John G

There are a number of things that "pass" without ever being discussed or tallied in terms of the instructions of a will. Life insurance payouts, IRAs and Roths should have specified beneficiaries and therefore are not include in the grand total of assets to be allocated by a will. Could other members of the family complain? Absolutely. When money is involved, complaining is an equal opportunity activity. Your parents should avail themselves of the advice of a good attorney.... before they might be considered incompetent. The "scheme" you propose might work just fine, but you are taking your chances that someone does not change their mind. Your parents IRA/Roth assets are not under your control.

> IRA and Roths are absolutely not do-it-yourself accounts. You must have a custodian who must live by US Internal Revenue Service regulations. > There is virtually zero possibility in doing any real estate transactions with your proposed IRA - first because there are major regulatory restrictions, and second because you just won't have enough funds in an IRA/Roth initially to do large transactions. And yes, even if you got over those hurtles, the fees are very high. I just don't see the average citizen just getting started with IRA/Roths having any reasonable option for investing in real estate outside of REITs like CARS, AHR, etc. which trade on the stock market but operate as real estate investment trusts. > Get a copy of IRS publication 590 as it covers the basic rules for both IRAs and Roth IRAs.

Barry, What are the rules governing combining the 3 inherited IRAs? Can you combine them into one of them, or into a fourth account set up for that purpose?

"Since I can take out my contribution anytime without any fees, isn't ROTH IRA better than a saving account? I know there are some regulations and complications, like max of 4000/year, issue of market going down, not easy to take out money like using ATM or a check etc. but if there is no penalty, can I put my savings in a ROTH IRA and if i need it say in two or three years can i take out all my contributions out and only leave my earning in the account? if that's allowed then ROTH IRA is a very good option for everyone who's qualified, right?" General answer - a Roth is not a good substitute for a cash reserve in that access to money is not the same as with an ATM card, credit card or bank check. I would not use a Roth as a short term cushion. But, a Roth can be tapped without penalty to retreive all of the contributions - so in some sense it can be part of your safety net for major problems such as if you lose your job or have a severe medical problem. I want to specifically address "better than a savings account". Roths need to be looked at as investment accounts. Savings usually mean government guarenteed principal in a transaction account that provides a very low return.... and that just won't work for building a major nest egg. Investing in a Roth means stocks, bonds and mutual funds (the stock/bond kind) and that means longer term commitments, decades not weeks or months. You don't want to have to go to your Roth when the market is down, and you don't want to raid your great tax shelter on a whim. From that perspective, you want to have a reserve that can be used to solve short term problems. Think of the Roth less as a savings account but as a long term investment that has some "safety net" potential.

OK, free sounds good to me. BUT.... if you called on Dec 31, check to see when the action was actually posted. I would think that it was done in January because hardly any IRA dept works that fast. The conversion is effective not based upon the date of your request but rather the date it was completed. If both are actually in 2004 calendar year, as mentioned above, you can do a partial recharacterization - the amount does not have to be pegged to either 4 or 9k. I am a little troubled by the use of the word "transfer". Normally a Roth conversion requires some paperwork (perhaps a letter of instructions) and there are often delays. (especially at year end and during the prime tax filing season) I would suggest that if you truely have zero income this year that you might want to crunch your numbers and determine the max amount you can trigger to without have a tax due. If you are working in 2006, but not this year, I would probably convert everything sometime this year and pay the low tax due next year when you file. You don't get many opportunities to due Roth conversions tax free or at the very lowest tax rate... shoot, many people never even qualify for a Roth conversion due to their income. Don't forget there may be state or local income tax issues.

Barry, I thought this guy said he had zero income in 2004 and completed two transfers of IRA of 9k and 4k to Roth in 2004 (proper term would be Roth conversions). I would think that the tax due if any would be negligable. Why undo the conversion?

