John G

Its pretty easy to Google or check a few websites. What you will find is that some custodians recognize that Roths are long running accounts that are highly desireable. Many will drop the annual fee if you just ask them. Others will eliminate the fee if you regularly contribute every month. Opting for electronic monthly statements saves processing and postage costs and is often a key to getting no annual fee. Finally, bigger balances or using a family based balance can also give you leverage to drop the annual fee. The costs of managing online accounts is low and going down. Companies that are forward thinking often give up that annoying fee to secure new business. And...if you are switching and IRA from one custodian to another, some brokerages will repay you for any account closure fees. For example, I recently got $300 from Schwab when we moved some accounts and got dinged by the older custodian for an exit fee. Mainly I have been talking about the big major internet using brokerages like ScottTrade, Etrade, Fidelity, Schwab, etc. You will also find much the same policies at the well run mutual fund families. Banks seem to be going the other way - fee happy to boost earnings after all of the housing meltdown. Its harder to get a bank to waive fees these past two years. For example, a standby signature line of credit that used to be completely free moved to $80 a year. I told the bank I would cancel the account if they insisted on charging...and that's what I ultimately did. Getting a late payment waived by a bank used to be a relatively easy thing to do...not many first line bank clerks have the authority to do this anymore. Do the capitalist thing - price compare and take your Roth business to one of the many shops that will not charge you a fee. Roth fees are not the primary criteria for selecting a custodian - convenience, breadth of services, quality of website, available research are other things to consider....but when there are so many custodians that won't charge an annual fee, why not pick from among them. You can't search on key words like "waiver", "annual fee" or "free" and find many other threads on this topic.

On earned income: paychecks work, also income claimed on 1040. If you own a small business, you can find something for your kids to do to help out - cleaning up, filing, copying, deliveries, etc. and issue them a W2. Lots of teenagers have income from newspaper routes, babysitting, lawnmowing, yard work, etc. Some of these are poorly documented, but they generally may count towards earned income. What is NOT earned income: interest, dividends, gifts, and allowances (putting aside that most kids do something to earn an allowance). Oddball things that could become earned income: a toddler getting an appearance fee in a commercial (sort of a modeling fee), kids working in a family business (likely to produce a W2), internet services (my daughter dated a kid who was making over $300 a month by selling "clicks" to gamer websites), street musician, etc. There is a 17 year old guy in my neighborhood that is getting paid by banks for cleaning up foreclosed properties! When I was 10 I ran a circus in my backyard and every kid paid fifteen cents to watch pet tricks and get a glass of Koolaide...lets not turn the world over to guys in white shirts who are not terribly inventive. There are thousands of ways to make money if a person is inspired. The planet would be pretty boring if some humans did not have a gift for inventing products and services.

I have never heard of the IRS auditing a kid with $800 in earnings. Now there is a real return on invested manpower. Do ya think the IRS wants to be in the headlines for taking a kid to court? That's right up with some town in Georgia (did I get the state right?) recently going after two girls running a lemonade stand for not having a permit. Common sense gone wild? And that made a couple of national news stories just last week - along the lines of what is more American than kids running a lemonade stand and showing a little entreprenurial spirit. Bridge clubs hire kids to caddy at tournaments. Junior Achievement hires kids for one day "environmental" duties - aka trash clean up. The list of small amount, short duration "stipends" that are used in our society is huge. Technically all of these kinds of arrangements are probably against the law. But I don't think many people want to waste time chasing 6.25% of $50. Rant off... Practical considerations of a kid IRA. You coul get started by bridging two years if your kids earnings are low. For example, lets say the kid earns $500 this year and might earn $1500 in 2012. On January 2 of next year, you can open a ROTH IRA and fund it for $2,000 - $500 for the prior year, $1500 for the coming year "on spec". There is no rule that says the earnings must be booked before the contribution. Small initial amount threshold: Some custodians want to see $2000 or more as the initial contribution. However, that is often waived if you set up a monthly contribution plan drawing upon a savings or checking account. Fees may be waived if you just ask, especially if you have significant accounts with the custodian. If a custodian puts up walls, first ask for the number of the backroom IRA/ROTH dept. which tends to know a lot more about special rules. If you don't find success, then try another vendor. I've done this about 7 times. Its not hard. Often the relative is not even living in my home state. In the internet era, there is a way to get almost anything done by Google, email, wire transfers, etc.

