John G

Replies to Questions 1-4: 1. Yes, those are two big mutual fund families. Also T Rowe Price, Scudder, Janus, Invesco, etc. - you can see a long list in the mutual fund section of most newspapers. I suggest you stick with NO LOAD funds, these are funds that do not charge front or backend commisssions. 2. The number of brokerages is huge. Examples: Schwab, Fidelity (also a fund family), Etrade, Scottrade, TD Waterhouse, Brown & Co., Muriel Siebert, etc. I have mostly listed the newer brokerages that have discounted trading commissions on stocks and also offer mutual funds. You can find more names using Google or scanning Worth, Money or Kiplinger Financial. 3. I recommend mutual funds - because you get diversification, it takes less research time, they require less time to monitor, etc. It is hard to own 10+ different stocks until your assets grow beyond 30 to even 50 thousand dollars. Mutual funds - seek stock based fund, choose NO LOAD, select a fund with annual expenses below average, a history of reasonable performance, broadly based (no sector or single industry funds, no regional or country specific funds initially) 4. Stock markets move up and down. Yes you can see a decline in value in a year, back to back years and very rarely 3 years in a row (twice in last century).... but up years out number bad years by about 5 to 1 and the best years are up a lot more than the bad years are down. Over the long run (many decades) the stock market has given better returns than bonds, CDs or money market funds.

To all readers: This is another one of those periodic real estate posts that pop up every three months. Real Estate investing is typically beyond the IRA/Roth resources of most folks who visit this message board. In addition, there are major legal impediments. Just for fun, let's throw in the loss of tax write-offs associated with real estate. Oh, and anything that unusual or related to "self directed" means significantly higher custodial fees. In an IRA, that long term capital gain reverts back to ordinary income at higher taxation. You must have enough assets in your IRA to cover all of you expenses (taxes, repairs, etc.) And... that darn housing bubble. Still interested.... well, try a search on "real estate" and read the 100+ posts from prior years. You have had about 10 accountants and tax professionals more or less say forget about it. This is what Money magazine said in a March 2005 article: "rules are complex... stakes for running afoul of them are high. A misstep can disqualify your IRA's tax deferred status (triggering taxes and penalties).... an individual can't personally guarantee a IRA loan... few banks will lend money to an IRA, if you pay cash you give up leverage." They quote a self directed IRA custodian (Pensco Trust) that less than 1% of their nearly 3 trillion in IRA assets involve real estate. (I would guess some of those $$ were in REITS) They provided two examples of folks who bought buildings for cash using Entrust Administration as custodian. One was a home remodeler. If still want to proceed, you are going to need sophisticated professional help to define the boundaries to real estate investing. You will need a custodian, accountant and lawyer with knowledge in this field. You should expect to pay fees for transactions and advice in the thousands of dollars each year. - - - Disclosure: I have nothing against real estate investing. I currently participate in six different real estate Limited Partnerships involving offices, retail, and apartments and I am reviewing a upcoming deal in Germany that involves retail shops. Some of these have performed well. But none were suitable for an IRA or Roth.

I don't understand your question - perhaps you can rephrase it. I am not sure what you mean by type of Roth. The "Roth" is a IRS/Congressionally defined retirement investment program. Having elected a "Roth" (as opposed to a regular or conventional IRA), your next step is to find a custodian that will hold your contributions. Custodians can be banks, mutual funds, brokerages, etc. The choice of a custodian tends to set the range of investment choices. If you choose a mutual fund, your primary choices will be funds in their "family". If you choose a brokerage, you can buy a range of stocks or bonds.... plus many allow you to invest in a subset of mutual funds. A "Target Fund" often refers to a mutual fund set up to manage your investment to your retirement date and beyond. For all practical purposes - something like a 2045 Fund is just a marketing gimic. These funds promise to adjust the mix of investments, moving from more aggressive to more conversative over time. You can do the same thing yourself. Somebody in the mutual fund industry came up with the clever idea of pitching to novice investors that they could just plunk down their money and make one choice. Although we have little track record on Target funds, they were extremely popular. We live in an era of cloning, and no clever idea goes uncopied. There are now hundreds of Target Funds. Some of them may be good, but it sure looks to me like most of these have higher fees and other expenses. The worse layer expenses of the primary fund owning parts of other funds.... fees on fees. My main problem with this Target approach is that folks get the impression that you don't have to read documents, evaluate choices, make decision and monitor results. Too many people spend more hours watching reality TV then the hours (minutes?) devoted to their investments. Sure, you don't want to spend 100 hours making investment decisions. I am arguing for 1 hour a week reading about financial issues... mutual funds, tax issues, the economy, your fund statements, etc. If you are a beginner, you probably should stick to one or two mutual fund choices, which should cover your next 3 to 5 years of Roth contributions. Guidelines: you want a broad based fund, focused mostly on stocks, with zero or low annual fee, and with an annual expense ratio significantly below average. Nothing exotic - eliminate a one country fund, one industrial sector fund. DO NOT just pick last years best performing fund - they rarely repeat as investing strategies run in cycles (value vs growth, big companies vs small cap, etc.). You don't need to find the single best fund, one reasonable performer will do just fine. After you get some years of experience, you may revise your strategy or change to choices.