If your spouse had income in 2003, you might be covered. But if not, and you contributed the money in 2004, you might be able to get your broker to reclassify it for 2004. If the contribution was made in 2003 it has probably already been reported by the custodian to the IRS. In this case you ask (probably by letter) that your custodian return the funds.... even if you are just turning around a redepositing them for a subsequent year. Custodians have procedures for determining the earnings on the $3k which also must be removed. Expect a small penalty - I don't know if the IRS waives penalties if you get things corrected soon. Start by phone calling your custodian - talk with the IRA department - and that will be nearly impossible today, April 15. They can guide you about the procedures.

I hope you are also running "filing jointly" as one of your options. NYC has a lot of unique tax issues, and your self-employment covers a wide range of possible incomes. But, filing separately is what is causing the issue. As a self employed person, you have many options for retirement investment plans. While they don't offer the tax free back end of Roths, you can earmark more money. Consult your tax preparer or accountant if you are not aware of the various options.

Katherine - I think you mean the state where the parents reside.... in case the author is from a different state. Not sure of the need for a lawyer when a beneficiary is designated.... but generally reasonable advice to have a lawyer before a death/event. And, absolutely there should be a will.

You are allowed to make "gifts" to your parents. If you parents have "earned income", they are entitled to contribute to Roths. It is completely in your parents discretion as to who they should name as beneficiaries of their Roth accounts. They can also change who are the beneficiaries at any time. They can also remove the funds and spend them. Some folks have given a "gift" to cover the taxes so a parent would undertake a conversion while their income and tax bracket is lower tax rate. Many adults fund their children's Roths because it is an excellant vehicle to begin a investment program for teenagers. So, as so as the youths have earned income, the parents fund or match funds for Roths. All of these arrangements have elements of risk and can be subject to change of mind by the Roth account holder. It seems that you are living within what the laws allow. You may have a problem with the perceptions about fairness with your brother and sister. You did not address if your parents had their retirement needs under control, which could be a second issue.

I am not sure if funds follow a specific pattern for back or front commissions... there are also funds with more than two classes of shares. Basically, if anyone refers to shares with a "letter" you are not very likely to be looking at a no load fund. With lettters added.... read the description of each class carefully. More than a few people have fallen for the "no initial commission" followed by some mumbling about many years later. Those in the mutual fund industry, or their compensated third party salespersonal, should be ashamed about this method of selling back end loaded funds - - funds which have say 6% back end loads that decline 1% each year so they can truthfully say "no commissions a decade later". You won't care if the fund performs, but if it does not you get penalized a second time when you switch out. (see some of the prior messages about financial advisors putting folks in class B shares) Unfortunately, some of the most hyped funds are the sad performers. Many years ago "Giftrust" was one of the darlings of the media. This fund required a high initial deposit and I believe you committed to staying with the fund for 18 years. Well.... after a few great years, performance sagged off. This fund has underperformed similar large cap funds in 7 of the last 9 years. It took some legal manuevers in I believe Missouri to give existing shareholders a chance to get out of the fund. What most folks read as Gift-trust turned out to me more rust.

Both are reasonable choices: good diversification (not perfect - but lots of companies in the portfolio), no load, and extremely low annual expenses. Go ahead and get started. BUT, don't forget to commit a modest amount of time to learning more about investing and personal finance. One or two hours of quiet time a month reading some magazines or a finance book (libraries have many) will give you a big payback. You might want to start with the article in Kiplinger Financial - May 2005, page 52 which gives a two page overview of how to choose a fund. There is a second article starting on page 36 discussing the merits of 25 funds they have selected for various purposes. Interesting quote from the same magazine: "My top adviser is Fred W. Frailey. He picks my funds and diversifies my investments. You should trust yourself with this task, too -- its not hard." Fred W. Frailey, Editor, Kiplinger Personal Finance from the page 12 editorial about ethics in mutual funds

I would like to see more custodians get the the point that when they send out the form at year end telling you how you can pay you annual fee by check, that they also give you a printout of who are the beneficiaries and give you a chance to change them.

