John G

There are many terms like annual return on investment or annual yield. Some folks will use "gain" or "performance" to refer to the same thing. Note, there is a big difference between to total percent gain on a investment and the annualized gain - which converts variable holding periods to 1 year rate. Interest mostly refers to IOUs. Dividends are like interest but generally refer to cash payments to those who own stocks. Bonds have yields, often refered to as the "coupon rate" from the days when you clipped a stamp like coupon that had to be presented to get your cash dispursement. Many investments have no interest, dividend or coupon but work because of capital gains which means refers to the increase value from the time you bought something to when you sell. For example, when you buy a home no one is sending your money for holding the investment. Quite to the contrary you have expenses such as mortgage payments, repair and property taxes. But, after a few years, the house often has appreciated in value and when you sell you have a capital gain (for most folks this is not a taxable event now).

Whoa..... hold them horses Your logic on Roth conversions is not complete. If you are paying taxes at the same rate both now and in the future, a conversion could be a wash. The amount paid in taxes now would normally grow over time to match the tax obligation in the future. Conversion math is not simple, and you must make a number of assumptions about future tax rates and investment returns. If you are talking about a large amount of money, you really should spend a few dollars and talk to a professional familiar with Roth conversions. Not all conversions are advantageous. Partial or staged conversions may be attactive because you avoid tax bracket creep. Conversions are best done in low tax years or when it seems likely that your future tax rate will be much higher. One small example of something you might overlook. You would not want to convert in NJ if you planned to move to Texas or Florida in a year because those states have no income tax on conversions. More on multiple conversions: You can certainly have 12 partial "conversions" a year as opposed to the one a year restriction on IRA transfers. But, the mechanics in your circumstance may be tricky. Perhaps you can get the receiving custodian to accept the monthly dispursements as a series of conversions. It does not hurt to ask. One issue to address is how to avoid paying taxes twice since custodian 1 will report an IRA dispursement (triggering ordinary income tax obligation) and custodian 2 will report a Roth conversion (triggering a second tax obligation on the same money, yikes!). I am troubled by your comments that your circumstances are very unussual. You really should talk to a professional who can be aware of all the details of your situation. Something you have not disclosed here could make a huge difference on what you are allowed to do and if your plan makes sense. Its OK not to disclose details here - but do see a professional before you take any action. If you look at some of the history on this message board you will see that many of the problems folks ran into were related to not getting professional advice prior to a major transaction. I remember on example here in Colorado where a couple did a transaction involving $250,000 and didn't want to spend $400 for advice. Their subsequent legal, accounting, and IRS bills ran into five figures and they came very close to losing their tax shelter status for their retirement account. Note, I am not in the conversion advice business. I am not a CPA or tax advisor. When I did a Roth conversion in 1998, I knew more about the process than my accountant... but I still hired him to replicate my conversion math and advise me. It was $300 well spent.

Call to our resident accountants. Please, take a crack at this question. Am I missing something? I am not sure that any IRA custodian can rope you to a chair and keep you from moving your funds for the rest of your life. That just does not sound right. Are you talking about an IRA with an insurance company or annuity? Or some real estate trust or other "exotic"? I am not convinced you can be restricted if your assets are at a bank, mutual fund or brokerage. If you are not working, you can NOT make contributions to a Roth. You must have earned income. However, you can convert an IRA to a Roth. There are max income limits and tax filing status issues in any year that determine if you are eligible. Normally, folks can make multiple conversions in a tax year if they want. A conversion has absolutely nothing to do with an IRA transfer. Conversions are something completely different. If you are not familiar with conversions, then you can't possibly know if they are beneficial for you. Conversion mathematics and the tax issues are complex. If you are considering this for a significant amount of money, you need to talk to your tax advisor or accountant. I suspect that there are more to your circumstances than you have disclosed and trying to provide advice long distance based upon what most people are doing is frustrating. I highly suggest that you get an appointment at Charles Schwab, Fidelity, or any of the major mutual fund or brokerage houses and discuss your specifics. Ask for someone who is knowledgeable about retirement planning.

