John G

You might think that is a simple set of questions, but it is not. We don't know your age, how close to meeting your retirement objectives you are, your investment experience, etc. Generally, you don't want to place any investment with a tax shelter component into a tax sheltered retirement account. The reason is because any bond with a tax break tends to have a below market yield because the government that issues them doesn't need to offer a top percent rate. (I bonds are subject to federal income taxes but exempt from state/local income taxes.) I can't speak to the question of what custodians will allow you to buy I bonds in a IRA/Roth. That probably varies by custodian. I am no big fan of I bonds. One of the problems with supposedly "safe" investments like CDs and I Bonds is that folks often overlook erosion factor of inflation over many decades. I Bonds supposedly "reduces" the impact of inflation... I don't think that feature is strong enough. Most retirement accounts are held for decades.... even if you start late, because we live so long. I personally believe that most (not all) folks are much better off investing in a mix of bonds and equities (aka stocks). But, since you told us very little about yourself I will not presume what might work best for you.

You may be better off doing partial conversions for two reasons: (1) a partial conversion gets you many of the flexibility and estate planning benefits at lower cost, and (2) if you can continue to do partial conversions, you may avoid bracket bump up due to the conversion. (cup is half full, perhaps)

Differences between a Roth and IRA First, there are a lot of things in common. Both are retirement investment options that are owned by individuals - in their name only. Each have rules governing qualifications (based upon presence of earned income, filing status and total income). Both programs allow for beneficiary designations. Both have maximum allowed contributions. Qualification to participate is determined each year. Roth IRA was created by legislation in around 1998. Contributions are made with "after-tax" dollars. There are no mandatory or prescribed distribution schedules. Normal distributions are tax free. Also, you can take out contributions at any time without tax or penalty. IRAs date back another two decades. Contributions may be deductable (essentially paying in pre-tax dollars) or non-deductible, its a function of income and your elecion. There is a mandatory start date for distributions and rules governing minimum distribution amounts. Distributions (except for the non-deductible contributions) are taxed as ordinary income. For most folks getting started, the Roth has the edge. No Fee Options I hate parking tickets and I hate annual fees. But, I am not sure that no fee should be the driving criteria behind selecting a custodian to handle your IRA/Roth. Investment options, convenience, and support are likely to be more important. Are you talking CDs, money markets, mutual funds, bonds or individual stocks? Not every custodian offers each of these. Do you want a local walk up counter or will 800 number or internet/mail types of account servicing work? Do you need investment advice or are you planning to do your own research and selections? Consider the above. There are thousands of potential custodians: mutual funds, banks, and brokerages. Many of these may fit your needs. At that point I would start asking about fees. Ways to reduce or eliminate fees First, ask! Many custodians want your long term business and some may waive there annual fees if you just ask. Second, consider using a custodian were you already have a business relationship as sometimes you can get fees waived because of other deposits/business. Third, ask if the custodian waives annual fees if you are on a automatic monthly deposit program. Fourth, some internet based companies waive the annual fee if you elect to get reports/confirmations by email. And... if the fee is just $10, you might consider just living with it.

An attempt to clarify: You can put money into a Roth in two ways: (1) contributions and (2) conversion of an existing IRA. Contributions: If you are 60 and taking money out of an IRA, my first question is do you have "earned income" to qualify for Roth contributions. Interest, dividends, IRA distributions, gifts, etc. don't count as earned income. There are no age restrictions for contributing. Taking an IRA distribution has no impact. But, there is a combination of required earned income, gross income (ceiling limitation) and 1040 filing status that does impact your ability to contribute to a Roth. Qualification to contribute is determined each year... so you can be knocked out one year and yet be eligible in the following year. Conversions: A conversion occurs when you shift funds from your IRA to your Roth. Almost all conversions create a taxable event. Conversion qualification is determine separately each year, and the controlling facts are a combination of 1040 filing status and adjusted gross income. If possible, you want to convert in a year when your income is low. Over 50: $4,500 is the max (including the $500 make-up) in 2005 If all this seems as clear as mud, please post more details about your specific circumstances and Appleby or I will take another shot at giving you an answer.

