John G

Good news. There is no minimum age limit. You must have earned income - like wages, payments for modeling, mowing lawns, newspaper route, etc. Some parents in Colorado had a two year old that appeared in some TV commercials and was paid.... 100% of those earnings went into a Roth. Note, you may have problems finding a custodian if you are under 18. Etrade says no, but Schwab says YES (they make it a custodial Roth). The under 18 is not a deal breaker - you just need to spend a little more time finding a custodian. One final note, ALL Roths or IRAs must be under your name - the "I" stands for individual. There is not such thing as a "joint" IRA account.

Also..... Custodian choice is not permenant. You can switch custodians - the best way is by filling out forms with the new custodian and they will directly notify the old custodian to arrange the transfer. Two potential sticking points: (1) many custodians now charge a termination fee - but some custodians are so eager for your $$$ that they will often refund that cost (Scwhab does this for example) (2) if you are invested in propietary mutual funds, you may not be able to port them to the new custodian.... or the new custodian may not allow you a zero cost transaction that was allowed at your first custodian HOW IS IT GOING ? Got questions now ?

Adding to the above: The initial decision you make is to choose a custodian - which includes bank, credit union, brokerage, mutual fund, etc. There are thousands.... you need one. Part of the decision is what is convenient for you. Another part is what fees does the custodian charge - which range from zero to up to $100 - zero or under $15 sounds a lot better to me. Finally, you need to also consider what investment options are available with that custodian. Second major choice in investment option. For most people, this should be no load mutual funds with a significant part of those broadly in stocks. You can search this message board for "just getting started" or "beginner" or other keywords and find this topic has gotten covered a lot. Sounds like you should also get some materials to read from Kiplinger Financial, Consumer Reports or your local library on investing and Roths. I highly recommend that you contact at least 3 (THREE !) different custodians such as a mutual fund company (Fidelity, Vanguard, TRowe Price, etc. use your internet search engine), discount broker (Etrade, Schwab, Scottrade, etc.), and perhaps the local bank. Ask them for a "beginner kit" - the better houses all have materials for the person just getting started. If they don't, try someone else. Roth accounts are highly prized and custodians are motivated to get your business. THEN ..... post again. I am sure you will have questions.

There are costs of doing business - and stock or mutual fund transactions have costs. BUT, these can range from significant to nearly zero. When you choose a full service broker, you theoretically get advice and perhaps access to some interesting investments, and you pay on the high end of the cost range for these features. Note, I said theortetically.... lots of folks pay and get little in return.... and maybe worse churning of their account to generate lots of commissions. If you are willing to read about investing and take some time using discount/internet brokers or no-load mutual funds, you can severely reduce your commission costs. A full service broker is not likely to steer you towards no load funds, they make their money selling mutual funds with commissions.

Two methods of real estate investing that you can do in a Roth is REIT stocks and real estate based mutual funds. There are some very limited circumstances when other kinds of real estate investments can be made but here is a quick list of the negatives: (1) you can "contaminate" your IRA and it can lose its tax shelter status, (2) higher custodial fees, (3) the difficulties of how to pay for the inevitable surprise expenses that come up {using IRA funds}, (4) loss of virtually all of the tax benefits of owning real estate, (5) higher demands on your time, and (6) most accountants and tax pros have little experience in this area and can make costly mistakes. Most of what gets posted at this site about real estate seems to be vague schemes that just won't work. If you do not have significant IRA assets, forget about real estate. Even if your assets are huge, why bother with real estate inside a tax shelter? There are plenty of great investments that are liquid and will give you reasonable results.