Yes, there is NO age limit on a Roth. Absolutely a child can have one if they meet the general conditions of earned income. The kid does NOT have to fund the Roth, anyone can. Search on the word "child" and you will find many entries on this message board on this topic. Note: not every custodian supports kids Roths. Etrade did not used to do so, but Schwab always has. I have done starter Roths for five relatives and my own two kids so far. One of the big benefits is that the student gets an early peak into the world of investing. The educational value of a small starter investment may vastly exceed the value of subsequent wealth. I have 4 out of seven actively tracking their starter portfolio and asking very good questions. The other three got started just in the past year and it remains to be seen how engaged they become. Kids are often fascinated with different ways of making money. When I open a Roth for a child it is ussually for someone in the 14-20 range. At some point, I give them a subscription to Kiplinger Financial which also covers education, credit cards / debt, owning a house and other things relevant to someone under the age of 30.

Forget the personal question, I would like to know how $2 million when split in half became 1.1 + 1.1 = 2.2 million in three months! That is an annualized 46% rate of return. Spouse might wish to reconsider the divorce and maximize future net worth by letting the investment compound! Just another way of looking at the facts.

Only issue? I can think of two others: (1) the person may not qualify for a Roth conversion in subsequent years, and (2) Congress could change the rules and make subsequent conversions problematic. The average Joe problably does not have a problem with the first point. Changes in the rules are common but the probability of a conversion rule change is pretty low. Reminder: often a partial conversion works out well. If you have a substantial IRA, converting something like 1/2 gives you a lot more flexibility and perhaps more that 1/2 of the benefits of a full conversion.

Three cheers for this website! Ok, maybe mild applause.... The story seems bogus to me. Absolutely an IRA or Roth is just an accounting bucket which after receiving funds, can buy and sell investments. It makes no sense to me that someone would take the partial sale of an asset and purchase of new assets as if the person is creating new IRA/Roths. You don't need new buckets...one will generally do just fine. And what is TRP anyway? Benefits Link is a great site to post questions about IRAs and Roths...those other sites...no so much.

My folks drafted trusts, wills, POA and health POAs back in 1999 after many years of urging by me. A couple of interesting things: 1. local law may put a sunset date on these documents - I remember that Florida has a 7 year life attached to one 2. sometimes state laws change and updating the documents to reflect new rules may make them a little more bullet proof 3. my folks picked an attorney many years younger than them - well, she retired 5 years ago so we are now dealing with the fellow who bought the practice. 4. while my mom has the "original", the attorney office kept what they refer to as an "original" with signatures in their files. Everyone else got a simple copy. My experience suggests that the half life on these kinds of documents is perhaps 5 years. The number of grandchildren increased, we had one marriage and the relative financial circumstances of family members changed a lot.

You may be best served if you can continue to hold the options if they are not expiring. Second option, there are companies that will arrange for a fee (something akin to margin plus some transaction costs) to buy the stock and sell it. This approach works if the options are expiring and the underlying value is significantly above the strike price of the option. I have not had any dealings with these firms...your brokerage may be able to give you a reference based upon their experience with these firms.

We are about to hit the IRA season...April is just a couple of days away. Feel free to post your questions. We have accountants, lawyers, and lots of folks who have probably dealt with your issue before. BUT.....don't forget there is also a search engine (tucked away in the upper right corner) that can be used to mine for prior posts on topics. I know you can find a lot under these keywords. Mutual fund No Load Real Estate Inherited Options Fees Beginner Started (as in just getting) Stocks Conversion Rollover Custodian RMD (required minimum distribution) Besides posting a new question, you may want to tag a second question to an existing thread.