2.6% ?? Please check you numbers - looks like you have a typo. Also, please indicate a source. I agree that "beating the market" is not the goal. First, we can't all be above average. Second, average performance will work out just fine for many long term investors as retirement accounts compound over decades and an annual 8% or 10% often will produce a substantial Roth nest egg. Reasons to consider an S&P500 index fund: broadly diversified, very low annual expense, easy to understand, requires less analysis/selection time, easy to track, and gives the S&P version of market performance. (Outside of an IRA/Roth there are also the benefits of lower portfolio turnover.) These are especially strong positives to novice investors. Many folks do just fine with Index funds. But, there are other mutual fund choice strategies that also work. For example, some make an argument for using the total market index rather than the large cap S&P500. In my view, very young investors would be better served by a portfolio slanted towards growth stocks. I don't believe in one solution for all people. Investors differ in their ages, long term objective, education, risk tolerance, available time, etc.

Good question. First, annual performance is very likely to flucuate, even if you choose a bond fund. Second, a down year is possible in any investment (even bonds), but good years will generally out number bad years, perhaps by 5:1. When we talk performance stats, we are normally talking about the long term average over decades rather than any specific year. I agree with most financial planners suggest that the single biggest factor that effects long term performance is asset allocation -- the percent composition of various investment catagories. For some very general financial planning, I would use the following for historical performance of the major catagories: 2-8% Money market funds and CDs 6-9% Bonds 8-10% Conservative stocks (more blue chip, utilities and dividend stocks) 10-12% Stocks (aka equities), but biased towards growth companies The lower performing catagoies are essential forms of IOUs. The higher performing catagories are tied to capitalism, production and growth. You likely result would be a function of the asset allocation mix you choose. For example, if you were 1/3 bonds and 2/3 blue chip stocks, you might average around 8-9%. But, if you were 100% growth stocks, you would expect to be slightly higher, perhaps 10-12%. These are VERY general guidelines. In any given year, you could wildly diverge from the average. It is often said that performance is inversely related to risk, especially when you are considering shorter holding periods. But over many decades, this tends to wash out. You are wise to us the Roth vehicle. Getting started is good. Early is good. All things being equal, lower annual expenses is good. SSN may be around in some form, but if you follow your plan you won't be relying upon it.

Couple of points: 1. You can always take out contributions at any time without penalty. 2. It also seems likely that you will be able to take withdrawals of any kind based upon age at what you said might be your retirement age. 3. Neither 1 nor 2 makes a lot of sense if your income (you said tax rate) will be higher in retirement - I assume that means you will have more income at retirement then you currently have. Assuming that you are not living beyond your means... won't you have more money in retirement then you do now? The current max for you is $4000 plus $500 for the "make-up" provision. That means you are likely to be contributing less than $30,000 over the next six years. You mentioned "fees", but it is not clear to what you are referring. If you mean commissions, I don't think you will be making very many transactions. If you are talking mutual funds - no loads don't have commissions. If you are talking annual fees for a custodial account - they are not very large, are often waived after your assets exceed 5/10/20K, or if you do a monthly contribution program that taps into your checking account. A reasonable approach is to talk to a couple of custodians about starting a monthly Roth contribution that will automatically go into one general purpose no load mutual fund. Or, talk with a mutual fund family directly. This approach gives you dollar cost averaging and often will have ZERO fees and certainly ZERO commissions. What kind of mutual fund you select would depend upon where you have placed your other funds, your investment time horizon (probably still more than a decade) and risk tolerance. Post again if you have additional questions.... I had to make some assumptions in this response.

