John G

There is a tradeoff between a standard IRA and a Roth. Some folks like the immediate deduction (if they qualify) of a standard IRA. The Roth gives that up but has tax free withdrawals, no fixed withdrawal schedule or start date, and you can withdraw contributions at any time. If your current tax rate is low, but you expect to have higher incomes or higher tax rates later, the Roth may work better. If your tax rate is currently low and likely to stay low, there is not a lot of difference between the choices. If you want more flexibility in dispursments - send more money to the Roth. Converting a standard IRA to a Roth is a much more complicated scenario to evaluate. You would need to post a lot more info about your age, alternative retirement and non-retirement investments, your current tax rates, likely future tax rates, current state income tax, possible future state residence, etc..... Again, there is a tradeoff - pay the taxes now, or later. There is no "one size fits all" way to look at conversions.

If you are sure that it was a Roth - then you can always take out contributions. I don't think there are any filling requirements - maybe one of the accountants that post here will address that component. If you completely closed this Roth and had no other IRAs, you could have tried to write off the loss - but there are still hurtles and that's water over the dam at this point. If your own business is very successful, you have many other options for setting aside even more funds. There are SEP/IRAs, Keoghs, 401k, Pension/profit sharing, etc. options. All of these have a tax shelter component, but are not tax free like Roths. On the plus side, you can set aside a much greater percent of your income. You might also have options for selling your stock (if you have incorporated). So.... start reading up on plans available for small business or sole propietors. And talk with your tax accountant, who probably has seen dozens of different formats used by their customers.

Let me add a couple of points to Applby's good advice. - Don't delay, you want to get action quickly. - Put everything in writing, you need a paper trail if things don't get fixed. - Bypass the normal clerks that main the desk or answer the phone. You need to talk with the better trained backroom IRA/Roth staff. The first contact at most banks, mutual funds and brokerages don't know the details. - Get the name and phone number of everyone you talk to from this point forward. Don't be angry, just be professional. - You may want to call the state offices in California and get a clear response and a contact to buttress your understanding of California tax law.

You can withdraw contributions (not earnings) at any time. Since your account dropped below your initial 2,000 you have no problem. I hope you learned something from that early experience. Sounds like someone put you into dot.com, tech or telecom investment. In normal times, a typical investment in stocks or stock based mutual funds would come close to doubling in seven years. Over the course of your lifetime, you will pay Wall Street type "tuition" many times. Even if you have 20 years of experience, you can have some investment that is disappointing. However, on average, a combination of investments should grow you nest egg. You are way way ahead of most 23 year olds. Both because of your prior experience, and because you have begun a Roth. So.... in what have you invested this time? Post again if you have other questions.

Good post. Its good to see a post from an entreprenuer. You are not alone in facing these kinds of issues. Short notes: Roth is a great tax shelter, but it is limited by the annual cap. If you are married, cap x 2 is a little better. I would always do a Roth as a starter. But, 4k in 20 years builds to only about 230K at 10% annual return, that if you are married and can 2x. You should check to see if you can take your pension assets out of the prior companies plan. If you have investment choices, you probably want to avoid a large chunk in stock of that company. Some company plans allow you to rollover assets to other plans. You should ask. As a business owner, you have a lot of additional options. You can design a employee plan that works well for youself and provides some modest incentives for employees. You should talk to your accountant about the range of options, their costs, and how much you can set aside. My wife and I used a plan available through Charles Schwab in the 1990s that allowed us to set aside over 20% of our income. As we were buying into a generic plan, our annual costs for plan fees was only $135. Note, we were the only two employees at that time. If these other tax shelter plans do not work, then after funding your Roth to the max, I would consider a systematic investing program. For example, a month ACH (automatic check) to a index mutual fund. Index funds tend to have lower tax impacts because there is less turnover. A tax managed fund might also be a reasonable choice. Most of your gains here would be taxed down the road as long term capital gains. As to the runnning to catch up anxiety problem.... get a copy of the best seller titled "The Number" by Eisenburg. It looks at different approaches to post-retirement, the mathematics, the marketing hype and gurus, etc. PS: I have been teaching JA economics at the HS level for almost 20 years. My message is... nobody has told you, but YOU are in charge. I don't expect them all to run out and open a Roth, but a few have! And the others have gotten the message about two decades before many of us did.

