Direct holding of Bonds in IRA... with a twist

[PFG]

The Treasury Bond Buying Tutorial at the top was a fantastic read. It answered 99% of all questions and mystery surrounding the purchasing and holding of Treasury bonds directly. I have a twist on the question of holding Bonds in my ROTH...

I would like to use the current funds in my IRA to hold Bonds and T-Bills (As I type the funds sit in a VGuard Target Ret. Fund). After the 2013 tax year, I will no longer be eligible to contribute into my IRA beacuse of the income restriction. Obviously I will need to balance my LT Bonds and T-Bills in a taxable brokerage account to continue following the PP 25% percentages.

Since I will no longer be eligible to contribute into the IRA holding Bonds and T-Bills directly, will I still be able to manage them as they mature?

Example 1: If I hold $4000 in 1 year T-bills. Next year rolls around, the T-Bills mature. Can I simply use the current funds (since I can't add new) within the IRA to purchase another set of 1 year T-bills?

Example 2: In addition to the T-bills in the IRA I hold $4000 in 30 year Treasurys. 10 years down the road can I simply sell and use the current funds (since I can't add new) within the IRA to purchase another set of LT Treasury bonds?

It seems the foundation of my questions revolves around what happens when my 1 year T-Bills mature and when I need to sell my Long Terms Treasury Bonds. Do my holdings in the bonds stay in my IRA and allow me to use them agian (recycle I suppose?) as I need to buy new 1 year T-Bills and sell longer term Bonds at 20 years to maturity?

Or will there be complications with not being able to contribute more into the IRA? If so, I could simpy hold TLT and SHV in the IRA. Over time the percentage of my Bond/Cash holdings in these funds would decrease as I balance with direct holdinds of T-Bills and LTT in a brokerage account.

I've been preparing my accounts for weeks to arrive at the PP allocations. This is my last hurdle! Thanks for all the help!

First time posting. Hope to be one that can share and help others in the future.

[rickb]

Welcome to the forum!

You don't exactly say, but I assume your Roth IRA is held in a brokerage account (Fidelity, or Vanguard, or ...), and if so then buying and selling things in this account is completely independent of taking distributions from this account.  The account consists of a cash account (which provides the source of the funds for whatever you buy and is the destination of the proceeds for whatever you sell) plus everything you buy - i.e. the cash account and everything you buy with cash from this account are all part of your Roth IRA.  When your bonds mature, or if you sell them, the proceeds will go into the cash account (still in your Roth IRA), which is also almost certainly the same account into which the dividends from the bonds will be paid.  With this cash, you can buy whatever you want, including more bonds - so rolling over 1 year treasuries or selling 30-yr treasuries when they have 20 years left and buying new 30-yr bonds is not a problem. 

[PFG]

Correct -  my IRA is with a brokerage account.

What happens to my T-bills when they mature in a year? I assume that:
- If I purchase $4000 in T-bills, they will either be worth more or less in 1 year depending on the economic environment. Whatever their worth may be (more or less), that amount will exist in my IRA, correct? And I can take that worth and use it to buy another set of 1 year T-bills.

Same for LT Treasury's. If I purchase $4000 in LTT, in 10 years the value may have gone up or down, but that worth will exist in my IRA for me to use as I sell and re-buy another set of long term bonds.

I think you and I are saying the same thing. The bond value will exist in my IRA for me to use. I may be able to buy more or buy less pending the value. But being locked out of future contributions wont stop me from doing these things. Do I have that right?

[Pointedstick]

Correct -  my IRA is with a brokerage account.

What happens to my T-bills when they mature in a year? I assume that:
- If I purchase $4000 in T-bills, they will either be worth more or less in 1 year depending on the economic environment. Whatever their worth may be (more or less), that amount will exist in my IRA, correct? And I can take that worth and use it to buy another set of 1 year T-bills.

Same for LT Treasury's. If I purchase $4000 in LTT, in 10 years the value may have gone up or down, but that worth will exist in my IRA for me to use as I sell and re-buy another set of long term bonds.

Once your bonds mature, they make a final payment equal to the face value, irrespective of what the market said they were worth (although by the time they mature, their effective duration will be so short that the market price should be virtually identical to the face value). Only if you sell your bonds before they mature will the price be more or less than what you paid for them.

I think you and I are saying the same thing. The bond value will exist in my IRA for me to use. I may be able to buy more or buy less pending the value. But being locked out of future contributions wont stop me from doing these things. Do I have that right?

You can always buy and sell within your IRA with the money that's already in there, even if you're not eligible to contribute any more. The only thing you won't be able to do is take money from a taxable account (checking, savings, taxable brokerage, you name it) and add that to the cash in the IRA.