If Orman motivated you to act, that's great. Understand that what you get with her is Disney does investing.... lots of glamour, thin on details, and the nuances get glossed over. I am no fan of Orman. The accuracy of her info has gotten much better in recent years. T Rowe is reputable. The first three are more or less their version of index funds but with expense ratios (0.35 to 0.40%) about 2x higher than Vanguard - although they are still at the lower end of the range. They look like "reactionary" rather than "visionary" funds to me.... designed to cut into some of the index fund market share that Vanguard was growing. Nothing wrong with that - competition keeps everyone on their toes. I would describe the performance of these three as average relative to their peers. Everyone wants to be above average - but over the long haul average market performance still works, and no one can reliably tell you which funds or strategies will work best over the next few years. I might favor some of Vanguards offerings if I was going to go purely index - mainly because they have a long track record and keep dropping expenses. The 4th fund is interesting - international from 21 companies, drawing from a universe of 1000 large size firms. Expense ratio is 0.50% - which is on the low end for international type funds, probably because this fund is index style. There is no huge compelling reason to have an international component - but if you wanted to follow the 15% logic, this fund would be a lot better than most international stock picker funds. US vs International - again, no one can tell you the better path in any given year. About posting here - this site works because a few dozen accountants, tax professionals and fiancial advisors stop by to field some questions. The advice is generally good - but the turn around time is often days, not minutes or hours. For example, I will be travelling for the next six days and probably will not get much of a chance to look at posts. Good luck with your choices.

The deadline is pressing - but just for the $3k from last year. You put up three reputable mutual fund names - you can also add 20th Century, Janus... there are many. All of the major NO load families have viable offerings. Either select on in your area (many like Fidelity have branch offices) or get moving fast on the internet. Almost everyone opens accounts online. Other choices: Etrade, Scottrade, Schwab.... and many other brokerages. Here you can give them two checks - designate different calendar years. Park it all in a money market fund and then think about your mutual fund choices. Fund choices: any general purpose no load low-expense stock mutual fund will do for your first choice. You can go with a market index fund immediately or do some reading and make the choice in a month. No one at this site should be picking a stock fund for you.... that's your job. But, if you want to post about a specific fund or email me, I will take a look at it if you give me a week to reply. (I can only do this for a few funds, can only offer comments if I can find info, and I won't tell you what to do but give readers some idea as to the diagnostic steps.) BUT - get started. The clock is ticking on 2004 and you need to stop procrastinating ASAP.

All of the brokerages that I have some experience (Etrade, Scottrade, Schwab, Fidelity) have some kind of search system for looking for mutual funds: either online or in publications or more likely both. Search engines often allow you to sort by No load status, sector, investment focus, etc. Magazines: Kiplinger Finance, Money, and the March Consumer Reports all cover mutual funds. They have stories, side by sides, lists, etc. Lots of info - too much info probably. The reason I like Consumer Reports is that they write for the layperson, every library has it, and they screen thousands of funds down to about 100 ones that seem to come out above average. Mutual Funds: All of the big names (Fidelity, Vanguard, TRowe, Janus, Strong, Twentieth Century, etc.) have multiple funds. Typically their website and their publications explain the differences. With all lists - ignor international, sector or any narrowly defined funds... maybe a few years down the road when you know more you may want to look at these, but not now. Avoid "hype" type funds - anything that seems gadgety or promises to solve all problems. Remember ----> you are only looking for one good general purpose fund in year one. Don't try to sharpshoot the decision. Pick a general purpose fund (or index fund) that is no load, has reasonable low annual expense and seems to have demonstrated a reasonable track record over many years. Later, as you learn more, you can add put some more polish on your selections.

Sunpharee.... "heard" is not a sufficient basis to provide advice about trusts and one size solutions do not fit all problems. I have deleted your post as moderator because I don't think it addresses the issues raised in this thread. A Roth owner can pass these assets using the beneficiary designation on the IRA application form, both in terms of primary and secondary. IF.... the assets are considerable, minors may be involved, any family members lack the capacity to handle their own affairs, or the assets are considerable (triggering estate taxes would be one threshold)... then seeking local advice of a lawyer specializing in trusts may be desireable. Trusts are definitely not a do-it-yourself activity.