I did not fully understand you data - what is you taxable income now, not sure how the second home fits into the picture, filling status, marital status, likely amount of social security (starting when?) and are you drawing any income from your IRA yet. But here is some quick feedback. The IRA distributions will be taxed as ordinary income - which you suggest is in the 10-15% range for you right now and probably into the future. If you convert your IRA to Roth, it seems you will pay tax at the 10-15% range. That is close to a complete offset, so it doesn't look like there is any big advantage to a Roth conversion. If you still think there is an advantage for you to convert, I have two suggestions. You might consider a Roth conversion only for the amount that takes you to the 15% tax rate, if you can calculate your numbers that closely before each year runs out. Second, you might want to do a couple of modest conversions in the years before you start your social security. Don't try to find a calculator on line as they are not likely to handle the disability income treatment. You probably have to set up your own spreadsheet.

I did the tour for Amerivest... just a quick look. This is a internet based querie and calculator which asks about 10 questions about when you will retire, how long you might live after that date, how you might react to market flucuations, etc. The program then suggests a model portfolio of Exchange Traded Funds (ETFs) for your IRA. It does talk about rebalancing, which many planning tools leave out. This is not a bad idea if it gets you thinking about a "plan" - but it leaves out a lot of important information. I did not see anyplace where you were supposed to input your social security, pension, 401K, 403B or other sources of income or in what they are invested. This system seemed to be focused on an individual, I did not see anything about spouses and there retirement date, age, goals, and other resources. In some key areas, like how long are you likely to live, the system gives zero guidance. Folks often underestimate their expected lifetimes. This system does not even ask how old you are, so if you plugged in a silly number for expected lifetime, the software can not prompt you to reconsider. Good software should have a cross checking to catch odd formulations by novice users. I did not see that here, but then I am not an Ameritrade customer and perhaps if you are an account holder the system uses your account profile. Buried in the small print was a small thing about "fees". If your assets are over 100K, you pay 0.35%. But for those under 20K, you pay 2.95% annually or $100. Beginners don't get dinged for $100 at other locations so I would say that is a high fee. It was not clear to me if any of the ETF transactions have other fees, or if there is an additional IRA/Roth annual custodial fee. I think that you might be better off picking up a low annual expense index fund directly from a mutual fund. Some of the Vanguard index funds have annual expenses below 0.20% and an annual custodial fee of $10. You might be better off picking a no load fund through TD Waterhouse. How about the result: My "plan" suggested that I had a risk tolerance and put me in 85% in IWV which is essentially a Russell 3000 index. The Russell 3000 includes the 3000 largest companies in the US, representing 98% of the stocks traded by total value of the companies. So, it has Microsoft and GE at the upper end, and some company with a market cap of 23 million at the bottom end. Recent performance has been very good because mid size firms have blossomed. If the plan says 85% in IWV and 15% in bonds... it is not hard to find two mutual funds that do the same job. You mentioned a 15% performance since 2000. First, five years is not a long record, but you can find other sources for the underlying performance over more years for the Russell 3000. Second, past performance is not a predictor of future performance. You want to select investments on fundamentals and not chase last years top niche. Since this ETF represents 98% of the domestic US stock market, you basically get market performance, so it would not be as bad as if they suggested a energy/resouce index that has rocketed for two years. I did not see a reference to a .20% expense ratio. This may refer to the underlying cost of running a computer list based ETF. That is very close to the expense ratios at some of Vanguards index funds. Conclusion: Its a start, but don't assume that the software really knows you. Also don't assume that you are using it correctly. Double check all selections. Tonto, the LR and silver bullets are the stuff of TVland. Planning and investing are more complicated.