I try to be a little colorful in my responses to make this site an easier read, and my responses are aimed not just at the original author but subsequent readers. I apologize for the "tone". When you dash off a response (I was traveling, with limited internet access time) you often come across as too abrupt. Two points: (1) you may have paid taxes on withdrawals that did not need to be taxed. You can check this by adding up all your contributions. Contributions come out first. That was the amount you could withdraw tax free. Only if you go beyond contributions do you have a tax obligation. (2) you should not assume that your tax prepared got it right. As someone in their 20s, you probably had a simple return and the tax pro assigned to these would not neccessarily know the Roth rules. In the early Roth years, not all accountants knew these details and certainly we continue to see posts now about custodians that wrongly cite the IRS rules. It can be costly to assume that "experts" always know the rules. This is why I suggested you get a copy of Pub 590... it is about a close to layperson's language the IRS can get. I urge ALL folks who post/visit here to spend time learning about Roth rules, mutual funds, investing, etc. There is a lot at stake in a lifelong Roth investment program. I would think two hours a month is a reasonable committment even if you have no strong interest. The best guardian of your money and your future starts with you.

OK, let me take a belated shot at this one..... Note, #2 says fund a Roth. How? First you must qualify to contribute if you go that route and the max annual amount is not enough to give you an operating entity. If you go the conversion route, again you must qualify by having income below 100K, which suggests that the party may not have the resources to be in real estate either. Even if you already have a Roth, the resources you would need to do real estate transactions would be significant. Besides all the risks of prohibited transactions - two major negatives are (1) overhead costs of convoluted arrangements and (2) the loss of write-offs. What was the whole purpose of this scheme? To jump on the real estate bandwagon? If so, you are about four years too late as many areas have peaked (especially residential values). Or, could this be one of the proposals we sometimes see where someone has a "method" for pumping extra dollars into a Roth to apparently avoid taxes. I don't think we have, to date, seen any of these that were legal.

Whoa nellie.... you need to know more about your Roth. At least I am assuming that you really are talking about a Roth and not a standard IRA. Roth contributions can be withdrawn at any time without penalty. However, you may have taxes and/or penalties if you withdraw the earnings on those contributions. So, you may have been paying taxes when no taxes were due. Uncle Sam thanks you... you may want to file a corrected return. Future: future contributions to a Roth will not be affected by what you have previously done. I highly recommend that you get a copy of IRS Publication 590 and any material from your custodian and spend perhaps two hours getting to know the Roth rules.

You are looking for two things when you get started: (1) a custodian, and (2) an investment. Custodian choice: you have thousands of choices including banks, thrifts, mutual funds, brokerages, etc. They vary in terms of "branches", customer service, internet support, annual fees (and ways to waive the fees like electing monthly contributions or using email for statements/confirmations) and most important of all what kinds of investments are supported. The right choice for you requires you to contact a few custodians and think about what you value most. Ask each custodian for materials aimed at the beginner... some of these are excellant. Investment choice: at your age, and with anyone just getting started, mutual funds are the most likely initial investment. Why? Because you get portfolio diversification and there are thousands (like 8,000!) choices of funds. Beginners need just one good broadbased fund - such as well established actively managed fund or the computer list driven "index" fund. Ask each custodian to recommend three choices for you first investment. You are basically looking for NO LOAD funds, which means mutual funds that have no front or back end commissions. Here is how to find out more ....... these topics have been covered often at this web site. Use the search engine and any of the following keywords: index, mutual fund, beginner, started, custodian, etc. Post again if you have more questions.