Bobo... I am not arguing for low yielding "safe" investments. One of the problem with ultra safe investments is that they rarely appreciate above the rate of inflation. So what seems to be safe on any given day, week or year may be a bad idea over the long haul. Beginning investors often want to know "what's best". No one can tell you that. Things like the tsunami in Japan, Bernie Madoff, the deep oil blowout in the gulf, and the foolishness of Leyman spring up without warning. Last years great success can turn and become the worse investment. Someone who is starting in their 20s should be thinking long term. I would highly recommend that they be 100% invested in a general purpose mutual fund. Each year, make the best contribution they can make. After 5-10 years they will have a very nice accumulation. Then, they may want to choose a second mutual fund. For example, if they chose a domestic general purpose mutual fund they might want to add an international. Or, if they are mostly large cap, pick up a small cap fund. - - - - My prior post may have sounded more conservative because of a recent experience with a couple in their 50s. They wanted to take their company plan and roll it over into an IRA to buy gold or gold stocks. This disease is called chasing last years winner, or reacting to dire predictions of the demise of western civilization. Its pretty amazing that folks would think of something like this when they also say "we don't know anything about investing".

The term "aggressive" is very vague when it comes to investing. I generally think of aggressive as a continum that is very personal...what is aggressive to one person might be considered "normal" to another. Age, risk tolerance and experience all factor into to how we perceive a specific investment choice. From an economic perspective, the safer an investment the lower the likely return. For example, some of the lowest returns are associated with government bonds. Ditto federally insured CDs at a bank. The market is composed of thousands of individuals, and those that seek high level of safety will tolerate meager returns. Investors in the stock market should know that individual stocks can go up and down, but expect that over the long term their "equity" (aka stock) investments will perform better than basic IOUs because part of your stock investment is in the long term future of capitalism. They expect life to be better twenty years from now. We can go out further on the continuam or risk/reward and look at international stocks (Libyan refineries to Indian railroads!), stock options (about 80% of all calls expire worthless!) and commodities (pork bellies!). Some folks confuse investing with gambling. In investing, you try to make intelligent choices that over a long period of time should grow your capital. I know a lot of investors that would be very happy to consistently achieve 8 or 10% a year on their capital. Folks that think investing is picking long shots in the hopes of making 10x or 30x on their investment... the phrase "a fool and his money are soon parted" come to mind. If you want to gamble, play the lottery or go to Vegas. Note the difference. Gambling results are nearly instantenous. Rewards are multiple times the amount risked. But the most common result is a 100% loss.

Equity Trust and the prior author are somewhat misleading about "self directed". ET is basically a specialty house that is willing to cover some attypical investments like real estate. Virtually all IRA/Roths are by their nature self directing. While you can hire someone to babysit your assets, the major brokerages (Schwab, Fidelity, Ameritrade, TD Waterhouse, Scottrade, etc) and the major mutual fund families allow self directed accounts. Very few custodians however will support real estate and other unussual investments...probably because it is not as profitable as dealing with the 99% of the public that buys funds, stocks and bonds. Real estate transactions with an IRA and Roth have many potential pitfalls associated with them. If you foul up your account the IRA "nuke" response could be to void the tax exempt status of your account. I doubt that anyone with less than 1/2 million in IRA/Roth assets should spend even 1 minute thinking about this option. Equity Trust charges $50 to set up their IRA/Roth and $1,500 PER YEAR if your assets are 1/2 million. Bear in mind that you would be a complete fool not to also spend consulting time from a tax accountant and tax attorney to avoid the potential pitfalls. Also expect a very big commitment of your own time for decisions, monitoring and tracking. In other words, there is a huge overhead associated with investing in offbeat investments. If you are part of the 99% of the population that has enough trouble pondering your stock/bond/fund investment choices, then don't even think about real estate choices. If you believe that the real estate "grass" on the other side of the fence is greener, then I want to talk to you about buying some prime land in southern Florida.

