Depends… This question is a bit confusing, so I’ll go over all possible scenarios that the user may have meant, and I’m going to separate this into two columns. This one will deal with losses in a Traditional IRA. The next column will deal with losses in a Roth IRA.

Q: Can you write off losses in an IRA?

A: No, not unless you’ve made non-deductible contributions to your IRA.

A Traditional IRA is tax deductible in the year that you invest the principal, and it is only taxed when you redeem (sell, or cash out). So, let’s say I invested $1,000 in an IRA in 2005 and the value has fallen to $700. I’ve already written off the $1,000 back in 2005, so I cannot make a second deduction now that I’ve lost money.

If I redeem my IRA and get the $700, then I will have to pay taxes (plus penalty, since I’m not of retirement age) on the $700. The $300 is gone, and it’s as if I never had it to begin with; I never paid taxes on it, so I can’t write it off.

Q: Do you pay taxes on losses in an IRA?

A: No.

Remember, a Traditional IRA is written off to begin with. So, you will only pay taxes on what you take out of the account.

Take the scenario above, where my $1,000 investment decreased to $700. I do not pay taxes on the $300 loss, I only pay taxes on what I take out (up to $700).

If you really want to dig deeper, here’s some light reading: IRS Publication 590: Individual Retirement Accounts (IRAs)

This is a question I recently got, and the answer is simple: yes, but the maximum annual IRA investment is a total (cumulative) amount, not per account. In other words, if you have four different IRAs with four different companies and your maximum IRA contribution is $4,000 for the year, you can only contribute $4,000 total, to all four accounts.
A more important question is: should you have different accounts?

Most investment advisors will tell you no, partly because it will be too difficult to manage, and partly because they want all of your money to be going to them and their funds.

While there is more to pay attention to when holding multiple accounts, there is usually little active management that goes on in an IRA. You open the account, buy the securities (usually mutual funds or money markets), and hold.

There isn’t really a lot of management with an IRA. Every year you’ll want to make sure your asset allocation is appropriate. You’ll add funds as you can.

The benefit of holding multiple accounts is no different than the benefit of holding different investments: diversification. Maybe one company is offering low fees but has a limited selection of mutual funds available. Another company may have slightly higher transaction costs but a wider variety of funds.

Sometimes, opening a new account is the only way to invest in a mutual fund you really would like to hold in an IRA. If your current broker (or 401(k), or SEP IRA, etc.) does not offer a particular fund, for example, you may have to open an account with another broker just to hold a fund in a tax-deferred account.

The downside is cost… maybe

Each company you have an account with will likely charge you a fee for management, but some discount brokers only charge for purchases and redemptions. As a result, you should have as few accounts as possible.

So, take a look at account fees and determine whether it’s worth it to pay each company the fees it is deducting from your bottom line.

The important thing is that you are satisfied with your investments and the way the management company reports your holdings, returns and losses.

Bonds are considered a low-risk investment vehicle and, therefore, offer a relatively modest rate of return. But there are risks involved that every investor should know about.

The two main risks that bond investors face are Default Risk and Interest Rate Risk.

Default Risk is the possibility that an issuer will not be able to meet the obligations of its bonds, namely, that it won’t have the money to pay its coupon (interest) or to repay the principal upon maturity. When an issuer defaults, investors will usually lose all or most of their investment.

Default risk is what determines the coupon, or interest rate, on a bond. A financially strong company with a history of meeting its obligations will issue bonds with a relatively low interest rate; conversely, a startup that has never reported profits and has defaulted on obligations in the past will issue bonds at a higher interest rate because there is a higher likelihood that it will default.

Diversification is the key to managing default risk. “Don’t put all your eggs in one basket,” is the applicable saying here. While credit reporting agencies like Moodys and Standard and Poors offer bond ratings that give investors an idea of the likelihood of default, no company is immune to the possibility: not Enron, not Argentina, not Ford, and not General Motors.

High yield bonds (junk bonds) should be kept to a minimum, unless your portfolio is extremely diverse and your investment style has a high risk for volatility, while investment-grade (highly rated) bonds should make up the majority of your bond portfolio. Government bonds should range across a wide spectrum of countries and governments. We all like the tax benefits of municipal bonds, but they have a much higher default risk than federally-issued Treasuries.

Also, pay attention to the duration of bonds. A short-term bond will have a lower risk of default than a long-term bond, since there is less time for an issuer to meet its obligations. As a result, short-term bonds will have a lower interest rate.

Interest Rate Risk is the risk that your investment will lose money because market interest rates have risen. Everyone talks about this every day in the financial press, and it’s how bond traders make their living. It is widely known that higher interest rates mean lower bond prices, but it is little understood.

