John G

MBozek, given this is a "just getting started" person, I think your comments on negatives needs some clarifications. 1. Liquidity: you can take out contributions at any time without a penalty with a Roth. You also can withdraw funds for some specific uses like buying a first home. That is a reasonable amount of flexibility initially. 2. The tax deduction comparison only applies to the regular contributory IRA. Here you might get a tax break up front, but then you pay regular income taxes (not long term capital gains) on distributions. 3. I agree that there are many restrictions on allowed investments. In practice, a beginner investor is likely to have plenty of choices in stocks, bonds and funds. I forgot to add some of my potential negatives to the above posts. Congress can change the rules. While I think it is unlikely that Congress will tax Roths, you can not guarentee it. Any radical change to a national sales tax (highly unlikely in my view) would radically change the assumptions about the value of Roths. TRIXIE - you also asked about "bad experiences" which should be addressed. I think where most people have had problems is not with the Roth it self, but rather with not understanding about how to make investment choices. Some folks made single stock investments or got hurt in the dot.com collapse. Folks who thought the stock market always goes up, or had unrealistic goals, might have been discouraged in some of the recent down years. Beginners often have trouble understanding the long term nature of investing. You are wise to start a program of investing at a young age.... but educating yourself about investing at age 24 is probably more important than your initial "results". You are not just investing to retirement (perhaps 4 decades away) but additional decades after you retire. Post again if you have questions about your choices.

OK, I found the last two years, and the answer is that $1,000 in this fund in Jan 1973 grew to $54,000 by the end of 2004. The raw data for Washington Mutual Investors Fund: Year Pct Gain/loss The result Jan '73 = $1.00 73 -9.0 % $ 0.91 resulting value 74 -17.3 0.75 75 44.7 1.09 76 31.2 1.43 77 -4.0 1.37 78 7.9 1.48 79 14.4 1.69 80 23.6 2.09 81 7.5 2.25 82 34.7 3.03 83 26.2 3.82 84 8.5 4.15 85 32.1 5.48 86 22.5 6.71 87 1.4 6.81 88 17.7 8.01 89 29 10.34 90 -3.9 9.93 91 23.5 12.27 92 9.1 13.38 93 13.1 15.14 94 0.5 15.21 95 41.2 21.48 96 20.2 25.82 97 33.3 34.42 98 19.4 41.10 99 1.2 41.59 2000 9.1 45.38 2001 1.5 46.06 2002 -14.9 39.19 2003 25.73 49.28 2004 9.71 % $ 54.06 Sorry about the format problems with the above.

I don't have 2003 and 2004 data on the chart I use with my JA classes, but it looks like they were decent years after a negative 14.9% in 2002. An investment of $1,000 at the start of 1973 became $39,450 in 2002, a 39x increase in value. That is a little over five doubles in value, or a double roughly every 6 years. Over 52 years, this fund has averaged a 12.7% annual return. I would call this fairly typical of a well run fund that while broadly diversified but with a slight bias towards growth. Twelve down years, 40 positive years over the 52 year history. A recent list of the major holdings of this fund include: JPMorgan Chase & Co. 3.4 percent ChevronTexaco 2.9 percent Exxon Mobil 2.8 percent General Electric 2.7 percent Bank of America 2.4 percent Bristol-Myers Squibb 2.2 percent SBC Communications 2.1 percent Fannie Mae 2.0 percent Wells Fargo & Co. 2.0 percent Verizon Communications 1.9 percent Well known names, all large companies, NYSE stocks, very typical of a big fund. Note, I am not recommending this loaded fund. I use them because they have a long track record and provide useful charts for my "investor basics" classes.

