John G

Do note that there are often differences between the minimum for: regular taxable accounts, ROTH/IRAs and any account where you pledge to direct deposit a minimum amount (say $200) each month. I would NOT use an international fund as my first account. These tend to be more volatile and have higher expenses (I did not check the annual percent at Vanguard, but international or sector anything tends to have higher expenses). Look at other Vanguard selections - you can always shift dollars between funds later.

I concur on seeking local advice of professionals... and not just one! Your proposal raises many issues and there are potential arrangements regarding pension/profit sharing and other structures that might be beneficial. I sure hope all this thinking was not just because you read an article. I can tell if you already have this business up and running or are just speculating on the idea. The comments about if you are the CEO or not are a little confusing, I would imagine that would be pretty clear before you got started. Do you know anyone in the hedge fund industry? Have you current or prior experience in running a business? What has been your track record in the past five or ten years? I know a few folks in the hedge fund industry, and they all demonstrated their skills in managing a portfolio long before they got their hedge fund started. I ran essentially a private fund (under 30 participants) for a number of years using a Sub S format which was a lot easier than the registration route. It is difficult to just manage your own assets and make a convincing case to manage the money of others. I guess I am saying that your proposal is very complicated and challenging and that thinking about the IRA issue is probably a distraction. (my two cents)

You left out three key items: student loan %, car loan% and current income or spare cash flow. But.... Student loans - these are often very low percent rates and if in the low single digits, do NOT pay off early. Even if they are around 7-8% you should not get excited about paying them off early. All other debt is likely to be more expensive and the loans often are spread over 10 yrs. If you info is vastly different, post again. Car loans - car loans are normally scheduled to have accelerated interest payments up front, so paying off the loan early often means your average interest rate goes up. You did not mention how many months have past since you started this loan, or the interest rate. Generally, the only great way to buy a car is either with cash, or a bank/credit union loan with more attractive financing terms. If your car loan was arranged through the dealership, it is unlikely that there would be an advantage to prepay. But, again, the devil is in the details. Post again if yours are different. If you can only fund a retirement account up to the Roth limit, I would be inclined to go the Roth route. Opinions may differ on this, but I like the long term tax free treatment and the simplicity. You can potentially set more aside with other plans... and this is not just SEP/IRA. If you have substantial income (I assume that is less likely due to your age) you might want to see an accountant about a pension/profit sharing plan where you can shelter lots of money. Loan vs investing? I lean towards ROTH because of what I said above about your specific loans (again, I am guessing on the details) and because you can withdraw the funds short term if you have a problem. The biggest problem I see with your situation is that you have very little "contigency" money. If you have an accident, medical setback, downturn in employment, or start an expensive campaign for the heart of another.... you have very little in reserve. This is very common for someone your age, but you should also put building up your reserve as a priority. To some extent, you can use the ROTH for this purpose since you can always withdraw your contributions. If you post again - provide more info such as loan percent rates, duration of loans, marital status, how much spare cash you have to dedicate to investments, etc. I congratulate you on zero credit card debt - you want to keep it that way. Credit card balances are foolish and often reflect on a lack of knowledge or discipline. {PS: I am curious about your academic degree and current occupation. We don't get a lot of entreprenaurial people posting here.}

Roths are already a tax exempt format - so never, never, never invest in tax exempt funds. I would imagine that Vanguard would tell you this if you spoke to someone, but who knows if their automated internet systems would catch this. Can you open more than one IRA? I think you are asking can you have more than one mutual fund at Vanguard under you IRA - the answer to this is YES. However, you could also have IRAs or Roth at Fidelity or T Rowe as well. There are no IRS limitations, just practical ones related to how much paperwork you want to track and the extra annual fees you might incur. Choice? You are just getting started and are very young. For many years, you will only need a single mutual fund. I would choose a general purpose stock fund, one with zero or a very small bond/cash component. You don't need to hit a home run each month to get a very good long term result. You certainly do NOT want to keep switching your money around chasing last years hot performing fund. I would stick with a single general purpose fund until your total assets are greater than 20,000. At that time, you may want to consider having two funds. Bear in mind, there are some folks that have had essentially all of their retirement assets in just one fund for decades. Funds are by their nature a diversified investment. A general stock fund will hold anywhere from 20 to 800 stocks (even more if it is a total market index fund) that represent many different industries or sectors. You would like to see your stock fund (aka equity fund) grow on average about 10 percent a year, which means that your assets will double in slightly over 7 years. Starting age 22, putting 4k into a Roth for 43 years... wife does the same.... if you average a 10% return, you will have amassed nearly 5 million by the time you are age 65. Tax free!