Why if you are just getting started do you think you need 15% international and 85% index? You provide no other information about other investments or your age.... but it sounds like you are just getting started. Don't split a lot of hairs in making your first Roth contribution and first investment decision. Pick one good general purpose stock fund - a no load index fund with annual expense below 0.25% would be a fine choice for year 1. All general purpose mutual funds have a reasonable amount of diversification... in the short term, your 15% international component may just mean higher fees because of two funds. Then.... spend some time this year learning more about investments. You might decide to continue with the same fund or pick a second one at some point down the road. DO NOT INVEST IN THINGS YOU DO NOT UNDERSTAND.

Roths do not have any tax deduction.... but they provide many other plusses. These include: no mandated dates for distributions, no mandated distribution amount, no taxes in normal retirement, and you can tap the account in an emergency removing any contributions at any time for any reason (not recommended, but its part of your safety net). Under most scenarios, the Roth beats the IRA, even if the IRA has a tax deduction. Unless you are taxed at an extremely high rate now, but expect much lower tax rates in the future - go Roth.

What you don't know can hurt you Subtitle: I can't believe this happened to me! Recently received letter from Bear Stearns concerning my Roth IRA opened in 1998: "Our records indicate that you opened the above IRA with Bear Stearns as custodian. We have not been able to locate a complete application with your signature on our records......" Are you kidding me? After all, I got this on April 1. They have just discovered there is not application on file.... after seven years? I have a copy here of the key pages but who knows if that would be considered an official document. I can't believe their record keeping is that shabby. If I had died in the past seven years, they would not know the beneficiaries for my Roth. Unbelievable! Just another reason not to trust your custodians to get it right. Check, double check - contributions, purchase/sells, beneficiaries, etc. I know many custodians include the beneficiary designation on either all monthly statements or once a year. Not Bear Stearns. Remember that old TV ad, "do you know where your children are?". Who knew that it might apply to your Roth paperwork.

N2LT (new second lieutenant?) Is there some reason why you want to stick with USAA funds? I see they are No Load. There is very little info that I can pull up on them because most public sources either don't list them or give minimal info due to their narrow base of customers (I assume military only). I found no info on annual fees. General conclusion: any of these three would be reasonable choices for a beginning Roth. Nothing in these three gets me very excited either. The Morningstar ratings reflect that these funds have done a little better than average in the past five years which is useful to know but no guarentee that they will do well in the future. I would prefer the annual expenses on two of them to be a little lower. Each of the three focus on different size companies. The first sources I went to did not show major holdings or the percent breakdown of the portfolio. My specific comments are therefore limited by the info I can quickly find. UVALX - I note that this fund has a new mgr since July 04. They are listed as LARGE VALUE - which means they buy stock of very large companies (like GE, Microsoft, Marriott, Johnson & Johnson), but the notes also say they may own 30% foreign companies via ADR (listed on US exchanges). Not sure why expenses have to be 1.15%. USMIX - some references say mid cap, others say small cap (small capitalizations - small companies. Capitalization is total shares outstanding times current price.) One profile said that 80% of the holdings would be drawn from the Wilshire 4500 - which might mean that this is 80% indexed or might just mean they use the W4500 as a pool of candidates - I can't tell. They are listed as "blend" which means they include stocks that are "growth" and "value". Growth means companies that are growing in earnings and revenue (think Taser or Google as extreme versions). Value means that the stock seems to be under valued (price/earnings ratio, book value, etc) relative to other similiar stocks. The theory behind value is that under valued stocks should rise to look like their peers, or that you are buying "low". I do like the lower expense ratio of 0.50%. This fund has only been around for 5 years. USBRX - 1.01% expenses, since 93. One profile said that they were likely to have 65% of the portfolio in dividend stocks, and they were likely to hold corporate debt (bonds). The fund can have 30% in ADRs - international firms. N2LT ~ remember that as a new investor one of your major goals should be learning more. Don't chase performance. Don't worry about performance. Think long term. If you are in a time crunch, I see no problem with picking from one of these funds. If you have more time, you might want to scan some No Load funds outside of USAA. Once you have made a decision, don't watch the results on a daily or weekly basis - check you monthly statements to confirm that your transactions are posted, then monitor the fund a few times a year. Next year, you may want to continue with your first choices, or find a new fund. (a few funds are OK, but don't go this route if each one is dinging you for an annual fee)