"the stock market decline in 1973 was not recovered until 1982" There are lots of ways to take snapshots of "the market", and this quote is in my opinion very misleading. Let me give an example using Washington Mutual Investors Fund which represents a diversified portfolio of blue chips with a slight bias towards growth stocks. (Note: this is a loaded fund that I use only as an example and I am not endorsing... they just publish lots of stats and have been around for 53 years. Expense ratio was 0.65%) Lets look at the annual return with dividends reinvested.... Two Back to Back Down Years 1973 -9.0% 1974 -17.3% Two Great Years 1975 +44.7% [recovery of prior two down years in one year!] 1976 +31.2 Back to Negative 1977 -4.0% Then a run of 12 up years 1978 +7.9 1979 +14.4 1980 +23.6 [after this year, portfolio was 2x from start of 1973] 1981 +7.5 1982 +34.7 [now up 150%, a lot more than "recovery"] 1983 +26.2 1984 +8.5 [portfolio doubled again, now 4x from start of 1973] 1985 +32.1 1986 +22.5 1987 +1.4 1988 +17.7 [portfolio doubled again, now 8x from start of 1973] 1989 +29.0 Note, eight of these years exceeded the often cited 10% annual return for stocks. Folks who were in this fund in 1973 took a two big hits. But, if they ignored the short term (yes, 2 yrs are short term) and stuck with their fund saw their assets go up about 1000% by 1989... their assets doubled, doubled and doubled again. The three down years were overwhelmed by 14 up years - another snapshot where good years outnumber bad by about 5:1 A 24 year old beginning investor needs to understand that stocks go up and down in the short term. But, in the last 100 years, the long term results look very positive. Spend some time reading about investing. Get a feel for the performance - both good and negative.

The rules governing self dealing are tight. We have seen a lot of creative concepts floated here that are not legal. If a taxpayer wants to pursue these atypical arrangements, they should seek the advice of a tax lawyer and accountant. Don't be surprised if you are asked to sign a waiver, and the advice will not come cheaply. This area has a high potential for abuse. "Arranged" transactions, as opposed to market transactions, creates the possibility for supersizing a Roth that would be a end run around the contribution limits.

And besides our own curiosity...... folks who post here often have little experience and we don't want to encourage quick buck schemes, "can't go wrong" or various pot of gold concepts. There seems to be some compelling need for many folks to look for shortcuts to wealth building. While there are some ways that if you are in the right place, right time and possess the right knowledge you may be able to fast track your results - for the average Joe, that is extremely unlikely. So... we normally try to wrap up a thread rather than leave it open. The last thing I want to do is to suggest there are "secrets" that we are hiding, or some great method for rapid arrival in wealth central. I am not sure why you feel that normal custodian relations with an instution that must meet US financial privacy laws would be a problem. Have you tried to call a bank and ask about your parents accounts lately? Or gone to a brokerage asking for a copy of the last monthly statement of a deceased persons. Most institutions are very nervous about what they communicate, so they will tell you next to nothing. Yes, you are still open to prying eyes of any clerk that has access to the computer system.... but that is probably more an issue with identity theft.

I still don't know what you are trying to attempt. That you have trouble explaining your goals/intent and have some trouble with the terminology suggests that you are trying to do something novel. The answer is probably a simple one - you can't do it. Custodians have a fiduciary duty. They have reporting requirements. The list of custodians probably does not include much beyond the banks, brokerages and mutual funds. I think you can completely rule out that any individual, small group or recently formed entity would be allowed to become a custodian. Perhaps you are suggesting this approach due to privacy issues. If so, I can't imagine you want more privacy then the recently passed laws. You are more likely to tell the world about what you do on the basis of what you throw out in the trash then what a custodian will say about your account without a court order.

I am not sure I understand what you want to do. For example, what do you mean by "keeping the IRA". Holding companies and LLCs come in so many versions that there are clearly some that serve as custodians... but I am not sure what difference the business structure would make. Perhaps you can post again about what you are hoping to implement and you level of investment knowledge. In general.... Roths and IRAs operate under the fiduciary role of a custodian. You can't be your own custodian. Some financial institution must play that role and report to the IRS your contributions, rollovers, distributions, etc. Common custodians are mutual funds, stock brokerages and banks. Selection of a custodian is a seperate issue from who makes the decisions about your investments. A very large part of the population have self directed IRAs or Roths - meaning that they make many or all of the decisions about investments. In the era of Google, brokerage/fund screening tools, internet financial sites and a wide array of printed sources such as the WSJ, Money magazine and hundreds of advisory newsletters - the trend (for better or worse) is towards greater self-help. Yes, there are some boutique operations that will support more exotic investments that stocks, bonds, mutual funds and money market accounts. But... there are still tight rules to prevent abuse and the fees/expenses are higher.

Tip: Designate the contribution year clearly on your check. Then be sure that the custodian posts it correctly and that the next statement you get is correct. Don't assume that a hassled custodian in the IRA rush will get it right.