Lets establish some key points: 1. You can not tell by looking in the rear mirror where you are driving. You can't predict next years performance by using prior year performance. Those 3,5 and 10 year histories may reflect somewhat on fund mgmt..... BUT, chasing recent winners is a disasterous approach to investing. "Hot" investments cool off. Interest in various sectors changes. Even the "experts" are unreliable at predicting the next 12 months. 2. Low mgmt fees is important, all things being equal you should prefer a fund with lower fees. BUT, it is also true that some modest and high fee funds do just fine, they just have a bigger hurtle to overcome. Since index funds have low overhead.... choose a low fee fund when selecting an index fund. 3. There is nothing at all wrong with throwing all of your initial assets into one general fund. A few thousand in any fund is better than waiting until you "understand" investing. You can change your choices later. 4. Expect to have some negative results. Markets go up and down. So do mutual funds and individual stocks. Think long term and don't worry about short term changes. You will learn a lot over your lifetime by watching the results. Wellington, Vanguard 2035 and Vanguard's S&P Index 500 will work fine. All are broadly based stock funds. No one can tell you which will perform better over 1, 3 or 10 years. Conservative vs aggressive? The bigger issue is probably your personal risk tolerance. If a 20% decline creates a panic and you go to cash in a mattress, you should not invest that fund. BUT, if you understand that good years out number bad years and that funds that go down 20% are also the kind that can be up 45% in a single year.... perhaps "aggressive" will work for you. You can moderate overall performance by increasing the bond component (like the 2035 type life cycle funds) but that also means you are giving up some of the upside. Keep up with your readings. Money, Worth, and Kiplinger Financial are reasonable magazines to scan. Consumer Reports does a decent job covering general retirement investing in their March issue. Post again with your questions.

The 401 parts look like a good base.... when did you start these, or approximately where do you stand with these two accounts? What part of the approximately 100k you earn each year do you feel that you have available for investing? It looks like you would qualify for the 4+4 K current maximum on Roths. Please clarify if your question is "how does a Roth work" or "investment choices I need to make". Also, do you have some specific goals in mind? You did not say anything about children or college payments. I am going to assume that you do not have significant credit card or other high interest debt. Sorry for all the questions, but I will post again with some advice. It helps to have a little background before making recommendations.

The phrase that caught my eye was "wouldn't have to worry that much about". Frankly, there is no investment that you can buy today, put in a lock box and never think about it until you start pulling our the money. You might be able to be a passive investor using one specific fund - in this case the "life cycle" 2035 Vanguard version.... but I would suggest that you need to be more actively involved in your investment decisions. I wonder why you would want to give away 0.05% extra cost of a life cycle fund when you can just buy a Vanguard stock index fund. Here is what you currently get with 2035: four Vanguard funds (total stock 62%, bond 22%, European stocks 11% and Asian stocks 5%). The significant bond component will reduce your long term annual returns but give you some stability in weak years. Is that what you want, or do you want to be 100% in stocks at your age? Some life cycle funds include layer upon layer of expenses. Vanguard says that the expenses of 2035 is 0.22% annually but I could not tell if that was in addition to the individual funds. You should ask about that. Go ahead with any general purpose Vanguard fund for the moment - they generally have very low expenses. But, do start reading about mutual funds and investment choices. When you opt for a life cycle fund - the premise is that you leave all of the asset allocation issues to the fund mgmt. You need to understand that a life cycle fund will be a blend of investments, often a larger percent in bonds as you get older. But, is that the right mix for you? Index funds offer considerable diversification. If your 401k and Roth are both in general index funds, you will have better diversification then if they were both in growth funds.

A point of clarification: a spouse need not have any earned income if the partner has sufficient income to cover both Roths. Generally, I would suggest a Roth as the subsequent tax treatment is attractive, especially when you consider that you have no mandatory withdrawal schedule with a Roth. If you income continues to climb, in a few years you may no longer be able to contribute to a Roth. So, that's just one more reason to start now. If you own a business, you have other options for "retirement" investments... ask your CPA or tax advisor.

Rolling to a Roth triggers taxes. But he may have the option to roll to an IRA and then exit for college expenses. Barry, is there any downside to going the IRA to tuition option?

