Buy Stocks with Pretax money????

Question

What are the best options (if one can) to buy stocks with pretax money with a long term investment objective and keep overheads to the bare minimum.

Ok here is the low down-I am 32 and have invested in 401k whenever I could. I have two 401ks from my earlier jobs which total about $30,000. I contribute to my 401k at my current gig at the max and also the Roth IRAs to the max. I know my options to move my money into a Rollover IRAs or into my current 401k. But I would like to explore a third option and use some of the PRETAX money from my 401k to buy stocks with a 10-15-20 year investment horizon. I would like to know what would be the most economical way of doing it and the associated costs. I won’t trade much, maybe once a year.

What type of account I need to open?

Which brokers would be the cheapest?

What would be the tax consequences of trading (not withdrawing from the account but selling and buying another stock through this account)?

Answer 1

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Answer 2

For pretax investment in stocks,  I believe your only option is to role your previous 401k accounts into a traditional IRA.  Many brokers will assist you in doing the role over.   TD Ameritrade advertises that they will give you upto $500 to role your 401k to them.  They are a little shy on the specifics however.  They charge $10.00 per transaction.  That is the only fee, I believe, except for mutual fund transactions which can be prohibitively expensive.   Scottrade is about $7.00 per transaction and their fees for mutual fund purchases are also less.  

If the account is a traditional IRA there are no taxes until you withdraw the money.  When you do, the taxes are calculated as if it were earned income, which is one of the disadvantages of a traditional IRA account and also a 401k, I might add.

Answer 3

I would suggest an alternative.

I would leave your 401k thats in the standard IRA and rollover the maximum amount you want to invest into a Roth IRA.

The reason as you may know is that the Roth will allow you to trade and have gains grow without any tax. Of course you pay tax now, however, give you're long time horizon, your growth will be tax free, and over 20 years adds up substantially.

Any oneline broker would be fine. They are all roughly the same, and since you don't plan to trade regularly, their commissions on trading is irrelevant.

Taking advantage of the Roth IRA is important, because as political winds change, this sort of tax free growth may not always be available, and can easily be phased in and out.

Answer 4

i don't see why can't you just invest in your 401k using IRA? there are a number of discount brokers each with their advantages and disadvantages. you would want to look them put to pick which best suit your investment plans. the taxes are just deferred.

Answer 5

You would rollover whatever portion of your 401k into a traditional IRA you want and handled through a brokerage firm (however, your combination of Roth IRA contributions and Traditional IRA contributions cannot go above the max for the year - and you said you already maxed out).