Some options: 1. It may very well be the bank that is charging these fees, often it is the custodian that charges the annual fee. If so, you might want to start by asking them to waive the fee in consideration of your other business. Always ask... worse response is just no. 2. See the link below from Kiplinger about Frankline Templeton class B shares: http://www.kiplinger.com/magazine/archives...02/bshares.html It looks like you got hooked into a back end loaded fund from your wonderful "advisor". Were you informed of the true nature of these two funds, the annual fees and the back end load or commission? I suspect your financial advisor had a FT incentive for placing you in these funds. This site excepted, advisors rarely do anything gratis. And let me be blunt, many financial advisors have a nice office and good suits but minimal training about making good investment decisions. I encourage folks to teach themselves the basics because I believe anyone with that finished high school can read enough to make reasonable decisions. There are tons of resouces... library books, the internet, mutual fund materials, fianncial magazines, etc. It is hard to find a good advisor - and not unreasonable to be your own advisor. No, this is not like doing brain surgery on your self. Learning about investing is a much easier then learning how to do a complicated tax return. I don't think it is unreasonable for an adult to spend 1 or 2 hours a month reading material about personal finance - some folks spend more than that reading the sports section. 3. You may have the option to combine the two funds and eliminate one of the annual fees. Your advisor should never have suggested two funds for such a small amount. It bought you minimal further diversification. When you start a Roth, you really only need one good general fund for perhaps 5 years. Then when your assets exceed $20,000 you can consider having two funds. General stock funds will often overlap in assets and even the "focused" funds (that only hold 20-30 stocks) have enough diversification. 4. Call FT and talk to them. Since they no longer will allow you to buy class B shares and they are dinging you for $10 + $10 a year. COMPLAIN! Ask them for a solution - but be wary of what they may suggest. You can also ask to be excused from the fees and be allowed to leave. After all, representations have been made.... they may be motivated to keep you happy given some of the bad publicity class B shares and certain mutual fund practices that have been in the news the past year. 5. You can go to another custodian and fill out forms for a custodian to custodian transfer of these two funds. But.... expect back end commissions and possibly a termination charge. All though you may hate paying these fees - and may even seek to have them forgiven if there was a shady practice issue (atleast ask or Google to see if there were any legal filings against FT about these class B shares) - it looks like this lesson may cost you less that tuition for a 3 credit course at your local college. General Comment to all Readers: Folks! Ask questions, read the materials, spend some time with an internet search, and be wary of advisors who push products. There are 10,000+ mutual funds and perhaps 500+ potential custodians, and no reason to get stuck in a bad arrangement. After screening for NOLOADS, with low annual expense rates, and custodians with zero or low fees you would still have more combinations that would work than you could possibly study. And, how many funds do you really need to get started? One. PS: You were up about 25% in two years, which is good! Disclosure: I make no judgement about the potential investment success of FT funds. I have no direct experience with them. My comments above are related to the issue of two small Roths which will no longer accept funds but will keep dinging annual fees.