You can buy and sell every minute of every day.... or buy and hold... or go mutual funds or cash. Choice is yours. Of course, you can adjust your investments... switching from stocks to bonds to cash. There are no tax consequences and no reporting requirements. I highly urge you to spend a few hours each month learning more about financial issues and investing. You need to get a general guide to investing or perhaps subscribe to Kiplinger Financial magazine. Local libraries have dozens of books on general investing. Your custodian might also have an online tutorial. PS: If this is a contributory Roth , you can alway legally withdraw your contributions.

First, leave the funds in these accounts as long as possible. Perhaps you won't need to hit them in the Fall.... even if med school is expensive. If you can hold out till Jan 2006 you may also be in a lower tax bracket - depending upon what if anything you are paid at the bottom of the food chain in med school. Roth - all contributions can be withdrawn at any time for any reason without penalty. However, you will owe a small tax on any earnings. 401k - no point in rolling it to a Roth. You can take a distribution - but you will get taxed on any part that is not "after tax contributions". Talk with your HR dept about your options. The governing rules of your specific 401k may constrain your choices.

Barry, Didn't you tell me that Moe, Larry and Curly are no longer in the tax advisor business? I hope this guy has a good "errors and omissions" insurance policy. He is going to need it. Time to get a new tax advisor - this guy is making a mistake about a very fundamental aspect of tax law.... we are not talking about esoteric/rare tax law issues involving private letter rulings or the boundaries set by tax courts - your advisor has made a major mistake about a basic aspect of IRA tax laws. Get a new advisor - but when you cut him loose, tell him why. This kind of bad advice can hurt a lot of people. I completely concur with Barry, it is foolish to hold tax sheltered investments (such as muny bonds) within a tax shelter.

In your situation, the max Roth contribution will be based upon the wife's "earned income". For example, if she earns over 8,000 then you both could contribute 4k.

Yes, I was wondering if you could tap into a home equity loan to retire the CC debt. CC debt is a "fool's trap" - you get stuck and it gets harder to get out. Talk to your local banker about a home equity loan to see if you can get a very low rate. It was not clear from your comments if the equity would be sizeable after the project is done. Also look into moving you balance to a new credit card with a low initial rate. Some will tease you with zero percent for 6 months - which helps you pay off the principal. But, the single most important thing you absolutely must do is start living way below your income and use that extra cash to erase the credit card debt. If you are only able to nibble away at the debt, then you need to rethink what you are spending. Alternatively, you may have the chance to work longer or take a second job. Maybe you should skip the next vacation or make getting out of debt your Christmas present. The best way to deal with credit card missed payments is to tie it into your checking account. You have a wife - she needs to be part of the solution.

You can not contribute more than your earning income for 2004. Call your custodian - you may be able to reclassify the overage as 2005. I have no idea if this is legal, but retro attribution of calendar year seems to happen a lot.... because lots of folks including custodians make mistakes. If they can't do this, you then talk with them about plan B and what they require to get it corrected. The faster you act on this, the more likely you won't have penalties imposed.

No one can answer your Q without knowing more. Questions: What is the total credit card debt? What is the interest rate currently on that debt? If you got more cautious on spending in the coming year, what would be your free cash that could be put to debt retirement? Why did you incur credit card debt? Be honest - cause this may very well be a recurring problem rather than a one shot fix. Where is your Roth money, and how is it invested? What is your age and marital status? Do you own your own home? And if yes, what is your current home equity and base mortage interest rate?

Keep both. Try to contribute either to a Roth or IRA with the new employer. Your 401 funds often must be invested using a restricted list of options. Your IRA/Roth is not so limited, and can be invested to balance the total. Take advantage of the 5% match! This is a huge plus for you. That 100% first year return.... most folks would be happy if they doubled in around 7 years. You are doing it immediately. Beyond the 5% match, you are likely to be better off funding a Roth if you qualify.

MAF, about 98% of all questions get answered, usually with good material. Everyone here is a volunteer. Sometimes it take a few days before someone who has experience with your question gets time to post. Got more questions - post again.