Yes. Not just any kind of income, the IRS rules require "earned income". There are a lot of different ways to have "earned income", the most common of which is getting a paycheck. Note, dividends and interest are not earned income. There are also other rules governing qualifications for contributing to a Roth. You can find them in the IRS Publication 590. There is one way income is not required to contribute to a Roth. If you have no income, but your spouse does, you can qualify based upon your spouses income. The maximum you can contribute is a function of your earned income, your age (over 50 qualifies for a higher level) and the maximum set for that calendar year.

Let me comment on this conceptually since the details and wording are unclear. There are many rulings governing this area. Some of them are to protect the taxpayer. Many are also aimed at preventing abuse. Consider this hypothetical. I own a business and decide to sell 100% of the shares to my Roth IRA for $1000. One year later, the Roth sells the business to another person for $1 million. What a great scheme to pack more than $4k into a Roth. Does anyone smell a tax fraud? Congress and the IRS have built in protections to prevent the "end run" around the Roth rules. A reputable tax professional, accountant or attorney will not sign off on these kinds of arrangements.

Consider the following statement: "One year ago, I borrowed $25,000 from a retired client, backed by my new office building - terms 9% for 7 years. Now what if he did that through a Roth IRA instead of personally? TAX FREE income" This statement raises more questions than it answers.... 1. Why would you pay above market rates to get $25,000 when you could walk into most banks and probably get a loan at either a lower rate or perhaps longer period of time? A year ago, I think I could get a secured loan for $25,000 with an interest rate between 5 and 6% with zero fees or points. You said "new" office building - if you are talking about new construction, why not completely finance the building at market rates? A year ago, an unsecured signature line of credit for 25k did not even carry a 9% interest rate. 2. Flip side - why should your client take on additional risks of a small loan when he has options in the open market for corporate notes at roughly the same rate that are more liquid and backed by larger companies? 3. You said "client". This implies either a professional relationship or a fiduciary duty or both. It raises concerns about "arms length transaction". I generally recommend against mingling financial relationships with professional advice to avoid blurring the lines of whose interests are represented. It is not clear that your client was getting the best deal or that the "investment" was a good fit from the client. You leave yourself open to litigation if anything goes wrong since you had got a financial gain from the transaction. 4. "TAX FREE" - as already noted, nothing extraordinary about this. My conclusion: I think both parties could have gotten a better deal in the open market. There is nothing special in what you proposed or did. And, the transaction has clearly more risks than an open market transaction. I would very explicitly NOT recommend someone with a Roth to undertake a loan like the one you suggested. You can clearly do just as well in the open market without incurring additional risk or additional cost. I would not recommend anyone undertake a financial deal with their advisor without getting legal opinion, and probably not even if it was cleared with their attorney.

Telarsen - I disagree on getting up front advice. The risks you could face from undertaking an illegal transaction are huge. What seems to a normal person a simple transaction could from the IRS's point of view destroy the tax shelter Roth, have the entire account treated as a dispursement and trigger penalties. No one with modest Roth or IRA assets should even consider any of these unusual investment approachs. No one unwilling to get or pay for expert advice on the legality and structure of these alternatives should consider these investment approachs. There is no rebuttal to the question of "why did you not get legal/accounting advice?". As you will note with all kinds of unusual transactions involving IRA/Roths (such as participating in IPOs), the first thing the custodian asks you to sign is a waiver form saying that you did not rely upon them for tax advice and were encouraged to seek professional advice. Now, if there are no problems with these kinds of transactions.... why do you thing the custodians want you to sign these special waivers? I will extend this suggestion to anyone who is also considering any large IRA conversion or other special transaction. Get good advice up front. It some cases getting advice from two sources makes sense. I am not some risk adverse and fearful person. I have seen too many large dollar deals (FISBOs, land purchases, Roth conversions, partnerships, and incorporations) where either foolish frugality or self-deception about expertise has sown the seeds for messy transactions that have caused pain. I have observed that at a minimum, advice from a professional gives you a second opinion. It also gives you some financial/legal protection if the advice you receive is incorrrect.

Thanks Barry, I will clear that up in my earlier post.