Also, this limit applies to the combination of IRA and ROTHs. You CAN NOT have 4k in IRAs and another 4K in Roths. Note that the limits are expected to change in coming years. Congress has some proposals floating around that would restructure retirement options.... as usual. One example (but in my opinion highly unlikely) is to recraft retirement plans to allow 10,000 each year. Budget deficits and the declining vigor of this presidency would suggest that few dramatic changes are likely in the near term. It is also unlikely that any changes, additions or replacements would have an impact on existing IRAs and Roths.

You absolutely DO NOT need earned income to do a IRA to Roth conversion. Anyone that told you this does not know what they are talking about and you absolutely do not want to use them for tax advice. You might be prohibited on doing a conversion either because your income is too high, or because of your tax filing status, or the combination of those factors. Converting in a year with low or zero income is beneficial because you may be paying tax on the conversion amount.... and this could lower your rate. In a a few instances, you may be able to convert a small amount with no tax obligation. Conversion math is not terrible complicated, but I highly recommend that if you have not read cover to cover IRS Pub 590 and understand what you have read, then you should consult with a tax preparer or tax accountant familiar with conversions. If the dollar amount is significant, spend the money for advice in advance of a conversion so that you get it right.

Your Roth is "history" - it has nothing to do with your current ability to qualify for either a Roth or a regular IRA. Qualification for the regular IRA or Roth is a function of three things for the specific tax year: (1) presence of earned income, (2) filing status {married filing separately for example} and (3) total adjusted gross income {because of phase outs and restrictions on some high income households}.

Wow, this sure has gotten to be messy and I am not sure I have followed all the money flows. Just remember that your custodian(s) may be issuing reports to the IRS that might not jive with your view of the transactions. You really should talk to your custodian(s) about this problem and get a firm understanding of what will be reported. Frankly, the IRS is not going to get very excited about the amount of money, tax or penalties involved in your case. BUT, those small messages sent by the custodian(s) to the IRS might trigger an IRS data request or audit. I look on your circumstances as one of the reasons for keeping your IRA/Roth assets with one custodian. Best wishes with your investments. There are not many folks still immersed in academic studies that have already jump started their long term Roth investing.

I think I would call a custodian charge a "fee" to avoid confusion with IRS penalties on some withdrawals. Direct custodian to custodian transfers are a better or safer option that withdrawing the funds and then rolling them over to a new (or other existing) account. Safer because you are not touching the funds and can not fail the 60 day rollover window. You also do not have an annual limit imposed on your transaction and you have your new custodian doing the admin work. Here is how you do this. You go to the receiving custodian with the last statement from the "source" Roth or IRA (the one you want to transfer). The custodian usually has a relatively simple one page form to fill out with name, addresses, account number, etc. The custodian then makes a copy of your statement and attaches it to your transfer application and sends it to their IRA backroom. They handle all the details. Fees charged by custodians..... Yes, custodians can and often will charge some kind of fee when you close out your IRA. Not just from early termination of a CD contract. Even if you are sitting on cash or a mutual fund that the new custodian will accept/support, they may charge to a termination fee. BUT, the good news is that many of the custodians to accept the transfer will give you a credit that may offset part or all of this expense. For example, in 2005 I combined three smaller accounts into one Schwab account and they credited me for the two "termination fees". Not all custodians do this, and you often have to ask or show a statement with the actual termination charge. One final note: Be sure to note clearly if you want all your positions moved or liquidated before being moved. Some IRA/Roth custodians will liquidate your positions (and charge those wonderful commissions) if your wishes are not completely clear.

Good points TXDD - Another reason you may want to file is because you are owed a refund or qualify for a low income subsidy.

It is my understanding that your Roth participation is not effected by your not filing. I would recommend that you keep records of your "earned income" to answer any questions that may pop up in later years. The Roth contributions are not listed on your tax forms. For example, there are a lot of teenagers with Roth accounts that do not need to file a tax return.

PLease clarify - you said two IRAs but then talked about three balance amounts. Also, are all of these related to 2005, 2004 or some combination of years. The very first thing you should do if you have overfunded and IRA is stop any additional monthly contributions. That only makes the problem more complicated and may mean you have to do more than one adjustment. Assuming that all of the these funds refer to just the current year.... your best chance to correct the problem is to contact the IRA office (not just any clerk, but the specialists in the back room that handle IRAs) at each custodian and explain the problem. You will need to not only withdraw the extra contributions but also the earnings on those contributions (the second part makes it much more complicated). Remember that in early January, you can redeposit some of the funds that you must remove now.