Calculators can be found at online brokerages and mutual funds - but don't expect them to be more than crude back of the envelop math. Your personal circumstances are critically important. And, equally important are the assumptions you must make about the future - tax rates, income, lifetimes, drawdown needs, etc. To look at conversions, you need to track parallel investments pools - your current IRA, your Roth and your taxable brokerage. This is sometimes better done with a spreadsheet. If you post some of your details and what you were considering, you will get some responses. Often a partial conversion is attractive because you increase flexibility of distributions and can manage the tax bite. If you will qualify over many years, you can convert a fraction each year without generating tax bracket creep.

Target maturity funds are the "new thing" in the mutual fund industry. Since many folks just getting started scan this message board for advice, I want to post something about these kinds of mutual funds. The concept behind these funds is simplicity for the customer. Just pick a fund that matches the year you expect to retire.... 2055, 2045, etc. The maturity year fund will start with shift the balance between stocks and bonds. In the early years the portfolio will include a higher percent of equity (stock) holdings, perhaps as high as 80%. As you get older, the fund will automatically shift towards a greater percent in bonds, even as high as 80% for some of these funds. Its all automatic, its simple, its easy. What could be wrong with this approach? Well, I am not a big fan, and here are my concerns: 1. Do you really want 100% of your retirement assets in just one fund? 2. Anytime someone says "easy" or "simple", keep you hand firmly on your wallet. Some of these maturity funds are funds of funds with high imbedded fees. You best hope would be with the Vanguard version. What is even more rediculous is that many of these new packages are being sold via commissioned agents - aka LOADED funds. 3. You just can't "set it and forget it" with investing. The implication in the way these funds are marketed is that your on autopilot. It is foolish to think that you can have hundreds of thousands of dollars in a mutual fund that does not need to be monitored. That you don't need to periodically evaluate the performance of your fund. 4. While notching back on risk as you get older is a widely accepted concept, you better look very carefully at the percents used. Going with 80% bonds when you are 65 seems way to conservative since you could readily live three decades. And some of these funds start you at 60% equities, which is probably too conservative if you are in your 20s. Automatic percents vary by fund family and are based upon your assumed retirement age - no one asks you if you got started late, your retirement needs may be higher/lower than average, or how well you tolerate risk. And, these "lifecycle" or "lifestyle" (other industry names for this catagory) have no knowledge of how any other retirement assets (401k, 403b, pension, etc.) are invested. My conclusion: think twice about the alure of the marketing hype about these funds. Am you getting dinged for higher fees and expenses? Does the rigid formulation match your needs? How does this fund match up with my other investments? I think that most people would do very well choosing a few NO LOAD and low expense funds - perhaps a combination of index, growth, value and bond funds and handling their own "mix". Remember, these funds only address on issue - the balance between fixed income (bonds) and equities (stocks) which is called asset allocation. When you are just getting started and know next to nothing about investments, perhaps these funds put you at ease. But, please don't buy into the "simple" part. Successful investors never give up on the thinking part! I invite folks who have choosen these funds to post.

Looks like no one here has specific info for your question. My knowledge is limited - I know you can buy ADRs in a Roth. You might want to call the back office IRA desk at your custodian and ask them about any restrictions they might impose. Note, your custodian can be more restrictive than other custodians or the IRS.