Every time Fed Chairman Bernanke sneezes it affects the bond market, but few know exactly why.

So, here’s the lowdown:

When an investor buys a bond he or she is expecting a fixed rate of return for a specified period of time. Let’s say I buy a 20-year US Treasury bond for $10,000, and it has an annual coupon of 5%. From my $10,000 investment, I expect to get $500 a year (5% of $10,000) for the next 20 years, at which point I’ll get my $10,000 principal back.

Easy, right?

Well, if interest rates go up and the US Treasury now issues 20-year bonds for 10%, I made a bad investment. Now, my $10,000 investment could have bought a bond that yields $1,000 a year, twice as much as my piddling $500 annually. The result is that, if I were to sell my $10,000 bond, I would get less than half of my investment, since the same issuer (the US Treasury) is now issuing bonds at twice the interest rate.

This example is simplified and exaggerated. Treasuries don’t double their coupon overnight. Also, there is only one issuer in the example given above.

Imagine the scenario above played out across the entire bond universe: short-term, medium-term, long term; municipal, government, and corporate bonds; high-yield, emerging market, and investment-grade…

Throw oddballs like asset-backed securities, convertible bonds, and mortgage-backed securities and you can begin to see how interest rates affect the entire bond universe: when interest rates rise, bond prices fall. It’s that simple.

The only hedges against inflation risk are liquidity (cash) and hard assets. The ability to purchase bonds when interest rates are high is the important thing: new issues have a high interest rate, and the secondary market is depressed (think about that $10,000 bond I bought that could now be bought for $5,000).

There are other risks of bond investments, and I’ll go over them briefly.

Inflation Risk is the possibility that the coupon on your bond will not meet inflation. For instance, if inflation is 4% and your bond investment only returns 3%, you effectively lost 1% annually by investing.

Country Risk is the risk that a government bond will go into default because the issuing government is unstable or insolvent.

Call Risk, unique to callable bonds, is the risk that an issuer will call a bond, thereby canceling it, by repaying the principal before maturity.

All the talk from NAIAS is about GM right now: the electric hybrid Volt (possibly to be released in two years’ time),the Saturn Aura and Chevy Silverado winning North American Car and Truck of the year, respectively…

All of this led to Friday’s 3% drop for Toyota ™ and GM’s 2% rise. This sort of short-term attack (or boost, if you’re a GM investor) on your portfolio is just the kind of thing market-timers look for, and everyone is calling TM a buy right now, with after hours trading showing Toyota up and GM down.

Toyota’s market leadership is not likely to be toppled within the next two quarters, and GM’s financial troubles are going to linger on long after the last severance is paid.

Toyota should recover, and quick. Those investors savvy enough to get in on Friday will likely see gains within the next two weeks, while those riding GM’s high tide are taking a far greater risk.

American Century Chief Investment Officer Harold Bradley is departing from the firm on January 31 to join Kansas City’s Kauffman Foundation. He is the portfolio manager for American Century New Opportunities (TWNOX), American Century New Opportunities II (ANOAX), and American Century Selectm AASLX), which collectively manage about $3 billion in assets.

While the short-term impact of losing a talented portfolio manager can be easily dismissed at a large deeply-talented firm such as American Century, the long-term effects of a key strategist leaving could be significant.

Bradley was instrumental in developing the models that inform American Century’s small- and mid-cap growth portfolios. During his tenure, Bradley has overseen the small-cap, mid-cap, and sector growth strategies throughout the organization. He has also been a consumer-oriented advocate for market reforms, including “soft dollar” disclosure requirements.

Bradley’s successor, Enrique Chang, heads up the American Century International Equity team, overseeing the Emerging Markets, Global Growth, International Discovery, International Growth, International Opportunities and International Stock portfolios.

The new year always brings forth a multitude of prognosticators on every sector of the market and, typically, there is no shortage of market bears, citing recent job growth, impending Fed rate hikes, or any number of economic indicators.

This January it’s no different, and the housing bubble, the credit crunch and the weak dollar join the usual suspects of Fed rates and weak corporate profits.

I don’t expect the big market crash to come this year, though. While housing and mortgage related stocks should pull back over the coming quarters,
I expect an average- to above-average year for banks and the energy sector.

Worldwide markets are the key here, and everyone needs the financiers and the energy to plow through the year, not just the US.

That said, I’m not afraid of the S&P, though I don’t expect it to match the 13% it brought home in 2006.

The bottom line is, stay the course. The naysayers are always out this time of year, when the first quarterly profits are about to be announced and everyone is questioning why last year’s prognosis was so far off.