Your check list: No Load - yes, a good idea Low Annual Expense - you might even want to restrict the list to below 1.0% Med to high risk - not sure how you define high risk. You can probably accomplish all your long term goals if you have a broadly defined stock mutual fund. I don't view investing in the stock market when you have many decades as being overly risky. I would use "high risk" to define narrow sector funds or international funds. I would not use high risk to characterize an S&P500 index fund or general stock market fund. Avoid fund with too many investors - What? I have no clue what you mean by this. The number of investors in a mutual fund has zero impact on the performance of the portfolio. Most mutual funds are large enough to reach some level of economies of scale with regards to cost of customer accounts, and you already get some sense for this with the annual expense number. I would not use "too many investors" as any criteria for selecting. Maybe you mean very large funds because they can't be as nimble and they may have trouble buying shares of smaller companies. While this might be true for the huge funds with 10+ Billion in assets, these funds often do just fine. I am not sure if I would put too much emphasis on this factor when you choose your first fund. Asset allocation or stock - you are young and have many decades of investing, avoid the gimics and choose a general purpose stock fund for the first year.... I can't get into the USAA website so I can't review the list. Yes, there are many ways to slice "general stock fund" - by cap size (size of companies), growth vs value, etc. An asset allocation fund might try moving money around to "time" the market - which rarely works.... or it could be one of these gimicky "life cycle" fund where they change the blend of stocks/bonds as you get older. Frankly, the gimicky stuff is more hype and marketing than great investment thinking. If you cut and past the general info for one or two funds from USAA I will give you some comments. Average annual total return - one of the great misleading statistics in looking at funds. Chasing last years performance (oil and resouce area has been hot for more than a year) is rarely a good way invest because last years winners often lag in the next year. I sure hope you don't drive a car by studying what is in the rear view mirror! But.... you get some idea about the volatility of performance by looking at a string of years, and to some extent when you look at 10+ years of data you get a sense for long term average for this style of investing. (note that some funds change styles or "drift" over time) Let me be very clear about this issue of picking a fund. This is not an optimization process, no matter how many hours you spend. You can't know in advance which funds will be the top performers. Timing of your buys is not worth worrying about either. Make a reasonable choice, watch and learn. In year two you may add to the first fund or choose a second. The three most important factors for long term success are: (1) the asset catagory (stocks vs bonds vs cds, etc) you select... and given the 5+ decades of investing, stocks or equities should be emphasized in your choice, (2) time! not when you buy but how many years of compounding... and your early start is works for you, and (3) keeping expenses down and staying away from loads or commissions. One thing to definitely avoid is panic over some short term drop in value and pulling the plug. A few years back, we had three bad years in a row. But, many people who stayed with their funds for the past ten years are doing just fine because they have more good years than bad. I sure hope this does not sound like vodoo or magic - its not. When you invest in the stock market you are basically putting your money to work - and capitalism provides some strong incentives for businesses to flourish. Investing in stocks is very different from investing in bonds, CDs, money market accounts, and lots of stuff that includes "safe" in the marketing material. The stock market is tied to the economy and over the long haul, our economy is wired for growth. Owning stocks gives you a chance to partipate in that economic growth. It gets a lot easier to ignor the short term flucuations and stick with a plan when your base of knowledge is strong. Good investors work hard to take the emotion out of investing... they are more likely to buy when the market dips and less likely to panic and pull their funds. If you devote two hours a month to reading about investing and personal finance, you level of knowledge will improve dramatically. Consider subscribing to any of the main stream investment magazines like Money, Worth, and Kiplinger Finance.

Are you planning to move? I think Texas still has no income tax. If you were planning to move to another state that did have an income tax, converting now might be beneficial. Second point, often a partial conversion provides some advantage as you are less likely to trigger a higher bracket in the conversion year but to get some of the benefits... such as no fixed distribution schedule. However, I agree with the above - conversion economics are not easy to determine. You must make a number of assumptions about future tax rates, you health and lifespan. As you provided very little information about your retirement income/assets - I suggest that you consult with a local accountant or tax advisor that has experience in this area. Roth conversion is not a simple call, there are offsetting factors that most folks do not understand.

Choose a brokerage and you can look at perhaps 2000+ mutual funds. Choose a mutual fund family and you choose from 20-80 funds. Since you only need 1 or perhaps two funds, does this not suggest you may have too much choice. Besides, down the road you can always shift from one custodian to another..... don't get hung up over the fund vs brokerage. I don't think that anecdotal experience with custodians will be much help. Every financial institution has a very low level of mistakes/problems. Don't expect perfection and watch your statements to confirm transactions are correct and you should be fine. You ask about differences - there really are not many, they are subtle and often may have no impact on you. Millions choose one path, millions choose to other. Why not continue your relationship with Scottrade and it may help you get a fee waiver. I don't know their rules, but an existing relationship should help. April 15 is pressing.... every IRA/Roth counter is busy. Don't wait for the last minute.