Two bad attributes for any investor are: (1) making presumptions about what you don't know, and (2) over estimating your level of knowledge. In combination they can create a lot of pain. It gets worse if you lock on to selective historic data to justify your beliefs. You assume that I know very little about commodities. Not true. My work experience spanned energy and raw extractive materials for about two decades including the coal, oil, natural gas, copper, forest products, cement and aluminum. My co-worker for a decade was a cane, soy, beet, and corn futures trader. I really don't need my eyes "opened". My comments on this message board are directed at both the person who posted the question and the perhaps 20x more who read are general readers. This thread has gone far off course for that second group. I don't see much point in getting excited about a precious metals boom in the 1970s related to the Hunts and the earlier Middle East crises. That was over two decades ago. We have had perhaps four recessions since then, at least three interest rate cycles, 3+ housing booms, three seminal communications events, breakout events in computers, serious changes in international trade patterns, the mapping of the human genome, cloning, and that internet thing. And while most of these events unfolded, gold and silver went sideways. The world is full of interesting prospects for investing. I would not suggest a narrow focus. I told you about VF because it is more likely to have posts on extractive minerals. If you explore the VF website you will find that the most successful of these investors are constantly challenging their market view and investment conclusions. The more active members often post their entire portfolio positions monthly, which gives a more honest picture of performance than after-the-fact claims. VF, like the marketplace, is a competition of ideas. Unlike Yahooland, VF requires a high level of personal decorum. Performance claims and factual statements are subject to scutiney - 1,000 members can challenge what has been said and often do. There is minimal touting, minimal fluff... there is a lot of shared access to documents and analyst writings that you generally don't find in most websites. VF is one of about a dozen "low fee" sites that attempt to elevate the level of discussion about investments. I can tell from your prior comments that you have a high level of confidence in an upward path for commodities/energy. Being enthusiastic about a sector is fine, especially if it encourages research time. But, markets are just not as predictable as you have implied in your about comments about commodities. Hardly anything is a great idea for many years - in part because success attracts more money, business expansion and eventually in resource areas.... over supply. It is the nature of markets to overshoot and undershoot, and both problems cause market "corrections". For three years running, crude oil tankers (Frontline, VLCC, etc.) were a great investments... treaties written after European oil spill created a tanker shortage, too many single hulls getting scrapped, new shipping routes to India and China increased demand, the US economy increased demand. But, in the fourth year of a boom, tanker stocks stalled and started to slide backwards. While many new tankers were brought on line, the reason for the decline was "loss of momentum" - that is enthusiastic investors started to leave when they could not be guarenteed every bigger earnings announcements. Markets are complex and you should not expect them to be predictable.

I still think your focus on commodities and energy is way too simplistic. Think cycles - and they rarely last more than a few years. Sure China is growing, but much the same was said about the dominance of Japan when you were still in high school and Japan's stock market and economy turned skunk - and more or less still is. You mentioned mutual fund performance over past 5 years... I think if you go back and look, the "bang" happened in the last two years. There were few commodity markets were attractive places to invest for almost 12 years prior to this recent surge. Be careful about projecting for a decade what you have witnessed for two years. [i used to work in corp. planning for an energy company and you just did not good money in energy for the entire 90s.] You may want to check www.Valueforum.com a fee based message board with a lot of folks that track energy stocks, commodities, high dividend stocks, etc. They have over 1,000 members.... been around 2+ years and have 100 very good home grown analysts. Somewhat related is a once a year Investfest (in Florida this year) meeting - this group has been around for three years. Last year's meeting in Pigeon Forge TN had about 80 attendees for a three day event. Only 1 professional presenter - about 1/2 the room were multi-millionaires, and maybe one was a billionaire. Investfest is a yahoo message group. Good luck with your investments. Don't post investment suggestions here - its the wrong forum. Examples are always welcome, but we don't want folks to think this site has silver bullets.

Something I found interesting in a "for fee" investor discussin forum: Andy Kessler, who was a successful hedge fund manager during the tech boom, had an idea which I found compelling.... He called it "Investing in the fog".....the concept relates to the following....if everyone can see clearly what is happening with any particular stock or market segment....then the stock is probably already fully valued....So if you're not willing to risk being in the fog, as it were, you're probably not going to make outsized returns....I think each of us has a certain tolerance for fog.... My take: investing is all about numbers but while you can attempt to be scientific with your analysis, there is still uncertainty, herd response and emotion. I try for good ideas to outnumber bad ones 65:35 and keep annual returns averaging in double digits. "Try" is the operable word.

Billiton is a big resource company in Australia. I bought 2000 shares around 23 and have been pleased by the gain. It is also a fine story - a large mineral/coal company that sells to China and Japan (closest source to China for many commodities) and the stock is up about 60% in 1 year. Most people do not know this company, so Kudos to you for finding it. I also overweight a few sectors when I make investments and may concentrate on a small number of firms. It has served me well for many years, but for most folks the dangers are too great, especially if they are playing last years momentum, have less experience or can't monitor there positions daily. BUT..... your strategy for the future seems too simplistic to me. My 35 years of investing experience tells me don't get to enamored with energy stocks and gold. They have been a great story for more than a year. Energy companies will also have good earnings for 2006, but I doubt they will continue on this hot streak for years. I particularly do not understand why you would think that commodities will be in a prolonged bull market like 10-15 years. The last century has shown that commodities often run through much shorter cycles. Frankly, out of favor sectors (financials are the first one I thought about) often return double digit returns after a prolonged drought. It is still hard to get a feel for your investment experience.... but let me suggest that probably the single biggest reasons for investment disasters is that folks over-reach or fail to recognize their own limitations.