Congratulations on getting started. You are wise to begin now for two reasons: (1) learning how to manage money and invest is a lifelong task, even when you think you know about your choices...new stuff is being invented and circumstances change, and (2) time is your friend...start early and your assets will grow larger. Process: 1. The first thing you must do is pick a custodian. There are thousands of choices. Schwab, Fidelity, Etrade, Scottrade, TDWaterhouse, etc. are examples of brokerages. T Rowe Price and Vanguard are examples of mutual fund families. About 90% of what a custodian delivers is common across companies. There are slight differences in fees, types of available investments, research tools, etc. that might make a difference down the road or for folks with more digits in their assets. I suggest that newbies pick either a brokerage or mutual fund family with low or zero annual fees. Later, if your needs change you can transfer your assets between custodians. 2. Most folks are best served by choosing mutual funds as their initial investment. When you buy a fund, you are buying a portfolio of many individual investments and that gives you some diversification. Diversification helps you avoid a disaster like buying ENRON and watching to company self destruct. In your first few years, just a single broadly based mutual fund will suffice. You are only 20 and have a life to lead. You do not have enough experience to be picking individual stocks. Because many broad based funds overlap in the stocks they hold, you don't get a lot more diversification by owning multiple funds. 3. Mutual funds: I would first look to NO LOAD funds - the ones that don't charge up front or on the back end a commission. NO LOADs are almost 1/2 of all mutual funds. Decades ago, "advisors" used to assist households in buying LOADED funds...mostly they got to pocket the 5-7% commissions. 4. Advice: Sure, go ahead and talk with Schwab. Read their materials. Go on line and use some of their screening tools - like the Morningstar star ratings mentioned above. Better yet, spend $15 for a years subscription to Kiplinger Financial magazine. They cover credit, car buying, first homes, IRA/Roths, investing....lots of stuff in layman's language that will help you over the next 10 years. While you are investing your $$, don't forget to invest your time. Devote 1 or 2 hours a month to reading Kiplinger or equivilent magazines and your will be miles ahead of your friends at the age of 30. Don't get overly worried about your near term "performance", that is the annual results you will achieve. Roughly 8 out of 10 years will show stock market increases vs. two down years. If you fund your IRA/Roth for 5 years, your will start to build a nice nest egg. Think of 5 years out as a good time to review your holdings and maybe split your assets among two or three mutual funds....mostly as part of your learning experience. Post again if you have other Qs.

Since we have many general pupose readers on this website, let me expand on this comment. Roths and IRAs are a legal structure that the US government has enabled that offers tax sheltered investing. There is no specific management or supervisory administration that is required. All Roths and IRAs are individual accounts - that's why there is an "I" in IRA. When an individual opens an IRA, they choose a custodian. Some individuals have multiple Roths and IRAs and may have many custodians. Each custodian is responsible for "holding" the assets and minor government reporting. Each custodian may set rules governing allowed investments, rules that may be more restrictive than what the government mandates. There are very few government restrictions on how Roth or IRA funds can be invested. The assets can stay as cash, for example. Individuals have a wide range of choices over who will be making investment decisions. Some folks deligate investment decisions to an advisor. Others elect a "target" type IRA, they may deligate asset allocation decisions to a formula, and within the current year to a fixed list of mutual funds. Alternatively, a taxpayer may elect to make all of the asset allocation decisions and individual investments on their own, which could mean buying/selling bonds, mutual funds, stocks and ETFs. The TD Waterhouse, Schwabs, Fidelity and Vanguard type custodians tend promote a common denominator type Roth/IRA that meets the needs of most households. For zero or a minimum annual charge, they will let a tax payer "self direct" their account within a range of investments. The list of allowed investments will generally include money market, mutual funds, ETFs, bonds, stocks and perhaps some limited options/commodities such as stock covered calls. These custodians don't want to spend any time on evaluating if an investment is suitable or allowed by IRS rules. There are both reputable and, well, less reputable custodians that will allow other types of investments: loans, real estate, partnerships, etc. Anyone going this route is well advised to have a knowledgeable accountant and tax lawyer. There are huge issues of self-dealing and prohibited transactions. All of these types of accounts have much higher annual fees. I would argue that for 99.9% of the folks who read this message board that you don't need these types of accounts to reach your long term goals. There are literally thousands of stocks, thousands of mutuals funds, thousands of bonds, and perhaps even a thousand ETFs. Surely there are hundreds of great investments vehicles. When folks start to look at loans, real estate and other non-traditional IRA investments, my first Q is why? Special "deals" or arrangements are often either illegal or as my daughter my say "shaddy". I would also raise basic questions of risk, liquidity and annual overhead expenses.

Good addition Appleby.... I don't think many folks are aware of the 120 day window for these circumstances.