This message board has seen a recent surge of posts that seem to be a combination of promotional statements and some esoteric questions about commodity/futures/trading issues in Roths. As one of the moderators of this message board, I have chosen to delete all of these message threads because: (1) narrow appeal of these topics, (2) misinformation and misleading information, (3) highly exagerated claims of performance, and (4) the "promotional" nature of some of the posts. We don't want this message board to devolve into its Yahoo equivilents. Folks are welcome to post questions and exchange information. We ask that those offering information and advice be restricted to people with significant experience, personal case studies, technical knowledge, or professional training in law/accounting. Moderators have censuring powers. They are rarely used. Some of the reasons a post may be deleted or a message thread closed include: inappropriate language, psuedo expertise, self promotion, soliciting business or advertising, inaccurate information, spamming, etc. An author that persists in posting inappropriate material may be blocked from participating. This site is generally self policing. All readers are urged to consider the limitations in confirming material annonymously posted on the internet. This site is not exempt from these problems. All of the hours spent by professionals posting responses is volunteer time. The comments on tax code, retirement plans and investment options that are found here should not be your only source of information. Think of these threads as a starting point in your research process. Many of the transactions (like rolling over a company plan, IRA conversion, distribution decisions and inheritance planning may involve thousands of dollars. Making a mistake or missing a deadline can have huge consequences. Buying a few hours of professional assistance from a tax preparer or tax lawyer is highly recommended by everyone here.

It is my impression that banks cater to older, more risk adverse types of folks and therefore slant their products towards interest/dividend types of earnings. There is however a lot of overlap. Think of this as a slight bias. You will find a wide range of investment styles in each catagory: bank, brokerage, mutual fund. All of the big names (Vanguard, Schwab, Fidelity, T Rowe, Janus, etc.) have been around a long time. Mutual funds are a regulated industry. Bad behavior with mutual funds, companies and banks is relatively rare. Yes, you still get an Enron or Worldcom once in a while.... but it is rare. All of these are generalizations. You can not know in advance what choice will perform best. Some years its stodgy bonds, or value funds, or international corporations. Remember you are investing for a very long time.... way beyond your normal planning horizon. Think decades. Don't sweat the first choice - you will learn a lot by watching the process. When my niece got started in the 90s, she had a string of 20% or better years. She thought I was nuts to say that getting 10% a year over the long term would be just fine. Ten years later, she has learned a lot. Her assets have climbed and falled a few times. BUT, she now sits on about 50k in a Roth and absolutely none of her closest friends have anything near that. She started in her 20s. You have her beat by 7 years. Good luck with your investments.

The older checks have probably expired and are not likely to be honored by either the bank or the custodian. Call the custodian and explain the problem, ask for their advice. The more recent checks are probably still OK. They may reissue the older checks or suggest that you deposit them anyway if they can clear the reject setting on their end. I am sure that this problem has come up before. Be sure to ask for the IRA/Roth department - do not rely upon the answers from the general staff. Yes, you do potentially have a problem, I leave it to others to clarify the "constructive receipt" issue that must be established by prior precedents. I suspect that a letter of explaination attached to the appropriate tax return will be sufficient. You could ask for any penalty to be waived because of the medical circumstances. NOTE TO OTHER READERS : This is one good reason to use automatic deposit for these kinds of distributions. The process would have continued even if the person was hospitalized.

You can withdraw contributions at any time without penalty. No recommended as it defeats the purpose of a tax shelter, but the penalty free withdrawal is an option. Roth conversion rules could easily change in future years.... you can't count of the rules remaining unchanged more than one year at a time. More than five years down the road and you probably have less than a 50% chance that the same rules are in place. Why so difficult? Because Congress is essentially acts like a committee with 400+ participants. There are very few economists or business people in Congress. There is a huge number of lobbiest and special interest groups in Washington that thrive on making things more complex, and no opposing Jimmy Stewart character willing to stand up and insist on simplicity. {I know you already knew this}