A Rant on Buying Individual Stocks vs Mutual Funds Most of the time, I am a "stock picker". It may help folks to understand the difference between choosing the mutual fund or an individual stock route of investing if I disclose my analysis routine. I generally have between 20 and 30 stocks in various accounts. I spend typically over 8 hours in research before I ever buy a stock, sometimes more than 40 hours of research time. Research means visiting the company website, reading all or parts of the annual report and 10Q, reading ALL of the business wire articles for more than the past year, reading similiar material from competing firms, visiting a few "fee" based message boards to look for posts on the company, and sometimes making a small spreadsheet of key components of the companies business. I probably look at about 50 companies each year, and at best I find 5 were I buy shares. Acquiring a position is often a multiple step process. I also spend about 20 hours a week tracking/reading about stocks I own. I see no shortcuts to this level of work. I should spend more time on the sell side of the equation, because I make more mistakes here. Investing takes gobs of time if you do it rigorously. Perhaps if you mostly have mutual funds and only a few stocks you can reduce the amount of time. Sometimes people ask me about a stock that they own. I am often surprised by how little they know about the company.... recent earnings, who is the CEO, HDQ town, major competitors, recent product additions, profit margin, subsidiaries, etc. Folks often know more about their favorite TV show or their car then they know about their equities. There is not a single stock that I own that I could not stand up in front of a room of adults and talk for 10 minutes about their business, competitors, industry trends, etc. That is one of the standards I use for making decisions. If you can't talk for 5 minutes about a company, perhaps you should stick with mutual funds. There are now some commercials on TV that show some guy running in a 10K stopping at a cafe to borrow a laptop and order 100 shares of a trendy sneaker company from an online broker. There is another commercial where a guy buys some jeans his daughter thinks are hot. This is investing? Nope, nada, not a chance. End of rant.

My guess is that you have a reasonable level of technology savy, so why not use the internet to examine your choices. There are over 8,000 mutual funds and you need initially ONE.... well perhaps one for you and a different fund for your wife. (you will learn more watching two funds) There are easily hundreds if not thousands of funds that would work for you. The universe of mutual funds is divided into NO LOAD (no up front or exit commissions) and loaded funds. Stick with the NO LOADS. Given your ages, I would suggest that a broad based stock mutual fund would be a good choice. One route is to select an INDEX fund - these are computer driven funds that own all the stocks on a "list" such as the S&P 500. Advantages of an index fund are: easier to choose (less to evaluate), lower annual expenses, broad diversification of holdings and you get performance nearly identical to the benchmark list. Vanguard created the index strategy, but many fund families now offer index funds. Second route is a analyst driven mutual fund - like Contra at Fidelity, that focuses on one theory or investment strategy (growth, value, emerging markets, etc). Using a broker vs do-it-yourself: I would argue for making your own choices. Why? First, you will learn more if you take charge. Second, its your money and you will have a higher level of interest than a broker looking at perhaps 2 x $4k. Third, a broker often will direct you to a fund that makes him/her more money, not neccessarily you. Fourth, it just does not take a huge amount of time to make a fund choice. You should be able to pick a mutual fund (or two) in a few hours one evening looking over some of the choices. How to pick a mutual fund? Each year Consumer Reports reviews 100 funds that perform well in their March "tax" issue. That is one way to narrow the field! You can also use Morningstar ratings to find prospects. Avoid narrowly cast funds for your first choice. While past performance is not a great predictor of future performance, a reasonable track record over 10 years will probably give you some peace of mind. You are correct that very large funds often have difficulty maintaining top performance, so you might want to avoid the elephants like Magellan. Look for funds with below average annual expenses. You can't possibly select the perfect or best performing fund... make a reasonable choice and live with it for a few years. Agressive? I sure hope you mean bias towards equities rather than playing mutual fund long shots. Time is you ally. Let compounding do its job. If you and your wife each put $5,000 into Roths every year for the next 40 years and obtain a 10% annual return...... your retirement assets will grow to about $4.4 million. Go for it!