I can tell from your question that you are very new to investing. Welcome to the new age of taking charge of your future! You are a decade ahead of many folks who will only start thinking about building the proverbial nest egg in their 30s. I urge you to look at many of the posts at this message board by using the search function on keywords like "starting", "newbie", "basics". There are hundreds of posts on these topics and they spin off in many directions. In a nutshell: Roth contributions need to be invested to grow both now and after you start drawing down funds in retirement. You really want to think beyond "interest". Interest is associated with IOUs like savings accounts, money market accounts, and CDs. Frankly, that is like running a long distance race and carrying a few snow tires over your shoulder. If you put 4,000 into a Roth each year for 40 years and collect 5% "interest" you will have about 483,000 at age 67. But investments that average 8% annually will boost that nest egg to over $1 million. And.... at 10% your contributions would grow to around $1.8 MILLION, or almost 4x the "interest" example. Its all about compound growth - something you can do with a spreadsheet or an HP 12c calculator. Since you are investing for many decades, you should be looking initially at mutual funds that have a substantial component in stocks (also know as equities). "Mutual Funds", "choosing", "no load" and "index" are three more key words that will get you a ton of material on this site. My best advice: don't make any snap decisions right now. Spend a couple of hours reading material here. Check Kiplinger Financial magazine at your library (they cover a lot of topics relevant to someone in their 20s) and also look for the March issue (any year) of Consumer Reports which has good laymens articles on Roths and mutual funds. Like on this message board, these articles will talk about "asset allocation" which is the mix of different broad types of investments like bonds, stocks, and money markets. They will also talk about that really scary thing called - risk. The long term better performing investments have various types of risk.... for example many investments often go down in some years. But, another element of risk is that long term risk related to not keeping ahead of inflation. Another major step you are going to need to take is to contact a few companies that can serve as your "custodian". All Roths are administrated by custodians. Custodians vary in what kinds of materials they offer beginners, but almost all have some general brochures about how to get started. (some are now on DVDs!) You can also scan the internet for the companies you see referenced in Kiplinger or CR. Contact three companies, be up front and tell them you are a beginner and ask for materials. Don't fall for the first sales pitch, but compare what you get. Custodian examples (no recommendations) -- Your local banks - some offer mutual funds but bewary of LOADED funds that charge front end commissions, as banks have been slow to catch up with the next two catagories. -- Stock brokers (full service, discount, internet) - Charles Schwab, Scott Trade, Etrade, Fidelity... there are hundreds, and most offer mutual fund options. -- Mutual funds or fund families - Fidelity, Vanguard, T Rowe Price... there are thousands You are not going to understand everything that you first read. But plug away and than post your questions here. In the long run, you are a key person in managing your own money. Over many years you will lean a lot. Sometimes you will make mistakes (think of it like paying tuition), we all do. But, that you are even thinking of investing for the future means you have taken the first steps down the right path.

The "rules" you state are not made by the IRS. The IRS does limit you to one rollover a year if you are taking a check, and it all has to be done in 60 days.. But a direct C to C transfer avoids many of these issues. It is not clear how much you are being told is just you current custodian's rules. Maybe you are either (1) missing some of the subtle differences between direct C to C transfers vs. taking the funds out by check, or (2)talking with some folks that don't understand the IRS rules. Did you sign a specific agreement for distributions or are you refering to the defaults your custodian uses? If you have someone specific in mind for a new custodian, you might want to take your statements and any contracts/papers to them and ask for their opinion about the rules they would impose. It is not clear to me that your current custodian can lock you into their program. I am pretty sure that the solution to your problem is to completely leave your current custodian, having carefully choosen the new one who will give you the flexibility you want. I would recommend that you use the custodian to custodian approach to preserve future options and avoid any timing issues. Keep the terminology staight. A rollover in your case would refer to any IRA to IRA transaction. A conversion would refer to any IRA to Roth transfer.

Sounds like you have earned income for the partial work year - so you can open a Roth for 2005 at the $4,500 max if you otherwise meeting the filing status and max income requirements. Unless you do some consulting or part time work in 2006, you will not be qualified on your circumstances. If your spouse is working, you may both be able to have Roths based upon her earned income.

