re: OT- Cooking the Books

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I only recently put it back on the market and leased it out, but now this has me thinking....should I be taking the profits and putting them into a Roth?

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We do the same and I would recommend you build up enough cash to at least cover a new HVAC (most expensive thing you can replace normally)...about $5K. This is your cushion too if it goes unrented.

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should I be taking the profits and putting them into a Roth?

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There are some folks that use their Roth's as an emergency fund but the markets tend to get cut in half from time to time and you don't want to be forced to sell at a loss cover your arse if the unit goes unrented or you have a big expense. I'd build up my cash reserve for the rental and then invest above that. Cash is still king.

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We do the same and I would recommend you build up enough cash to at least cover a new HVAC (most expensive thing you can replace normally)...about $5K. This is your cushion too if it goes unrented.

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Good points. I will say, the HVAC was replaced with a new (damn good) system in '13, so I still have the remainder of the 10-year parts warranty left on it. Good thought on the potential rental difficulty. I do have a girl in now who moved in this June and is on a two-year lease and already have someone that wants to know when it opens back up again. It's in a good spot.

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There are some folks that use their Roth's as an emergency fund but the markets tend to get cut in half from time to time and you don't want to be forced to sell at a loss cover your arse if the unit goes unrented or you have a big expense.

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So correct me if I'm wrong here....but you can pull from your contributions any time, without penalty or tax, correct? If so, is what you're saying is that you can lose your contributions (principal)? If I drop $1,000 in one today, I could lose that $1,000?

Obviously, I know there's inherent risk in investing. Just trying to be sure I fully understand it.

Thanks!

It's only lost if you sell it.

If you have to withdraw while the market is down, you are losing money, in that sense.

This is like watching cancer patients get their oncology treatment advice from the doctor's office secretary.

Voya Natural Resources is a closed-end fund (CEF). Therefore it doesn't pay "yield" or "dividends", it pays "distributions" based on the Net Asset Value (NAV), which is the price of the shares divided by the [limited] shares in circulation. As a result, volume sell-offs which reduces shares owned drastically effects your NAV, and therefore your distribution.

In other words, in the event of either a market crash or simply a Natural Resources value downswing, you better have a crystal ball and be trying to unload it before everyone else does.

Also, Voya's NR fund is 85% "Return of Capital" (ROC). Meaning every distribution paid out and reinvested lowers your principal cost basis. LINK

What this means is, if you purchase $1,000 worth, and it pays a $50 distribution, your new cost basis is now $957.50 ($50x0.85=$42.5-$1,000). Hence why this is not called yield or dividends.

High ROC also means they are cannibalizing themselves to cover this attractive distribution percentage. So when they finally sell all the available shares, the distribution rate will take a huge hit because they can only afford what P/E they are actually making rather than leveraging CEF purchase inflows to subsidize their distribution (like a Ponzi).

Now in a ROTH, if you plan to hold this investment through thick and thin until at least age 59.5, then there is no tax consequence.

But if the market crashes and you have CEF's in your ROTH, know this.....

Voya (or the CEF managing company) won't simply buy back your shares like an open-ended mutual fund or stock. You will have to find a buyer (OTC) or you're stuck with it and riding it all the way down.

IF you do find a buyer, just like a bond, he's not going to give you anywhere close to NAV or a discount. Completely the opposite. You're going to have to discount the sell price (likely significantly) for any buyer to see any possible advantage in buying it.

You may have purchased this thing when the NAV was $7.00/share, but then for whatever reason something triggers a sell-off, and now half the shares are in circulation, well that's a 50% drop in NAV. The distribution is going to get crushed. You may have to take a 50-60% loss on the thing just to find a buyer.

And the worse part is, if you purchased this in a ROTH while you're young and aren't 59.5 years old, if you withdraw the cash outside the ROTH, not only are you going to get taxed on every single bit of those distributions, minus your capital loss from having to sell it at a discount, but you're going to pay an additional 10% penalty.

If you're older than 59.5 or you simply leave the cash in the ROTH and don't physically withdraw it, then there's no penalty, but you also don't get to realize the pass-through losses from selling at a discount. Meaning you don't get to write off the capital loss just like you wouldn't have been taxed on the capital gains.

Bottom line, these things are 100% correlated to the stock market even though they're traded OTC. And if all hell breaks loose, unloading CEF's can be a bitch and you may actually have to sell them well below NAV, meaning well below what you paid, for anyone to bite. And, doing it inside a ROTH can make it even worse.

Now IF the market doesn't crash, then buy-and-hold CEF ROTH strategies are awesome. Great ROC distributions and no future tax consequence in retirement? Who wouldn't love that?

But a big correction IS coming. Unless you're over 59.5 years old right now, or at least pretty soon, I don't recommend putting CEF's in your ROTH IRA.

Maybe a brokerage/non-IRA where you can dump it quickly if there's even a hint of a market or natural resources collapse. But that's about it. And if you do that, be prepared to pay capital gains on it each year.

Well good luck with that.

You should stop giving investment advice though. Telling people to put closed-end funds into a ROTH IRA when we're in a bubble and way overdue for a big market correction is just absurdly bad advice.

Good luck trying to sell that thing when the market takes a dump.

By the way, i havent given any investment advice in this thread. I told a guy how to call his bank and open a roth. I dabbled in money market advice...wooooooo

They should take away my series 7.

Thanks for way too much info, Beef.

Seriously, good stuff to consider. For the record, I'm not pursuing the IRR. This whole conversation just got me to thinking about putting my profits from my rental property into a ROTH. I'd most likely take the lazy option and go with a Targeted Retirement Fund.

That said, what advice would YOU give on that plan?

BTW, I know about the penalties for withdrawing earnings prior to 59.5, but that doesn't apply to withdrawing contributions...or am I missing something?

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What this means is, if you purchase $1,000 worth, and it pays a $50 distribution, your new cost basis is now $957.50 ($50x0.85=$42.5-$1,000). Hence why this is not called yield or dividends.

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How is this different than a div reinvestment with Ford Motor Company or AT&t?

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You may have purchased this thing when the NAV was $7.00/share, but then for whatever reason something triggers a sell-off, and now half the shares are in circulation, well that's a 50% drop in NAV. The distribution is going to get crushed. You may have to take a 50-60% loss on the thing just to find a buyer.

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How is this different than any other share of stock?

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And the worse part is, if you purchased this in a ROTH while you're young and aren't 59.5 years old, if you withdraw the cash outside the ROTH, not only are you going to get taxed on every single bit of those distributions, minus your capital loss from having to sell it at a discount, but you're going to pay an additional 10% penalty.

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How is this different than holding any other asset in a Roth?

He's going to sell you magic life insurance.