Ah, there is always some factual element to these ideas that get passed around. But... to sum it up in one word: NO. Yes, first time home buyers can tap their Roth IRAs to help buy a house. But they can't deposit the gain on the eventual sale. Yes, there is a 60 day in/out option that most folks should never contemplate using because the downside of failing to get the funds back in 60 days is huge - a significant taxable event on the borrowed funds and they can never get back into the IRA... plus early withdrawal penalties to kick you while you are down. Second point, it is very difficult to buy real estate via an IRA/Roth for many reasons. You can search "real estate" on this message board to more details. Next point - "real estate bubble" - in many recent hot markets, real estate is not moving and some folks are now losing money on what they thought was sure thing. The greater fool theory applies - don't be the last guy to get on the bandwagon. Best advice - forget this real estate idea. Forget any idea that involves big double digit returns.... they are rare, and short in duration.

There are too many "Will I..." 's in your life. Besides education and home buying, a fundamental issue you have not addressed is any "rainy day" or contingency fund. The Roth approach is a reasonable choice after you max out the 401K match. Yes, you can use funds from a Roth for a first time home purchase.... but you also can withdraw contributions without penalty (note contributions, different rules apply to gains). You might want to start a systematic program of investments automatically drawn from your checking account each month - a combination of "pay yourself first" and "dollar cost averaging". It is great to have the discipline to save part of your salary every year. Part of that process is not letting your life style demands get out of control. Its great to have fun in your 20s.... and fun does not have to mean spending lots of money. One final thought on the house buying goal. Folks in their 20s often move too much for home ownship to make financial sense. You also end up spending a lot of weekends on home chores. Don't be in a rush to be a buyer. Renting for a number of years may make more sense.

I would suggest a Roth IRA rather than the regular IRA. Yes, you give up the deduction.... but 4 decades of compounding and then tax free is awfully enticing. And... don't forget that 401k may be a very compelling deal is there is a match. One year from now, reassess the priorities. You daughter can do both. Dad - you job is to "suggest", ultimately your daughter needs to take charge of her own money. You can be a huge help by giving her a subscription to "Kiplinger Financial" magazine which covers investing, careers, credit, home buying and general consumer issues. If she spends a few hours each month reading, she will be way ahead of her contemporaries.

This not really a rare transaction. I know Fidelity, Schwab, FBR, Brown, FIG, Legg Mason and other brokers have done this in the past. Over 400 thrifts have gone public in the past 30 years. It sounds like you are either talking to the wrong folks (clerks at the front desk vs the back office IRA dpt) or they have no experience with this transaction. Call the conversion office and talk with the rep from the consulting firm that is handling the transaction. They have a lot of experience with purchases from IRA accounts. You absolutely do NOT want to get a check cut by your custodian which you will carry or mail to the IPO office. As soon as you get the check, you are on a 60 day schedule. However, if your brokerage sends the funds directly to the thrift, they are essentially acting as a second custodian and the clock is not ticking. After the regulators approve the final mathematics, the offering can be completed. This usually takes less than 60 days, but sometimes can be held up for 90+ days.... such as if the deal gets "resolicited". After the deal is settled, the certificate is sent directly to your custodian, along with any interest or refund amount. New thrift offerings used to be very juicy. However, in the past 2 years, as interest rates have slide, many IPOs have drifted sideways. This is especially true of any mutual holding company offerings (MHC's), where only a partial number of shares are issued.

When dealing with a large institution.... (1) request a copy of the rules governing the account. Yes, the custodian can charge fees for lots of stuff and your primary recourse is to leave if you don't like it. (2) Talk not to the general clerks but the IRA dept (back office dpt at HDQ). (3) If you custodian treats you poorly, transfer your assets to someone else. (4) All this is hypothetical I hope.... the whole point of a great tax shelter is to keep your money sheltered for as long as possible.

Emigrant? OK, lets talk investment objectives. If you have already stockpiled a few million, if you are well past 65 and drawing down funds, if you know your health is deteriorating and you don't expect to live very long, or if you just don't understand investing.... than a savings account or CD might be reasonable for part of your assets. BUT.... if you are in your 20s, 30s, 40s, 50s, or older and have a long expected lifetime (90+ is a lot more common than most folks realize) than a substantial part of your assets should be in equity markets. The reason is that inflation is eroding away the value of your assets. If inflation is running about 3% (more if you are heavily dependent on gasoline and medical care), than Emigrant gives you very little real growth. Younger folks (I'm 55 and think I am young) should, in my opinion, have between 80% to 100% of their assets in equities. This is the asset building stage, where you have plenty of time to ride out the bumps in the DOW/NAZ. If you are between 20-50 and have amassed you multiple millions, than you might be a little more conservative.... don't laugh, there are lots of recent millionaires under 50! For beginners, the safest way to do that is via NO LOAD and low annual expense mutual funds. Caveats. Don't invest in anything you don't understand. Don't try to "time" the market. If you don't understand investing... time to start dedicating some time to what will fund "the rest of your life". Two hours a month reading about investing will over many years build a very good base. Most of us spend that much watching our favorite sports team.