I am not an expert in this area, but isn't there the option of transferring your assets to a bank or brokerage that has operations both in the US and UK? Second point, assets in your regular IRA will pass to beneficiaries upon your death. You should make sure that your beneficiary designations are current, reflecting your wishes. If you are mainly concerned about administrative control, in the modern internet era, you can make transactions from a laptop or smartphone virtually anywhere in the world. {My wife and I were doing electronic bill payments from a bar in the "white towns" of Spain over 10 years ago.} Because of your age, you can certainly withdraw the funds. However, this may open up major tax issues...and I have no experience to address these. Perhaps one of our accountants will post on foreign points you raise.

Leaving the form blank does not indicate a concious decision. The woman should have explicitly specified "the estate" or some other family member. How can you expect Wachovia to comply with some undeclarer disinheritance? Banks, brokerages, credit card companies and insurance firms send out updates of agreements virtually every year in part because of changing government regulations. I don't know any normal person that keeps all of these contract changes. I completely agree with the statement made earlier about "privacy notices". Its a big wast of time, money, trees, etc. I wonder what percent of the USPS revenue comes from postage on these mailings? I also agree that these statements are not bi-party negotiations, but one sided statements of procedure. The banks, brokerages, etc. are doing this to comply with the law....AND FOR THEIR CONVENIENCE and EFFICIENCY OF OPERATIONS. You probably see those as harsh words, but I think its pretty close to the truth. I think you have unrealistic expectations of the custodian to understand the nuances of the deceased's family ties. If a family has these kinds of issues (and sadyly, many do) they should be extra careful about their fiancial paperwork. Where was the lawyer who drafted the will? The whole issue of beneficiaries should have been reviewed by the lawyer drafting the will.

You can always withdraw the cash contributions without any issues. You don't need to prove anything, but do keep good records such as the end of year summary for each year of the Roth which will show contributions made for that year. If the value of the Roth is less than what you contributed, you have a second question about if you can write off a loss. It was not clear to me that you meant the the total value of the account was less than the total contributions. Taking a loss involves complicated math based upon ALL of your IRA/Roth accounts. You can't just cherry pick on account that went down. Post again if you want info on the tax loss issue.

I do like a well organized chart! Perhaps Yes should be replaced by "allowed". Also, what are the options for "non person" - are you thinking estate? I did not check each box, just looked at it conceptually.

ALERT and WARNING Every IRA and Roth account should have designated beneficiaries. Do you really want a bank or brokerage account clerk making policy on the spot? Also...when you change/move account check the benny designations. If the custodian changes computer systems, clearing house, accounting firm, moves or merges....CHECK AGAIN. I would recommend this as an annual activity when you are doing the taxes and have the paperwork out. One reason for designating secondary benny's is that the primary (example your spouse) can decline to accept all (or part) of the assets, allowing some of the funds to flow to secondary benny's (children). That gives your spouse a quick "toggle" as essential a tax / estate planning tool.

I don't know how you got the idea to do this, but starting early and building up a Roth account is a great idea. Roths are a wonderful tax shelter - if you are successful in life, you will eventually benefit from having some assets in a tax shelter...plus the extra Roth flexibility of rules governing dispersements. You are a small time investor at this point. When you assets are huge (lets say 6+ digits) you could find someone who might manage your account for a fee. You don't learn much, and if you pick someone named Burnee Madeoff (spelling?) you may never see your money again. I'm a big fan in folks taking charge of their own investing. Since $200 per month will take some time to grow, I would suggest choosing a internet brokerage (Schwab, Etrade, Scottrade, etc. there are many) or a mutual fund "family" (Janus, T Rowe, Vanguard...again hundreds of choices). Why? because you need to initially find just one general purpose fund that will accumulate your contributions for 3-5 years. When you assets get beyond 20K (perhaps even 10K), you might want to consider choosing a second fund. For example, you might choose a broadly based market fund initially, then a international fund later on. I say gernal purpose fund (as opposed to narrowly defined industry fund like "Health" or "Tech", or a country specific fund like India or China - because these are broadly diversified. YOu give up the chance to hitting a home run by picking a hot area, but instead will more likely get something more like avg performance. In investing, average is not horrible. You can amass a huge fortune by starting early and getting a consistent good return. Trying to find the next Netflix (or ten years ago Cisco or Dell) is not only hard, you also need to figure out when to pocket your gain and sell. Time is your friend. Good investing is not at all like river boat gambling. You diversify to spread your risk. I recommend choosing a mutual fund because you get diversification and there is less time commitment on your part...sure you can watch it, but it will be like watching paint dry most of the time. If you have the urge to take long shots - try a lottory ticket. When your assets grow to perhaps 50K, you might split off 5K to experiment with your best ideas. Example, you think a Brazil fund might do very well. You don't bet the farm on these kinds of investments. 5-10% is the max I would recommend and I would not even think of this until you learn the ropes. A very good short term investment would be to subscribe to a monthly magazine. I recommend Kiplingers Financial for people in their 20s. It covers investing, buying a home, career development, credit, travel, mut funds, etc. I think the annual rate is about $16. You will learn a lot in the next ten years. I'm turning 60 and I learn new things about investing every week.