Nancy, what makes you think I bonds or CDs are safe? Guarentee return of principal is only one type of risk that you face in long term investing. A huge risk is that you can't reach your investment goals because your money is deployed too conservatively and you are not staying ahead of inflation. The more "guarentee" attached to an investment, the less likely you will get a good return. That is how capital markets work. You don't get much return when there are guarentees. You did not indicate your age, investment experience, future monetary objectives or your current assets. That makes it difficult to offer general advice. You asked for "safe, easy, no fees, good return" - well would you be willing for 2 out of 4? There really is no such thing as a perfect investment, but there are hundreds of very good investments. Post again with some background info and I will try to give you a few suggestions. Most folks are much better off by starting a systematic program of investing using mutual funds. That gives you over 8,000 choices and a wide range of portfolio concepts. Over half of these funds are NO LOAD, meaning they do not charge any front end or exit commissions. With a fund you get a reasonable amount of diversification. Any you can find funds with very low annual expenses. The annual Roth/IRA fees at mutual funds are often $10-15 and can be zero if you committ to a systematic investment program that sends money from your checking account each month... or if your assets get above a threshold like 10K or 20k.

A quick reply so you have some pointers on how to take action this week. 1. If possible, full contribute as 2005 Roth contribution which allows you to put more of your maximum annual into the Roth later this year. If you have the cash right now, fully fund 2005 and 2006. If not, fully fund what you can in 2005 and then set up an automatic monthly draw on your checking account. 2. You need to pick a custodian ASAP - and TD will do - because of the pending 2005 deadline. Deposit your contribution and then hunt through your custodian's list of mutual funds for a single fund. Use these quick and dirty screening criteria for now: fund rated 4 or 5 stars by Morningstar (to cut down the 8,000), only from NO LOAD, broadly based fund, annual expenses below average for its catagory, and a track record of 5+ years (ideally 10+ yrs). Example of this process - using Schwab mutual fund advanced screening system. I asked for equity funds, no load available via Schwab, with 5 year performance data, Morningstar rank of 4+, no worse than average risk (by Schwabs mathematical standards) and below average annual expeses. This search produced 77 mutual funds. (there are over 8,000 mutual funds) Here are two examples from this search: Janus Growth and Income, no load, 0.87% annual fee, earning around 12% annually since 1991, five star, large company size, emphasis on growth. Portfolio is 67% domestic stocks, top ten holdings account for 30% of the fund. Ariel - a mid-size company (mid cap) fund that is a blend of value and growth styles, started in 1986, Morningstar 4 stars, over 13% annual since inception, 4 billion in assets, 1% annual expenses, 99% domestic stocks Note, this is not an endorsement of either mutual fund. I have no ties with either fund. These funds are used as an examples of how you might use screening tools to look for what would hopefully be an above average fund. If you did this search at TD, Etrade, or Fidelity you would get a different list of funds because not all discount brokerages give you access to every fund. Alternatively, you could look for a broadly based index fund with ultra low annual expenses (0.22% or lower) as you initial fund.

TD Waterhouse: I have no direct experience with them. But, I have friends that use them. They seem to be similiar to Schwab, Scottrade, Fidelity, Etrade, Brown, and other discount places in terms of internet facilities, some branch office coverage, reliability/errors, fees/commissions, and investment options offered. On your math: It seems like you are doing something wrong with your math or there is a typo in your post. My HP 12c calculates that $4000 per year for 30 years (38 to 68) with a return of 9% annually should get your Roth assets to around $545,000. To get to 1.5 million you would have: (1) contribute $4,000 and compound for 41 years at 9%, or (2) have a highly unlikely return of 14.3% for 30 years, or (3) contribute about $9,000 per year (which you can not do right now even if you are married) earning 10% for 30 years. So.... Some questions for you: What did you assume you would contribute each year? Are you married and would your wife be contributing? Do you have a pension fund, profit sharing plan, 401k, 403b or other employement based program? If you do have an employer sponsored plan, what if any matching amount is offered? What is your approximate annual income? What amount beyond the Roth contribution can you set aside each year. These questions will allow me to give you some feedback on an investment program. A commonly used "rule of thumb" is that you can safely draw 4 to 5% of your assets in retirement. The reason you should not assume drawing off "the interest" is that your principal can flucuate with market conditions. You just don't grind out 9% or 7% every year. The lower draw down rate is supposed to assure that you don't out live your money. While you are off to a late start, you can develop a package that will work. You might want to read a recent book - The Number by Eisenstat which is about adult anxiety over retirement planning and provides a number of prospectives on the investment process. The clock is ticking for 2005. You definitely want to open a Roth for last year before that window of opportunity closes.