You are confusing some terms and some facts. You can do multiple IRA moves in a year if they are done by a direct transfer from custodian to custodian, where you don't ever touch a check. The one year limit applies when you have them issue you a check and you personally move the funds. I highly recommend the direct transfer approach as you never have to worry about the 60 day period, and these direct transfers can be done quickly. Just fill out the forms at the receiving custodian and attach a monthly statement of the prior custodian account. When you move IRA money to a Roth, it is called a conversion. Most often this is from IRA to Roth where both are at the same custodian. You can do this in one step, two steps, or more. You write a letter of instructions, and complete a 1 or 2 page application. Then just watch for the transaction to be completed. There is no connection between an IRA transfer between custodians and a Roth conversion. Two different games. Think football vs basketball... well maybe that is stretching the point. You may want to be kind to your custodian and not try to do a lot of transactions. I am not sure why you would want to do a monthly conversion - that seems to be asking for trouble and increasing the chance for a screw-up. I hope you understand that there will probably be taxes owed on the amount converted. You may want to talk with your accountant or tax advisor about the value of converting. One positive is that the Roth assets have no mandated or schedule withdrawal program.

You can withdraw up to the cummulative amount of contributions without tax obligation or penalty. But, before you do this, consider all your options. Money is truely on sale right now. Very low interest rates associated with home equity loans, signature lines of credit, margin interest rates, initial rollover credit card balances, etc. You can refinance your house. You can often negotiate favorable terms on existing debt. The Roth is a great tax shelter. Some folks don't qualify or can lose their qualification in later years. The rules can change. I would be very reluctant to take funds out of the Roth.

I am wondering why you want to go the traditional IRA approach. Sure you get a deductable amount now, but at a price. All withdrawals in the future from this regular IRA will be taxed as ordinary income... and if you are successful in life - that could well mean a higher tax rate. If you go the Roth route, you don't get the deduction, but all your withdrawals are tax free. With Roths, you can also withdraw contributions at any time... not that you really want to do this, but the option is there. Twenty five years old means starting late? No, no, no! OK, you are not teenagers with a Roth started by mom and dad (you won't make that mistake with your kids of course). Starting late is when you are in your late 30s or worse yet 40s. You are wise to think about a systematic investing program at the age of 25. If you continue at 4k each for 40 years you will have set aside $320,000. At 8% average annual return (which I believe represents a mix of small part growth stocks, conservative stocks, dividend paying stocks and bonds) you will have over $2 million when you are 65. If your investments return 10% you should expect about $3.5 million. While you don't want to plan on a higher return, at 12% (more representative of a heavy bias towards growth stocks and minimal bond/dividend options) you might be looking at $6.1 million in retirement assets at age 65. All nominal or current year (2046) dollars, but even with inflation any of these results would be a very comfortable nest egg. Note, the higher numbers under a regular IRA would have mandatory distributions and the tax bite could be very high. So, if you are going to be aggressive about building a retirement fortune.... the Roth might work out better. Note all of the above are just Roth/IRA projections and do not include any company plans or home equity! Welcome to the world of investing, USA style!

Roths started in 1998 - so it sounds like you are talking about something that occured in that first year. Try contacting either your employer or anyone you can remember who worked at that firm and may have participated. Custodians should have been sending you statements. If you held a mutual fund, they should have been sending you quarterly or annual information of their performance and holdings. There is one other possibility - each state has escheat rules. I know about these rules primarily as they apply to bank accounts and other kinds of cash (tax refunds, cash credit at a utility). If the account is considered dormant, the funds may have been sent to the state where you lived when you first signed up for the account. You can find lots of references under "escheat" via a Google search. I can't tell you how these rules would apply to mutual funds or insurance companies. There are billiions of dollars that are "lost" - floating around. You may want to also use your SSN to look into if you have forgotten any regular bank accounts. Be prepared to prove who you are once you have found the funds.

If you are not eligible to take IRA distributions without penalty - then the conversion would trigger both penalties and taxes and you surely want to get the custodian to send the money back to the IRA - recharacterization. If you are eligible for withdrawals due to age or other reason, then you can ask your custodian to treat it as a distribution to you and then a contribution. Depending upon the custodian, this will either be a one step or two step process. Don't talk to someone who just answers the phone or is at the front desk. Ask to speak to the backroom IRA department. For example, at Schwab this dpt. is in San Francisco. The knowledge of local offices varies a lot and I would not depend upon the rookie who is often the first person you see. Recharacterizing usually refers to unwinding a conversion - sending the money back to the original IRA. You still can make 2005 contributions to a Roth until April filing day of 2006. One or two step process depending upon how the custodian handles it. Note, if you send the money back for 2005 and then take a distribution in 2006 (step 2) your tax obligation would be for 2006. A good lesson for all general readers. Know the rules. Choose an advisor wisely. Be wary of details - what may seem logical or simple to you may not follow IRS or custodian rules.