I don't see a workaround. If you are employed later this year, or already worked this year and your earned income will show up on your Federal 1040, then you can start a Roth. You can not start a Roth based upon a gift, lottery win, or other source of cash. It's all about "earned income". You may want to get a copy of IRS Publication 590. Perhaps you will be employed in 2007. If so, you can start your Roth the first week of January 2007.

In committee, proposed, in conference, or awaiting signature? Any additional details or a website reference would be helpful.

A point of clarification. There is no linkage between source of the funds you use to contribute to an IRA/Roth and eligibility. Eligibility is a seperate issue. To be eligible, you must have "earned income" and meet the filing status and total income rules. "Earned income" is most often a paycheck from an employer, but includes self employment (newspaper route, house painting, etc.). Dividends, interest, gifts, financial aide, tax returns, etc. are not earned income. You don't have to accumulate the earned income before you contribute, but must log it before year end. Contributions to an IRA/Roth can come from any source.... savings, gift from parents, tax return, monthly withdrawal from checking, etc. You use an odd expression - "start drawing the interest". The normal procedure is to make a contribution to an IRA/Roth and have all earnings stay in the account and compound. "Interest" is typically the lowest form of return, associated with CDs and money market accounts. IRA/Roths are long term tax shelters where you should be looking at mutual funds that have a substantial equity (aka stock) component.

There are many good books. You might try the Boglehead's Guide to Investing which covers all of the basics. Morningstar has a book called Guide to Mutual Funds which I have not seen, but since that is their area of expertise, it should be a worthwhile read. The Wall Street Journal has Your Guide to Understanding Investing, which is like the USA Today version with lots of charts, photos and "human interest" but is thin on details. Magazines: Kiplinger Financial, Money, Consumer Reports (not this year for some unknown reason, but prior March issues had a good summary of retirement investing and listed 100 good mutual funds)

I agree with the extra going to a Roth. Hopefully you have a few thousand available to erase the account opening minimum issue with either a mutual fund or brokerage. But, if you don't, you can ask custodians about their programs that involve automatic checking account withdrawals each month. Many funds waive the annual fee and have no minimum opening balance if you start an automatic monthly program. Some of these programs often start at $100 per month auto deposit.

Good post redlense. We might differ a little on percents, but we agree on the concept. One small exception - someone just getting started with say $4000 or less can pick a general fund or one of your suggested 5 categories and then in following year add a second one. The five fund approach, in my opinion, is more applicable to someone who has reached the 20k level of retirement assets.

Sounds like you only need 1 transfer. The direct custodian to custodian would be the best approach... and these have no limit, although its hard to figure how many people need more than one. ALSO, depending upon the new custodian and the size of the account, the brokerage or mutual fund may refund and exit fees you incur from custodian number 1.

Here are four areas to focus upon in the next ten years: 1. Fund any retirement plan (like your current 401k) that has a match to collect the maximum match. 2. Open a Roth account and if possible fully fund it each year. 3. Although #2 can partially serve as a contingency fund, if you still have funds available after 1 and 2, start accumulating funds in a taxable account. 4. At some point you may consider buying a home... probably not now as you are unmarried and may switch jobs more in your 30s. Home ownership often allows you to build equity.... on the flip side, you will have lawns to mow and stuff to fix. Over many years, home ownership is, for many people, intrinsicly more valuable plus a good way to build equity. Concerning what kinds of investments: money market is a low yielding investment and more or less just marks along at the rate of inflation. Thats OK for a small part of your "contingency" funds. Your multi-decade wealth building money should be invested in no load mutual funds that are in the stock market. A Vanguard index based upon the total market or the S&P500 is a reasonable choice for now. As you learn more about invesing and mutual funds, you may want to select a fund with a slight bias towards growth.

