there was enough cash in the Roth account to buy a new bond. And I want to check to see if this will prevent my annual contribution if I use the interest to purchase new bonds?
Post Thu Apr 11, 2013 12:46 pm
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BrianJone
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quote:
Originally posted by gilbertholdings
you can reinvest dividends whether their from stocks or bonds in an roth ira and it won't count agianst your limits. that's the whole purpose of the roth ira, to let your earnings grow tax free.


Thank you
Post Thu Apr 11, 2013 12:47 pm
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clydewolf
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quote:
Originally posted by coaster
If he buys an individual bond, I don't think the interest paid can be automatically reinvested, because you can't buy fractional shares of a bond, can you? (Unless the broker/custodian makes that option available, selling the fractional shares out of its own account). The interest will just accumulate in the cash/sweep account (still within the IRA of course), and he'll have to reinvest that when he has enough accumulated. Though I may be wrong....I'm a stock guy, not a bond guy. Wink


Right! I consider the seep an investment, but a very poor investment.
Post Fri Apr 12, 2013 12:38 am
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Robinmarsh321
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After reading the following article I 'm wondering can I ... Roth IRAs are attractive because they have no withdrawal requirements for the ... questions about retirement and personal finance -- from annuities and bonds,
Post Mon May 06, 2013 10:15 am
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