Your post is mixing conversion and contribution information and your problem is complicated. You can get a better answer if you post the date of your conversion, your adjusted gross income for that year, your tax filing status (married filing jointly?), and if you made any contributions to either a IRA or Roth in that same year. Approximate age for both of you and your state of residence (is there an income tax?) would also be helpful. Have you already paid the taxes due on the conversion? I am wondering if you are getting bad advice from your investment person. If this person offered advice on Roth conversions, he/she should have known the income limitation for a conversion. If you are married and filing jointly and can't do a conversion, you are in probably in a fairly high tax bracket. Generally, you do a conversion when you tax bracket is below what you expect it will be in the future. If you expect the same or higher tax bracket, a Roth conversion may not be in your best interest. Conversions scenarios are complex and must make many assumptions about your future income and the fed/state tax rates. You don't want to mix up conversion eligibility with Roth contribution eligibility. If you did not meet the eligibility requirements for 2005 conversions, you will need to work with your custodian to reverse the transactions. If you were not eligible, you conversion attempt is essential a taxable withdrawal from your IRA, which might trigger a penalty and clearly has tax implications. What you can and can not do is all in the details. Post again.

If the max is 4,000 (based upon your qualifications) in a given year, then you could fund as many Roths as you want in as many locations as you want but the maximum combined contributions could not exceed $4,000. Two at 2k each - sure, or 1k at one and 3k at the other, or 4 locations at 1k each.... the IRS does not care about your personal arrangement, just that you qualify and abide by IRA/Roth regulations. That is just for that single year. You could open 4k this year with custodian X, then open a second account with custodian Z in the next year for 4k. After 10 years, you could have 10 different custodians - again the IRS does not care. You would be more likely to have multiple custoridans if you wanted different mutual funds that were not available through a single source like an online broker. Remember, general mutual funds often have substantial overlaps in portfolio. This means that having lots of funds does not mean that you are significantly more diverse. In the case of very broadly based funds, you might find half of portfolio is the same companies - like DELL, Johnson&Johnson, Southwest Airlines, Carnival Cruises, Internation Paper, etc. That would not be the case if you wanted narrowly cast funds like Fidelity Health Care vs. an Extractive Minerals Fund at T Rowe were you would likely find zero overlap. If you start collecting lots of very different funds, you might want to consider a total market index fund which is near maximum diversification and very low annual expenses.

There are no limits to the number of IRA / Roths you can have. No limits on the number of custodians. However, the maximum contributions in any one year apply to the combined contributions. One reason not to have many IRA/Roths is that you are likely to have more annual fees to pay... and more paperwork to track.

Another problem on the way to getting solved! The 4 year income averaging option was available only for 1998 IRA to Roth conversions.

Applby - Roth deduction? Perhaps this fellow was talking about the 1/4 of taxable amount of a Roth conversion?

FLMaster When you post on this message board in answer to a question, you should speak from some level of authority and experience. Responses should stay on point and not wander off into anecdotal stories. When you provide data a source should be cited and perhaps a website reference. You should understand the statisitics you select, and they should be relevant to the discussion and used appropriately. You just posted "The same report states from January 2000 until October 2005 the DJIA went down 10%. " As one of the moderators of this message board, let me point out some things you are doing wrong. First, no source cited. Second, the statistic is not directly relevant to the issues in the thread. Third, you are using a selective "snapshot" of specific start and end points with no apparent reason other than to show a result. Fourth, the pure statistic, while technically correct, is in a bigger sense misleading. The DJIA is an index value, not a stock. The industrial average represents 30 large companies whose composition has changed. What is missing is that during this five year the DJIA stocks provided annual dividends between 1.6 and 2.3%. So, although the index was down 10% during that time period, actual investors in the DOW 30 industrials would be showing a slight gain from compounded dividend yield. What was the point for saying the DJIA was down 10% during some "snapshot"? FLMaster, your posts are not sharply focused and include misleading material. This message board aims to answer the questions of many novices. They deserve accurate information, clearly presented. If you post again, please try focus on what you know rather than what others have told you. As moderator, I am closing this thread. It has gotten too long and drifted away from JKR wanted to understand. The topic of "performance" is useful and can be addressed again if raised by another viewer. See: www.djindexes.com/mdsidx/index.cfm?event=showAverages www.djindexes.com/mdsidx/downloads/xlspages/DJIA_Hist_Perf.xls is a spreadsheet covering these years and note DIVs column

