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I took a vacation over the Labor Day Holiday and while relaxing at the beach,  I began thinking about financial planning for the upcoming calendar year.  Each year, I contribute the max to my Roth IRA but unfortunately I usually wait till the end of the year (usually April) before I fund the account.  So in April 2007, I’ll likely make a $4000 contribution for the 2006 tax year.   Ideally, however, I would like to double up next year and make a 4k contribution for 2006 and 4k contribution for 2007 at the same time.

I’ve written about my upcoming credit card arbitrage in December 2006 here and considered using credit cards to pay off the remaining balance of my mortgage here but it has occurred to me that I could use my next arbitrage to fund my Roths.  Even better is that I could theoretically earn sufficient return on my investment (about 12%) and use the gains to fund the 2007 Roth.

How would it work?

If I did the transaction today it would work like this:

  1. Borrow 26k from credit card at 0%
  2. Purchase 600 shares of GDX @$41.73
  3. Sell March 07, $42 strike for $4.90  (Gross profit = 600 x $4.90  = $2940)

Earning $2940 gets me most of the way there but I also earned an additional $1280 doing arbitrage into 8% CDs so we’re done!

I can then take 4k and make my contribution; the added benefit is that I can re-invest into other options.

Of course, this is all hypothetical since I won’t be able to make the transaction until December and the profit potential will likely have changed but it’s food for thought.