A transfer of the account to another Roth does not allow you to take a write-off for the loss. While a write-off is technically possible if you close your account, the hurtles are tough. From Publication 590: "Recognizing Losses on IRA Investments -- If you have a loss on your traditional IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. You claim the loss as a miscellaneous itemized deduction, subject to the 2% limit, on Schedule A, Form 1040." {this applies to Roth and regular IRAs, but each group are treated as a separate group} Note the key elements: you must withdraw ALL funds in your IRA(s) (all Roths or all regular IRAs or all IRA/Roths if you are trying to claim losses in both types) and even then you have the Schedule A restriction. (In some circumstances, others might incur a 10% penalty for early withdrawal.) You lose the tax shelter, may (not in your case) incur a penalty and are limited in that loss you can write off. I just don't think many people will find this second approach attractive. If you had a HUGE losses this might make sense, but I don't think 7k loss comes close. If you think otherwise, consult your tax advisor. I sure hope that you will ponder the investment decisions you are making. IRA investing is not equivalent to betting on the ponies. You don't need to find 30% or 50% annual gains to be successful. Grinding out a 10 or 11% average annual return will often allow you to reach your goals. If you plunked most of your assets down on just one investment then you are not diversifying and increasing your risk. Hopefully, you have learned some valuable lessons with for the "tuition" that you have paid. It is not normal to be down 40% after seven years. A reasonable goal would been to have doubled your assets to $34k. Rather than focus on a possible tax write-off, I would spend some time thinking about your investments. Were your investments too narrowly cast? Did you chase last years big winners? Did you fail to monitor your investments? Did you rely on "tips" rather than real time spent researching your choices? Did you take a high risk approach to investments hoping for home runs? You give no clues. You might be able to help other investors who are just getting started by posting again about what you did and what you learned.

Bryant, as moderator, I deleted your post. It is inappropriate to advertise or solicit sales via this message board. While your intentions may have been noble, allowing solicitations opens the door to a lot of abuse. You are welcome to post again and mention an example without the solicitation. TO ALL: The folks who post here will often mention the brand names (Etrade, Schwab, Vanguard, Fidelity, Scottrade, etc.) This message board does not endorse any product or company. The names of firms are used as examples. In a universe of hundreds of brokerages, 10,000 stocks and another 10,000 mutual funds the consumer has many choices. It is a very competitive market place. A reasonable way to proceed is to always consider three different service providers.... just like you might get three quotes for a new kitchen or roof.

Other sources: Internet search under discount brokerage or mutual funds. Also the March issue of Consumer Reports often lists an array of mutual funds with 800 numbers. Most custodians will accept a lower initial if you commit to monthly direct contributions from your checking account. Ask. Examples: Oakmark funds have a $500 minimum if you also committ to monthly contributions. See: http://www.oakmark.com/forms/irca_app.htm TIAA-CREF apparently has a $50 minimum if you are going auto monthly. See: http://www.tiaa-cref.org/pdf/iras/mfirains.pdf Also, you can start a savings plan right now to accumulate the minimum and then open a Roth when you accumulate enough funds. You won't earn a lot of interest on small amounts, but if you are dilligent in saving, you will reach the minimum soon enough. I am not recommending that you buy stocks at such a low level, but you will find low mimums at: http://buy-stocks-online.com/ . . . . low as in zero. Banks typically have low entry levels - but not all banks have good investment options or low annual fees. Don't forget to factor in service and convenience. Ask lots of questions. Most companies really value new Roth customers because they stay for a long time. You can also just plain ask them to waive the initial amount or waive the annual fees. (not all have annual fees, something to ask about) Good luck.

Whoaaa Nellieeee. Run that by us again! Why would you kill a great tax shelter to knock a few dollars off this years tax return? Please give us some additional details - current income, federal tax rate, state tax rate, current age, expected retirement age, etc. I can not think of a circumstance where I would do what you propose.

I sure hope your married filing seperately is a hypothesis or your election. The Roth rules for married filing seperately are harsh. Can you max out both a Roth and IRA? NO The maximum allowed is for the combination of Roth and IRA. You need to get a copy of IRS Publication 590 and read the various qualifications and restrictions for contributory IRA/Roths and Roth conversions. You may also have options through your employer. If you are self employed, ask your accountant to explain some of the options you can take there. If you find that you have a "excess income" (my associates just love that phrase) and have additional funds to invest, consider a taxable brokerage or mutual fund account. Right now, long term capital gains are 15% and certain dividends are also taxed at 15% - pretty attractive tax rates.