Irregularities on NYSE and NAZDAQ are very rare. Some foreign exchange transactions get a little sticky. I suggest you talk with your custodian about what restrictions they may impose. They can hold you to a higher standard then the IRS would impose. Not all custodians will treat unusual trading the same way. When you call, ask for the back office IRA desk. The average telephone or front desk clerk will not know enough.

If that is earned income.... answer is yes. Both can qualify based upon the earned income on one spouse. Also, you have 1 week left to make 2005 contributions... so you could effectively fund 4K, 4K, 4K and 4K to cover both of you for two years. Also, if you are over 50 - you can contribute $4,500 each because of the "make-up" provisions.

I am not sure I understand the details of your problem. Is this a theoretical issue, or a problem you custodian has confronted you about. Are you daytrading and have overlaping transactions? Are you buying/selling obscure stocks like microcaps or international stocks? The "solution" of putting in extra funds and then extracting it out could cause you a lot more problems than just slowing down the trade fequency, or segmenting the assets into subaccounts that are never traded on the same three day cycle. I am curious which custodian (if any) is suggesting this complicate scheme of adding fund and then taking the extra out. With normal excess contributions, custodians must calculate the earnings on the excess amount. I find it hard to believe that a custodian would want to take on this extra task on any frequent basis. You are correct that you can't have a margin account and incorporate any type of borrowings on a Roth or IRA. As this issue is way out of the mainstream, you may want to consider hiring legal/tax advice from professionals.

No, you can't revert a 1998 Roth. If all your IRA/Roth assets are at the same custodian, your total assets may qualify you to a zero fee account - it surely doesn't hurt to ask. You can always take out 100% of the contributions to a Roth tax and penalty free, but you can't roll over a Roth to an IRA. I have trouble understanding how you only have $1000 in a Roth from 1998, but now are not eligible to contribute to one anymore. Did you income skyrocket in the past 6 years? Am I missing something? Start by calling your custodian and telling them about your problem. Ask them if they will waive the fees on the smaller account. If that doesn't work, try paying the fees via check each year.

I think putting 4K into a Roth each year is a good start. Worry about future eligibility and future max amounts in future years... sounds like that you are just fine for 5+ years. What you start now can continue into the future even if your eligibility changes. What does 4K a year for the next 40 years get you? Nearly 2 million in 2046 if your investments average 10% per year - which would reflect a long term commitment to mutual funds invested in stocks (equities) with just a slight bias towards growth. That number would go higher if the limits move up or you get a better return. That 2M does not include home equity, social security, pensions, any other retirement program, your spouses assets or other taxable investments. Note, that's 2 million in nominal 2046 dollars, but even if you factor out 3% inflation the current year purchasing power would be around 600,000. You have one week left to get your 2005 contributions into a Roth account! Don't procrastinate.

all of the prior reply, plus.... you can always take out contributions (not earnings or gains, contributions) without any penalty or tax at any time. From a strategy perspective, you may want to burn off other assets (savings, pensions, social security, etc.) before taping into the Roth. You Roth is a great shelter and you have a lot of flexibility about the timing and amounts you withdraw.