Reply to Belgrath - Net inflow of cash to IRA/Roths - this statistic shows only if money is flowing into or exiting from the mutual fund industry. There is usually a small amount of money exiting every year for folks in retirement. To have a positive net cash inflow, more money must be arriving then exiting. While there is variation in the year to year statistics, with one exception, more money was arriving then exiting in the past 20 years. Note, this statistic has no connection to the performance of the assets in the funds. FL implied that people were switching in and out of investments. The aggregate annual statistics demonstrate that money has very consistently been added to IRAs and mutual funds. If you believed that folks were massively exiting the stock market when it was down and flowing back in at its peak, then you would expect to see positive and negative cash flows. Overall mutual fund performance varies by year, and within funds by type of fund. There are up and down years although positive years significantly outnumber negative years.

Sorry FL, after futher research I conclude the Dalbar 2.6% is completely bogus and further suggest that you are misusing the number to support a cynical world view. Valid statistics about "performance" of household investments are very hard to obtain. Making universal claims based theoretical behavior seriously misrepresents what many persons achieved. The time period you selected represents one of the long sustained bull markets in US history. The Dalbar study apparently was looking at market timers. (see a critique of the Dalbar study by a Kiplinger reporter at http://redesign.kiplinger.com/personalfina...ory.php?pid=859 , this rebuttal is not exactly clear but suggests some of the issues with Dalbar's paper. I will also note that Dalbar sells products to investment advisors and financial planners, so they have a commercial interest in promoting the theory that individual investors make poor investment decisions.) Consider the data available from the Investment Company Institute (the primary association for mutual funds, especially the 2005 Fact Book , see http://www.ici.org/factbook/ ) which compiles statistics of member companies... that represent 95% of all the assets in mutual funds. In 1984, only 11.9% of all households owned mutual fund shares. By 2004, 53 million households owned shares in mutual funds, nearly 1/2 of all families. In 1984, the ICI data show 1,243 funds holding 8 billion in assets. By 2004, there were over 8 thousand funds holding 8,106 billion in assets. IRA assets in mutual funds in 2004 were 3,475 billion, representing 43% of all IRA assets, slightly ahead of assets held in individual stocks/bonds. There was only one year since 1984 when the mutual fund industry did not see positive net cash flows, and that was 1988, not during the dot com crash. The most significant trends in the past 20 years is greater participation in mutual funds, a significant climb in IRA accounts and assets, and a high participation in stock mutual funds. Today 78% of all mutal fund IRA assets are in equity funds, 10% in money market and 12% in bond funds. There is very little data to suggest that massive numbers of households swing in and out of stocks - if this was true, you would see it in the net cash inflow statistics. To the contrary, the 20 year trend suggests that folks were getting good results and increased their participation. Very few studies have been conducted of individual investor behavior, such as how individuals change assets allocations. But in one study noted by ICI staff, the University of Chicago researcher found a tendancy for mutual fund investors to migrate to: lower fees, lower expenses and better performance. Adam Smith would understand that concept. When all market indicies were going better than 10% a year over the 84-04 period (see my prior post)... When many big mutual funds were obtaining the similiar performance.... When money market accounts averaged around 6% a year for just cash.... When bonds averaged in the high single digits.... What kind of tortured investor behavior could lead to a conclusion that mutual fund investors averaged only 2.6% annual appreciation. Could there be a few people who achieved such miserable results? Sure. And there were likely some folks that even LOST money during this time period. But, they would have had to work awfully hard to obtain such miserable results. It is ludicrous to suggest that the average mutual fund investor did so poorly. I have access to and track 46 accounts related to 18 individuals with each have over 25k in assets and where I have over 10 years of data (the oldest six accounts are over three decades). These accounts include a mix of bonds, stocks, and mutual funds. They include Roth, IRA, 403B, non-profit endowment and taxable accounts. Only eight of these accounts have long term annualized returns under 8 percent, and none below 5%. All of the lower performing accounts have very large bond or money market components and represent the "withdrawal" life phase. Every single account beats your 2.6%. If your number was credible, then this must be miraculous performance. A win record of 46 - 0. I don't view this as extraordinary, just a little above average and rationally related to the asset mix of each account. Yes, there are valid points about the problems with market timers. Yes, some folks panic in a stock market sell off. Yes, there are some folks who invest erradically - getting buy low and sell high confused. But, please don't use the bogus Dalbar number to suggest that all mutual funds investors obtained such poor results. It's just not a realistic portrayal.