IRA/Roth transactions: 1. holding period has no meaning - there is no distinction between long or short term capital gains 2. all sources of income or gain are treated the same - dividends, interest, capital apprectiation - again no distinction within an IRA/Roth 3. reporting to IRS - internal transactions are not report to the IRS, there are just not any tax issues on buy or sell transactions within an IRA/Roth 4. record keeping - the IRS has no interest (see #3), all record keeping should be based upon what you need to make good decisions and the measure your progress (highly recommended as you learn the most from the mistakes you make) 5. tax loses - unless you go through the complicated process of closing all of your retirement accounts (too complicated to explain here but covered elsewhere on this message board, it is very rarely a workable option) you never get to claim any tax losses from bad trades 6. frequency of trades - the IRS does not care.... but let me suggest that few frequent traders (not just day traders, but anyone trading with short term holds) are very successful. To trade frequently and be successful means that you have some kind of "edge" in guessing how markets will react to economic news. Your commissions will increase - but realistically, in an era of internet trading at low cost this is NOT the driving issue. Trading more frequently vastly increases the amount of time you need to analize and monitor. The day traders I know watch multiple monitors every hour the market is open, every day the market is open. There is an addiction element to this. It is harder to take vacations, harder to "shut down" and enjoy weekend R&R. Some additional cautions: For probably 98% of the population, investment success comes from starting early, commiting to a "plan", staying fully invested and letting time and compounding work. You can be successful just using mutual funds. If you have minimal investment experience and start to actively trade in a IRA/Roth, you may fall into the trap of chasing yesterdays performance. You also need to pay more attention to your portfolio balance - not getting too concentrated in one niche where you are successful. Post again if you have additional questions. Good luck with your choices.

Sounds like you are talking about active trading in pink sheet stocks... I do not recommend this. Even investors with sophisticated knowledge and many years of experience find this difficult. It eats up more time than listed stock investing, it is harder to diversify, your orders to sell/buy will often move the bid/ask prices (as in YOU are the market), etc. You may be falling for the investor version of "the grass is greener on the other side of the fence". Every thing you think you can do with pink sheets you can do more efficiently and more reliably with listed stocks. Who might support your activities is not just a function of the general custodian rules but also who you are, your education, investment experience, annual income and assets. You will need to make some phone calls.

This is not an IRS issue but rather a custodian issue. Many custodians choose to limit the range of investments allowed in a IRA/Roth for practical reasons. They have fiduciary responsibilities and that can include limiting the kinds of investments due to your investment experience, income level, assets and self declared risk tolerance/objectives. IRA investments must be valued at the end of the year, so some custodians will limit any investment they perceive to be problematic. All that said, you will find many custodians that will allow you buy pink sheet stocks. I would recommend against pink sheet stocks for any investments and especially retirement accounts. Reasons: there is less reliable information on pink sheeted stocks, bid/ask spreads tend to be higher, lack of trading volume means fewer buyers and sellers and therefore you are drifting away from a rigorous market based price for the stock, pink sheet stocks are more likely to be subject to manipulation (including organized mob activity), it is harder to transact any significant size block of shares with illiquid stocks, and why work so hard when there are probably over 10,000 publicly traded stocks to consider. I have no idea what you mean by "keep all the profits". That is how any other stock purchase works. This comment suggests to me that you may not have a lot of investment experience. There is nothing magical about pink sheets. You will rarely be a successful investor if you are looking for long shot winners. Once you get outside the S&P500 and Nasdaq 100 stocks, there are plenty of interesting companies with limited institutional ownership and few or zero analysts following them. If you think your analytical skills are sharp, you might be better off searching in this more actively traded group.

I would use the direct custodian to custodian approach so there are not questions and no 60 day clock. It is often the easiest way to get the job done. Do not be surprised if this custodian also charges an exit fee! You may find that the third location will offer to rebate the close out fee if you ask.