Responding on a few points: Safety: There are many "risks" or concerns - ranging from bad advice, poor performing investments and fraud. You seem to be more focused on fraud - and from my experience, that is relatively rare. While bad people and crappy companies can be found face to face (like Enron or Worldcom) and on the internet, the level of outright fraud is pretty low. You will probably have more comfort going with fiancial companies that have been around for many decades. Some of the big names in mutual funds include: Vanguard, T Rowe Price, Putnam, Fidelity, Janus, Invesco, etc. The long established discount brokerage houses include: Schwab, Fidelity, Brown and Company, Scottrade, Etrade, Ameritrade, etc. Stay away from small shops, folks promising unrealistic returns, and anything that is hard to understand. Most of the brokerages, banks and mutual funds have various levels of insurance against mistakes and fraudulent actions of individuals. Best way to address this issue is to ask your prospective custodians. Note that your capital is not "insured" at mutual funds or brokerages against lost of principal or poor performing investments. Some accounts (but not all) at banks are insured against loss of principal - we are talking only about modest size savings or CDs, and they are not great long term investments. I think you would feel more comfortable if you understood more about the various potential custodians and the types of products they offer. You also need to understand that your role includes checking deposits, periodic review of performance, and reading your monthly/quarterly statements.

If your grandchilds participation in the children's books leads to "earned income", then your 5 year old qualifies for a ROTH IRA. Another option. There is also the Coverdell education savings accounts (formerly Education IRA) which allows you to fund $2,000 per year. http://www.savingforcollege.com/coverdell_esas/ The above website includes a lot of info of 529 plans, and has a mesage board. You may want to explore this website for ideas. Sounds like you have found a fun thing to do with your grandson! Good for you.

Roths are individual accounts. I in IRA is "individual". There are many reasons why your wife should participate... to get her involved in investments, to make sure some of the marital assets are in her name, different choices for beneficiaries, etc. Where each account is located is a matter of your choice, what is convenient and what kinds of investments you plan to make. Mutual funds and brokerages tend to have a range of investments - so it is highly likely that there are a few funds you would be willing to use at each custodian. If you have two Roths in different funds, it may be instructive to compare their performance over time. There are only 2 minor negatives related to multiple accounts: a little more paperwork to track, and you may initially end up with two annual fees.

You seem to be talking about a Roth conversion, but then refer to a $4,000 contribution. The conversion does not count as part of your MAGI. I highly recommend that you get advice from an accountant or tax professional before doing a "large conversion". Two reasons: it is desireable to get a second opinion of the wisdom of a conversion, and (2) if you decide to proceed, getting it done right.

MJB, your comment is misleading. When you elect a Roth, you are choosing future tax free status over the chance for a first year deduction (if eligible) of a standard IRA. That is a staight forward tradeoff which taxpayers face. No one can know with complete certainty that they are making the optimal choice because the taxpayer is making assumptions about current and future tax rates, coupled with current and future IRA/Roth regulations. The $450 (in your example) has nothing to do with the PFE stock sale. This person would have the same math and the same IRA/Roth tradeoff if he funded this Roth with cash. The only direct tax consequence of selling the PFE stock is that this couple would owe tax on the long term capital gains. Currently, the LTCG rate is at a historic low. This message thread was initiated by a full time school teacher with a part-time working spouse. The income tax brackets are likely to be low, but were not disclosed. When tax brackets are low, the value of the one time deduction of an IRA is small. If my marginal tax bracket was 15%, that IRA deduction might look pretty puny relative to the potential tax bite many decades into the future when supposedly I will have assembled substantial retirement assets. Distributions of from a regular IRA pass out as ordinary income, which can be at fairly high tax rates. It is not inconceivable that this couple could amass more than 2 million before they retire. A 5% distribution would be around 100k. I sure would like a significant part of that income stream to come out of a tax free Roth. MJB, I have noticed from postings on the related 401K board that you seem to get into a lot of debates about issues were you are not an expert, or on issues that are at best tangental to the original post. If you plan to post here, lets keep the posts as clear as possible and stay focused on the original question.

I think Janet's message is missing the word "eliminate", as in if you wait, you eliminate the opportunity to contribute to 2005. If you act now, you can contribute under 2005 rules leaving open the possibility to add more in the coming 12 months using the 2006 rules. If your personal finances change in a positive way, you preserve the chance in increase your Roth contributions. Yes, for the next two weeks, you can contribute to a Roth/IRA and designate either 2005 or 2006 as the year.