Congratulations on your forward thinking! You have the beginnings of a plan that will let your build a very large "nest egg", perhaps in millions of dollars. But, at the start you do not want to buy individual stocks or bonds. Here is why. 1. Most beginners don't know enough about making single stock/bond choices. 2. You always want some diversification in your retirement portfolio and that is not easy to do when you have a modest amount in your account. For example, a common view is that you need at least 8 completely different stocks to begin to attain some degree of diversification. 3. Even with internet based trading, your commission expense with a small portfolio would be high. It would also be hard to purchase 100 share lots and hold 8+ different stocks. The research time would also be high. 4. You can accomplish diversification with a minimum amount of research time and easy management/tracking by choosing mutual funds - especially NO LOAD funds that have below average annual expenses. A reasonable plan that would work for the first perhaps five years would be to select a general index fund that represents either the S&P500, Wilshire 5000 or other "total market". You will get NO LOAD (no sales charge on the front end or back end), very low annual expenses, diversification and easy tracking/management. After 5 years, you may be nearing 20,000 in assets and can consider other kinds of mutual funds. Some folks stay with mutual funds their entire lives as that often gets the job done. But, if after you reach the 100k mark... and you can start to add individual stocks to your portfolio. The single mutual fund would hold 100s of stocks - so you would have a major element of diversification. While you are getting your education and starting your career, you could save on the amount of time spent on your Roth IRA. PS: I suspect that talking about investments and Roths is a deal killer on dates! But wait until you go back to the high school reunion in 10/20 years!

FL, I don't think your 2.6% holds up to any reasonable level of scrutiny. The S&P500 makes up a huge part of the total market capitalization... I seem to recall it is more than 1/2. Now, how can half of the market be up an average of 12.2% annually but mutual fund investors are somehow up only 2.6%? Any cash component over that time span would surely be higher than 2.6%, and ditto for bonds. Lets look at a few examples of what was happening in equities. Since Jan 1 1984 - my quick calcs indicate: DOW INDUSTRIALS - rose from 1,253 to 10,798 or about 10.8% a year compounded, not counting any dividends NAZDAQ - rose from 277 to 2,258 or about 10.5% per year compounded, again not counting dividends Fidelity Contra Fund - NAV plus non-reinvested dividends rose over 10.4% annually {one of the few funds were I could quickly grab historic data for almost 20 years} I visited the Dalbar website and searched for 2.6 and found a single reference in an article as clear as mud. As these folks sell reports for high fees, I was not able to track the statistic back to its source. But, they may have been talking about market timing investors who move in and out of mutual funds. The statistic was not labelled or qualified very well. From every angle that I have looked at, the 2.6% gain number looks like just bad data.

I think that prior paragraph is an awfully negative spin made from a few facts. You speculate a dark future for Roths. I think the contrary is more likely. "Until the law changes..." ? It already has. Congress has actually made IRAs better over the years. Then topped that by creating Roth IRAs. And then made some changes to improve Roths. I seem to recall that inheritance tax threshold has been moving up more or less. {If you want to complain about something, start with the AMT... and there is legislation pending on that which has some chance of passing.} The budget deficit is a real problem, but manageable. A more important driver is that a number of policy wonks have suggested the US wean support entitlement programs like social security. Successful IRA/Roth participation takes some of the pressure off SSN. Sure Congress can change the rules. But there is an army of Roth owners now. Taxing a Roth would be a major reneg. It would generate an immense amount of distrust in government. It would also go against some of the legal foundation of accounting. How many Congressman would survive a vote against Roths? What is the most likely negative change to Roths? I am not sure. But I would be extremely surprised if existing account holders were not grandfathered.