A "Roth" is a general term used to describe a custodian account that your set up in your name. The "Roth" was created by legislation written by the former Senator Roth of Delaware. The primary choices for custodians include banks, mutual funds, and brokerages. That means you have thousands of potential custodians. Yes, they vary in terms of the minimum opening balance, types of services, internet access, types of investments offered, and annual fees. Fees range from zero to over $100. Frankly, I prefer zero, but I actually have some IRAs that have higher fees because of the services the firm offers. Your Roth contributions are limited to your earned income (assuming that you are not married and your spouse has income), which could include baby sitting, lawn mowing, etc. if you claimed this income. You are just a few months away from 2006 which may give you additional chances to contribute based upon 2006 income. Are there different kinds of Roths? No and yes. Generally, a custodian is a custodian, with minor variations in fees and services. The biggest differences come in terms of the types of investments allowed. Banks often have limited choices and focus on reduced risk options (in other words, low annual return investments for folks fearful of investing), while a mutual fund will often only offer some of the funds in their family. You might want to consider the lower cost internet options. For example, some firms offer zero fee custodial Roth accounts if you elect to use the email notification for statements and confirmations. Etrade (an internet brokerage) is one of these firms... but you can probably find many via a Google search. Vanguard (home of many low expense index funds) has low annual fees. No recommendations of these firms, there are many choices of custodian.

Your eligibility to contribute is determined based upon your tax filing status and income at the end of the year - which means you would be in "married" catagories. The benefit of starting earlier is slight - you get a few more months of tax sheltered growth. IRAs/Roths are individual accounts. The assets are tied to the person. There is no such thing as a joint IRA or Roth. After you are married, the income of one spouse can make both eligible to contribute... even if the spouse is not working. Reminder: You should consider changing your beneficiary designation after you get married. Congratulations on being able at the age of 23 to recognize the need to save/invest and for finding one of the great tax shelters - the Roth IRA.

If you have earned income, you can qualify for regular or Roth IRAs. You can open and contribute to both in the same year but the maximum contribution is based upon the combinations.... ie. you can not do 4k x two! For perhaps 90% of the population, the Roth is superior to a regular IRA, but that depends heavily upon current tax rates, tax rates in your retirement years (which depends both on tax rates and the types of other retirement funds you will be drawing upon), and other factors. A Roth account is distinct from a rollover IRA. However, if you decide on using a regular IRA you can add it to your rollover account or keep it separate.

S corp basis has no impact on the qualifications. Your W2, LTCG and interest put you above the threshold of 100k. Only if your flow through negative from your Sub S pulls you below 100k would you then qualify.... and it is not clear from what you wrote that you would report -150 from the sub S. I highly agree that you seek advice from your accountant or tax advisor. You posed the question about eligibility of a Roth conversion - but you also need a second opinion on the advisability of conversion which gets into (current and future) tax rates, income, estate planning and other issues.

The State Farm agent may have thought you were married filing separately. Sadly, the ROTH/IRA rules are way more complicated than they need to be and this leads to misunderstandings. Congress could have made all Roths "Universal" with no income limitations.... but, as with most tax code, lots of complications crept in. It looks to me like you both qualify for Roths based upon what you have disclosed - both for 2005 and 2006. All IRAs are individual accounts.... that is what the "I" stands for. There is not such thing as a "joint" IRA.

Mbozek, I think he is talking about funding Roth IRAs for his parents. If so, the parents would not be paying taxes on contributions.... in fact no one actually pays taxes on contributions, but all Roths are funded with after tax dollars. Semantics perhaps, but a distinction in this example. It seems as it the son/daughter want to do this, so it is their after tax dollars. Perhaps they expect to eventually inherit the Roths when the parents die. Hopefully we will get another post explaining why they are considering this approach.

Your parents can always withdraw contributions (not earnings) with no tax consequence. I am not sure why they would want to withdraw anything so quickly - it hardly leaves time for the funds to grow. Why go through the paperwork and the annual fees if they are planning to draw down the funds immediately? You can always make a gift to either or both parents if you want to provide them funds. Remember, it is your parents that must meet the income/tax filing status criteria for the Roths. They can only fund a Roth(s) if they have earned income.

I can't answer your question. But your post is just another indication of the problems that can come from owning real estate in an IRA. We usually talk about the prohibitions and downsides..... it is interesting to see that "success" can also trigger problems. Real Estate questions have come up before at this website - primarily "I want to start doing real estate in my IRA" type. (which for most people is not a good idea) We have very few people who post at this website that have indebth knowledge about real estate transactions in IRAs. You may need to look elsewhere for input on your situation.

The answer to your question is NO. You can't qualify for a contributory Roth based upon prior year earnings, only current year earnings count. [Revised comment: Your contribution is made for a specific calendar year based upon the earnings in that calendar year. The only time you can make a contribution outside of the calendar year of your earnings is in the first few months in the following year while the IRA window for the year before is still open] You may be able to convert your IRA accounts to a Roth. Conversion is not always desireable, it often takes a modest spreadsheet to do the math and you need to make a lot of assumptions about future tax rates, lifetimes, etc. Also, there are income thresholds (based upon your filing status) for conversions and taxes immediately due on the converted amount.