I am not sure I understand exactly what you did..... but (1) the math for each calendar year (max amount, qualifying, etc) is separate, and (2) within a calendar year your max allowed contributions are for the combination or Roth and IRA for each spouse (recently 4,000 max).

Sounds like the problem is choosing investments. I have no idea what 5/3 is. Is this some kind of mutual fund or do you mean 5th Third Bank? Both of you need to understand that stocks don't just glide up hill all the time. Some stocks, some mutual funds do poorly. Last years losers, while painful, can sometimes be next years great idea. Gold and energy for example have been leaping higher this year. You would not want to have been in them for most of the past 10 years. Hopefully you "tuition" in the school of hard knocks helps you make better decisions in the future. Your goal is to learn more each year and from each decision. We all make bad choices - but over a very long period of time the bad decisions are usually trampled by the cummulative good choices. Why? Because capitalism works, it rewards folks who improve products and take risks.... and the stock market reflects the growth and progress. And.... frankly, the general market has been pretty ugly for most of the past 5 years. There have not been many outstanding mutual funds with double digit anualized returns over 5 years.

Earnings in just a few days? If we are talking about this Janauary... a timely correction should minimize the issue.

IRAs or Roths from prior years have no impact on what you do this year or next. Yes, you can have a Roth and a 401k. You can also have multiple Roths or Roths and Regular IRAs in one year. But, the combination must not exceed the max contribution allowed and you must still qualify for each piece. Why does your wife "want out"? Is she disallusioned about a specific investment? That part is still left confusing. Normally, you don't kill a Roth if you have a bad investment but instead try to repositon the remaining assets in something better. Also, you can combine IRAs or combine Roths using a direct custodian to custodian transfer. This cleans up clutter and can reduce your annual fees.

MJB - good summary. When Roth conversions first became available, lots of people thought that the math always tilted towards converting. In the case where tax rates are equal now and in the future, it's a draw. Adding to the difficulty of making a choice is trying to predict tax rates in the future. Go back 10 years and tell me everyone knew that long term capital gains and dividends could be taxed at 15%. Not me. At that point, I had assumed that because of my gain in income, inflation potentially shifting folks to higher brackets, and the urge of governments to spend more would all drive my marginal tax bracket higher. For the moment, the opposite has happened. Sure, there are times when conversion makes a lot of sense.... in low income years, when their is a employment gap, before you income pushes you past the conversion threshold, or after you retire and you can create a low income year. But, even with these examples, you are still making a lot of guesses about the future. Because a Roth conversion involves so many factors, it is wise to as your accountant or tax advisor to give you a second opinion about the "math".

You can only contribute to a Roth if you have earned income and meet the income/tax filing status requirements. You may be able to do a Roth conversion (income and tax filing status applies here too!) but taxes will be owed in the year of conversion. However, a Roth has no mandatory distribution schedule - which may be helpful. There are many ways retired folks attempt to manage there taxes. You may also want to put IRA dispursements into tax free bonds, a tax managed mutual fund, buy stock for long term capital gains, or buy any asset and let it pass via your estate with a stepped up mechanism. A word of caution - making investment decisions based upon tax avoidance is taking your eye off the ball. Focus on the performance of your assets first.

You fund a Roth with cash. You can not transfer any other kind of assets from a brokerage into a Roth. You can certainly sell the fund, then use cash to fund your Roth. Remember, selling is a taxable event.

The Roth conversion question is very complex - you need to provide a ton of additional info about income, taxes, resident state, ages, estimated future earnings. It is not slam dunk to say yes, there are many scenarios where it is about a break even event. Basically, a conversion works best for folks who for some reason have a single year of low income but expect there incomes (and tax rates) to go much higher in the future. You may also want to convert if you currently live in a state with zero income taxes but expect to move to a state with income taxes. Sometimes a partial Roth conversion gets you lots of benefits without causing too much pain. You should ask your accountant or tax advisor about this option... you can also find more info here by searching "conversion". Question: What is your wife considering doing with her Roth? I don't understand "wants out". In general, if you meet the income qualifications for a Roth and have the extra cash to fund it - you normally want to max out both of yours. You can transfer (ideally direct custodian to custodian) various IRA and Roth accounts to clean up the clutter. Any long term investment program offered by an employer that has a matching component is a good idea if the investment choices are reasonable. There can be problems if the employer forces you to buy company stock or limits your investment choices.