You can search on keywords such as "index" or "beginner" or "starting" to find lots of posts that may be useful. Feel free to post specific questions... its easier to answer something narrow than a very broad question. S&P500 index fund - a mutual fund (typically no load) that invests based upon a list of stocks such as the Standard and Poors list of 500 large companies. Index funds tend to have very low annual expenses - minimal staff, no field trips! NO LOAD fund - a fund that has no front end or back end commission schedule. All funds originally were sold by agents who received a commission. No loads were created later - based upon more efficient operations (pre internet!) and a marketing desire to attract money away from funds based upon commissions. The pressure was so great that some of the industry created: "low load" using about 1/2 the normal commission, and declining back end loads (example, 6% back end commission year 1 but dropping 1% each year until after a 7 year hold there is no commission). There are many successful strategies for investing using mutual funds. Index funds have some strong positives, but you can find equally strong arguments for the better no load funds. Summary was good: early start is better than later, no loads over loaded funds, greater returns likely if you bias your long term investments towards equities (stocks). Second in importance to getting started is adopting an attitude that the initial emphasis on learning is more important than annual results! You might want to catch the March retirement investing articles in Consumer Reports. You will also get a huge amount of information from Kiplinger's Finacial magazine - not just investing, but also credit, insurance, home ownership, car buying.... and I think it is under $20 for a 1 year subscription. If you don't save that much from the advice in KF - send me the bill!

Most of the facts are correct and the general direction of the article is accurate. Nothing "dreamy" about a Roth, it is a bread and butter approach to building long term wealth open to all folks who work. Yes, you can open a Roth IRA for a teenager if they have earned income... I did that many years ago for my kids. You can even fund the account for your daughter - it does not have to be her money. Yes, she can become a millionaire if she continues to fund her Roth and makes reasonable investment returns over many decades. And, Yes, Roth withdrawals are tax free. Some fine tuning on the points made: 1. Current maximum contribution for either 2005 (its not too late for 2005, you have till tax filing date in April) or 2006 is lower of $ 4,000 or her earned income. The 2k they talked about was the max amount for IRAs many years ago and so you still find many examples using that number. 2. The article misleads you on the wait to 59 1/2 for withdrawals. You can actually take out contributions at any time without penalty or tax. You just can't prematurely dip into accumulated earnings unless for a few allowed special uses. 3. You mentioned the S&P500 index fund. The article talks about a total market index fund of 5,000 stocks. There is a difference. The S&P500 is based upon Standard and Poors list of 500 very big companies. The total market includes the S&P500 list (I think there is total overlap) but extends the list to include another 4,500 large and mid size companies. Index fund means a mutual fund that uses a computer to buy stocks based upon a list, rather than hiring analysts to scutinize companies and perhaps visit firms. Historically index funds have provided good returns because of the ultra low annual expenses. You can search the term "index" and find pro/con arguments in prior posts. You can find the list of companies via a Google search! 4. T Rowe and Vanguard are respectable sources for many different kinds of funds. Vanguard created the index fund concept and prodded other mutual fund families to offer similiar products. There may be as many as 10,000 mutual funds to choose from. NO LOAD funds do not have front or back end commisions. Most index funds are no load. 5. Comments about bank sponsored mutual funds are sometimes true. Banks used to focus on just commissioned based funds, often with high annual expense. Market forces are slowly getting more banks to offer better products... but buyer beware. Ask lots of questions about loads, expenses and fees. Read the prospectus before you send money to anyone. 6. A monthly checking account withdrawal plan is a reasonable way to start a Roth. Hope this helps. You might want to offer a "match" with your daughter as an incentive to invest. Do take this opportunity to get her involved in understanding about investing. Nothing like looking at your account twice a year and seeing the nest egg grow. Don't do all the work for her - she needs to have some ownership in the process. Do understand that you run a risk that she will pull out all the money at some point to buy a car or go to Europe and you have no control over her account. We felt pretty confident that would not happen with our two daughters - "Dad would cut me off at the knees" I think my daughter once said.

I have never heard of a weekly payroll deduction, but I do know that almost all custodians offer a monthly automatic checking account withdrawal. Often the monthly option can be started below the usual minimum opening balance, and custodians often waive annual fees in return for the predictable cashflow and long term relationship. I am not sure what you are asking about with the second question. When you start a Roth retirement investment program you have to make two initial decisions: (1) who will be your custodian and (2) what will be my initial investment. You will find much written on this topic at this site - you can search keywords like "beginner" or "starting". Or post again and I will try to assist you with more info.