A point of clarification. Some checks bounce because they were drawn upon an account with insufficient funds. That's the shame on you version. But many checks bounce back and forth between two institutions for other reasons.... fussing over endorsement, signature match, stale check date, illegible, etc. Case 1: I was looking over the shoulder of my banker one day and asked what were all the entries for my account ~ I had been on vacation and not written a check or made a deposit in a month. The screen reflected a battle between two banks about a check from 6 weeks before. Someone did not like the endorsement. No one contacted me. The two banks viewed this as completely an internal matter. Case 2: Many years ago, I deposited a substantial cashiers check in my account at a major commercial bank in Virginia. The novice teller told me that the check would take 10 days to "clear". I always keep a copy of these kinds of checks. As I often dealt with the branch manager, I called the office at noon the next day and the branch mgr told me the check cleared 10am that morning in Cleveland.... big checks get special handling and move fast. But five days later my bank did not want to honor a check for $150 to the local utility! Someone had flagged my account even though there was a few thousand in the account before the big check was deposited. Case 3: I wired 300k from Colorado to Virginia. My bank in Colorado said - "job done, wire received". My bank in Virginia said "what wire". After two days of remote phone complaints, my bank in Virginia finally discovered that the wire was sitting at the recently acquired sister bank in Maryland and no one had done anything about a wire that matched no known accounts in Maryland. For 48 hours, everyone in Virginia thought my Colorado bank was lying. No apologies were offered by the offending institution. Lessons learned: Murphy lurks in the dark corners of all institutions. Don't trust your receipt. Double check your transactions. Don't assume that wires are any better than paper checks!

Whose check bounced ? Why did it bounce? Your post is not clear. If you took the funds, then subsequently wrote a check on your account to redeposit and it bounced.... you are in worse shape. If the check you received out of your IRA was the check that bounced - that is a completely different situation. Often when a check bounces, the institution submits it a second time - so the problem may be resolved. FOR ALL OTHER READERS - this is another reason not to use the 60 day rule. Murphy lurks in these transactions.

Heike offers some good advice. In todays world, YOU are in charge of your retirement. I would read some of the back March issues of Consumer Reports (they did not cover retirement and mutual funds this year for some reason) or Kiplinger Finance or Money. You can also find a Wall Street Journal ~ guide to retirement or investing ~ and other basic "how to" books at your local book store. Be wary of investment advisors. You need to be well informed to understand the sales pitch you will get. Some advisors are both ethical and knowledgeable. Many are well.... not. You use the term "interest". Long term investments that are just collecting interest are not likely to grow significantly faster than the rate of inflation. You can't really wisely invest 10k in stocks and own a diverse portfolio, so you should be looking at mutual funds. The universe of mutual funds includes those with commissions (loaded) and no commission funds (no load). There are over 8,000 choices... you need one or two. Within the universe of no load funds, you should look at those with below average expenses (all funds have some level of expenses, expressed in a percent of assets each year). You can go to mutual funds directly, or buy them via a brokerage account like Etrade, Schwab or Scottrade. Most of the brokerages and mutual funds have good information for beginners on their websites. The "Rule of 72" says that you divide the annual gain of an investment into 72 to determine the number of years til your investment doubles. If you put your funds into a stock portfolio with a slight bias towards growth you might be able to average 10% a year. That means your assets would approximately double every 7 years. So, here is what would happen to just 10k invested at age 30 Age 37 $20k Age 44 $40k Age 51 $80k Age 58 $160k Age 65 $320k Age 72 $720k Note these are "nominal" dollars - not "constant" dollars, so the buying power would be reduced due to inflation. This is only back of the envelope math - assuming 10% every year and stock markets go up and down. If you contribute $4,000 to a Roth for the next 35 years and earn 10% on average on your investments, you would have just over 1,080,000 at age 65! That's not a million in todays purchasing power, but still a very significant nest egg. The maximum amount you can put into a Roth this year (age 30) is 4,000. You just missed the deadline for contributing for 2005. Do some reading, visit some websites. Do get started this year, but don't act until you have a better understanding of your choices. You need to get up to speed on learning about your choices.... then about 2 hours a month devoted to reading about careers/finance/investing may work. Also - do keep some of your cash as a rainy day reserve. While you can take contributions out of a Roth at any time, and short term cash needs can often be solved with a line of credit or short term credit card, you should have some cash reserves in case you lose your job or need to replace your car. You did not post your annual income, but if it is like the average 30 year old then I need to say that 10K in cash is not a lot of money. Think about what you can start stashing away each year. I would suggest that the 4K in a Roth each year may be your minimal goal. Post again if as you do some research you have additional questions.

There are other issues you should consider about your 401k: If it is all company stock, then you would want to put other funds into a Roth to diversify your investments. What are the annual expenses of the 401k - zero, flat rate, or percent. Does your 401k direct you to loaded mutual funds... funds with front end fees? If you leave this employer, what are your options? Since your additional funds are modest, you will probably have to start a Roth using the monthly automatic contribution from your checking account. Often there is no minimum starting balance and the annual fee may be waived for this systematic investment approach.