When I open an account with Mutual Fund A this year and then open an account with B next year, do these two accounts have different clocks? Meaning, with a qualified withdrawal, I can only get no penalty after five years for the first account and after six years for the second one (since I'm opening it next year)?

I hope that my question is clear. I can't seem to find a clearer way of asking it.

Thanks in advance.

I think your answer is one clock. From the IRS perspective, they don't see all your mutual funds... its all reported as one combined retirement asset. Well perhaps two collections: (1) Roths and (2) regular IRAs.

The 5 Year "holding period" during which distributions from ANY ROTH IRA are NOT "qualified distributions" begins on January 1st of the tax year in which the FIRST contribution to ANY Roth IRA was made. (Prop. Reg. 1.408A-6; IRC 408A(d)(2)(B)). That period can actually be as short as 3 years and 8 months (e.g.: taxpayer contributed to a Roth IRA on 4/14/99 for 1998. The period ends on 12/31/2003).

Note that this "five year clock" is COMPLETELY SEPARATE FROM the "5 year clock" pertaining to Regular IRA-Roth IRA "conversions".

John L. Olsen, CLU, ChFC
Olsen Financial Group
St. Louis, MO

Everett,

There would be no need to open a second account to purchase Mutual Fund B (unless one is a Roth and one a regular IRA). One account can consist of as many funds as you like, and you can change the mix at any time. This is a transaction involving you and the account trustee, and has nothing to do with the IRS.
From the IRS's point of view, the clock starts ticking on January 1st of the year you set up the account (even if you opened the account on April 14th).

Lyric

I should have said April 14th the following year (eg clock would start running on 1 Jan 98 for contributions made any time between 1 Jan 98 and 14 April 99).

Hello, Lyric. I actually meant Mutual Fund *Family* A and B. I would need to open 2 different accounts for them, right?

John G and John Olsen, does this change your answers regarding the clock?

Thanks,
Everett

[This message has been edited by Everett (edited 04-05-99).]

Hello Everett,

I can't say for sure. Certainly you would have two lots of paperwork if you have two different trustees, but from the IRS's point of view they may still regard this as a single account. I'll let the experts address that.

If you're new to this stuff, you may want to stick to a single fund family. Much more convenient. And most good fund families have a wide array of funds to offer, covering every type of investment product. You can put together a very good, balanced portfolio. Unless you're an experienced investor looking to put together a particular mix of investments from the more than 9,000 funds available today, I'd say there's no reason to go to a different fund family next year. If you stick with one, you'll get one statement, and one lot of tax forms.
Keep it simple, and keep the cost down!

Lyric