Yes you can do the 401k and the Roth.... assuming that you can squeeze in under the income limitation for a single taxpayer. You will need to keep careful track of your income as interest, dividends and the bonus lump can cause a problem. You may need to look carefully about the timing issue as the end of year approaches. It is possible in future years you may no longer qualify for the Roth.... but this is where if you are serious and have the discipline to built up your assets, you probably want to get an hour or 2 of tax advisor time before the year ends. At a minimum, you want to keep careful track of your income and run it through tax prep software. IF you set aside about 14-15k each year for the next 25+ years, you have the chance to build a retirement next egg that could exceed $1 million. Gone for a week. Will look at posts later this month.

Contributions can be withdrawn at any time without penalty. But... money is on sale right now. You can get home equity and home improvement loans at low single digit rates. You might also have an offer in the mail for a credit card that will be interest free for six months. I would explore other options then drawing down on a Roth. Your Roth is a great tax shelter. Try to maximize your long term benefit by keeping funds in for the long haul.

QDRO, I would go with NO, I DON'T HAVE A PENSION. While it would be useful to find out if this plan has a definitions section, and you raise some good cautions, common usuage of the word pension would be for a program that was employer based. I have no familiarity with this CT program, but it is odd that they would not ask about home equity, IRA, Roths, etc. if they truly meant it to have a rigorous means test. I also note that this person is 38 but has not explained if there is a disability or unemployment issue. Its not real common for someone age 38 to have a pension.

1. I in Roth IRA stands for individual. You have separate accounts. 2. You can have both Roths and regular IRA accounts. The eligibility is determined each year based upon your income level and filing status. But, the combination of contributions for one person (IRA + Roth) can not exceed the maximum limit for the year (currently $4,000 unless you are over 50 when it bumps up to $4,500). 3. Conversion - don't assume that all conversions make sense. Conversions make the most sense when your income tax rate is low, you live in a state with no income tax, or you expect to be in much higher brackets in the future. Sometimes a partial conversion is better than a full conversion if you can avoid tax bracket creep. (probably not an issue with $6k you mentioned) The tax owed due to a conversion is just like the taxes owed on any other source of income. You might want to make an estimated payment in the quarter you convert. Your normal witholding may keep you close enough to not worry about the amount until you file, at worse there would be a small charge for underwitholding. Note, you do not want to convert and pay the taxes with your IRA assets. 4. Fee? If you are doing a conversion staying with the same custodian, there are no penalties for early withdrawal. You can also do a direct custodian to custodian transfer to avoid anything looking like a withdrawal. The custodian for your Roth can handle all the details - it usually just take a letter of instruction. Do read Pub 590 !

The answer to your questions requires some additional info: Are you married or single? If married, are your filing a joint return or seperate. Will the year end bonus show up in this calendar year or 2006? Is the year end bonus a fixed amount or variable? You said you never saved before. Does this mean you have no other retirement assets from this or a prior job? What is the income tax rate for the state in which you live now? When do you expect to "retire"? What percent of your total income in this new job do you feel you can set aside in a retirement/investment program?

RR - it is best if the directly affected party posts the problem. I am not sure of the point in posting the problem of someone two steps removed. For example, did this person file their tax return yet? How much did they deposit? Was the non-qualification based upon married filing seperately? late K-1? You might advise you friend to post the problem directly. Setting that issue aside.....The first step is to call the custodian and explain the problem. They have procedures for returning the funds. IF, you contributed the funds in early 2005, there is a small chance that you can get the amount reclassified as 2005 contributions. It sounds like they probably could not contribute in 2005 either... but it is an approach to consider. Folks that have brokers are more likely to have tax preparers or accountants. Time to call the accountant and ask about the possible penalty. The IRS has been known to waive penalties if a the taxpayer was given eroneous advice or upon discovering the problem took timely steps to correct the problem.