A good test is to run any scenario with your marginal tax rate going up or down 5 percentage points. For example, this might give you a sense for how adding or dropping a state income tax effects your conclusions. Back to the issue of predictions. Rewind your own personal "history tape", say five years ago. How much that has happened in your life since then did you honestly predict? The last 2 years of the stock market. The BP disaster?....now thing about stuff closer to your family. Members losing jobs? Forced early retirement? Kids moving back home to save money? Your health? There is something akin to a "half life" when it comes to predicting significant events. It seems to me that you are very lucky if you get 1/2 of the big things right over a five year period. Extend the half life concept to 10 years and you probably missed 75% of the big events.

Conversion calculators were all the rage when Roths were first created. Many were terrible. Part of the problem is framing the question. For example, few address the issue of state income tax treatment - both now and in retirement years. For example, if you convert in most states right now, you face state income taxes. However, if you wait until you move to FL, WY, TX or one of the other no income tax states, you don't pay a state tax. So the question of where are your currently living and where might you live down the road can be significant. The second issue with all calculators is that few are set up to run multiple scenarios about assumptions. I have advised folks about conversions and frankly the assumptions about future tax rates and future income levels are very important. A calculator doesn't tell you what rate to pick, and most calculators don't automatically give you a sequence of answers based upon higher and lower incomes, or high and lower tax rates. Lets be a little honest about human limitations on predictions. Most of us have trouble seeing five years out...much less 10, 20 or 30 years out. Take a minute and think about this. What significant events happened to you or your household in the past 5 years, and the past 10 years. Sickness, divorce, car accidents, promotions/layoffs, relocations, etc. Example, my wife went back for her PhD 7 years ago and is now a professor - I never expected that, I thought we would be traveling in China and New Zealand. Long post....my point is that even with the finest, most accurate calculator, the "answer" may be way off. Don't fall for the false precision of a lot of numbers. There are a few folks who converted to a Roth...and now are eating up their reserves because their job disappeared. Taxes paid years ago are long gone....and if you have no current income, well let's just say your tax rate scenario has changed. All this from a guy who is a great believer of Roths and understands Roth conversions can be a great tool. Calculators have a certain seduction to them. Even the best calculator doesn't tell you if your scenario is reasonable.

A word of caution about 529 plans. You need to look behind the curtains and determine who is managing the plan, how the funds are invested, and the "house take" - the expenses and fees. You are locking into a system where you have little control. Ask lots of questions. In my experience, making investment decisions based upon up front tax savings is often a bad idea. Over a long period of time, performance dwarfs tax savings. You may want to google "criticism of 529 plans" and look for potential negatives. Much like the "Retire 2040" type financial instruments, the 529 plans have a gimic component ~ AKA a "marketing" component. Financial institutions love to create new mechanisms for making a buck. There is nothing wrong with that, but look past the glitter. Consider today's headlines. GS created CBO instruments, using a hedge fund exec to select paper for the portfolio. After the package was sold to investors, the hedge fund exec SHORTED the package. In laymens language: Guy 1 put junk into a basket, GS sold it to others (without accurate disclosure), and Guy 1 than bet heavily that the basket was worth less than the price GS set. Does anyone see a conflict of interest here? Be skeptical about new financial packages. Bogel did a great job at Vanguard to invent low cost index funds. He decided he could make money over the long haul by offering a more efficient investment. Sadly, there are too many folks who are primarily focused on their short term greed.