The prior post was background on investment options, returns and risk. Since we are talking about your future, I suggest that you start reading some general info on investments and perhaps subscribe to Money, Worth or Kiplinger Financial. You did not say much about your investment knowledge - I am assuming from the level of assets and the comment about "not doing well" in stocks that learning more about investments should be a high priority. First a question. Does your current employer have any kind of plan? If you are self employed, you should talk to your accountant about the various options you have. Any kind of company program is worth exploring and those with a matching portion are virtually always a slam dunk winner. Kids are gone, starting to see the light at the end of the tunnel? Did anyone describe "weddings"? (A humble joke. Been there done that this past fall) OK, assuming that you are age 53, have 38k in current assets and can perhaps bank 20k now that you are past tuition. Let me give you a quick idea of a basic plan. 1. Max out your contributions every year with a Roth if you qualify by income and filing status. Do all of this funding early in the year to maximize the tax shelter benefits. 2. Keep about 1/2 of your money market assets in the money market account as your cash reserves. Move the other 1/2 into a relatively stable income or stock/bond blend NO LOAD fund. This would be a modest level of risk and will help you build confidence. 3. Start a regular investment program with the remainder of what use to be tuition money. Put the first 10k into a index fund - giving you broad market performance. Put the next 10k into no load fund with a slight bias towards growth. Put the next 10k into a slighly more aggressive growth fund or perhaps something the focuses on medicine or technology. Automate this process - it ensures that your invest in your future first each month. This also commits you to a "dollar cost averaging" approach. In months when prices are down, you buy more. - - - After 1 year - - - - You should have five components to you investment portfolio and perhaps 60k. This is you "core" assets which at 8% will grow to about 175,000 by the time you are 68. Subsequent years, divide up your post-tuition surpluses into Roth, and the five accounts. When your cash reserves are equal to about 70% of one years salary, divert additional funds to your investments. Assuming $4,500 each year in Roths and 16,000 each year in mutual funds or a brokerage account. At 8%, these addition annual investments should grow to about 500,000 by the time you are age 68. Wait until you have doubled your current assets before you even think about individual stocks. Then be sure you know a lot about what your are doing. If you can't stand up and talk non-stop for 5 minutes about a company, getting into details about products, competitors, management, earnings, and growth (to mention only a few important things) , then you should not be owning individual stocks. My personal standard is closer to 30 minutes - but I am a stock picker by nature and I actually read 10Qs, company reports and listen to quarterly conference calls. (not exactly cocktail hour conversation) Retirement components: SSN say $1100/month Investments $675,000 or perhaps $4,000/month, without touching principal. Pension - $250/month Home Equity - not touched, but another component of net worth. This sample plan could give you a future monthly income of $5,350 which terms of todays purchasing power would be equivilent to about $3,300. Some of those funds would come out tax free. Others would be a mix of ordinary income and long term capital gains. So my next question to you. Could you live today on $35,000 a year in after tax dollars if your house and truck were paid in full? If not, we can look at ways to tweak the investment choices. I suspect that after you get a few years into this kind of plan, you will be more comfortable making investment choices and will put a larger fraction into general equities (aka stocks). My 8% annual return is a reasonable average based upon a mix of bonds, dividend paying stocks and growth stocks. I assume that the 20% cash or money market will eventually shrink to closer to 12%. This is a sample plan - enough detail to give you one approach. I tried to respect some of your risk concerns and yet give you a plan that should nudge you along the path towards a reasonable balance of risk/reward. Plans should first be tailored to the individual and review perhaps once a year. See if these ideas address some of your concerns. Post again if you have questions. Note, a plan is not a guarentee. On the other hand, if you start booking a 10% annual return, or live frugally, you might just need to think estate planning to avoid taxes! Minor concerns: no mention of health insurance, possibility of losing your job, or any issues with children (Dad, I want to buy a house! The most recent proposal from the recently married daughter.) Do you need a financial planner? Maybe. I am a great believer in self-help. Investing is not the same as brain surgery or representing yourself in court. You can take adult ed classes. There are hundreds of books to read (Schwab, Lynch, ONeil, and other authors) that you can find at the local library. You can join a local investment club - if you can stand the sitting around and long winded discussions. Websites are another source. Not all financial planners are knowledgeable or ethical, so there are practical issues in selecting one. It is YOUR money, and frankly who is most concerned about making it grow? I think the answer is you.

Thanks for the additional information. Etrade absolutely does Roth IRAs - my daughter has had one there for 3+ years. Growth but no risk of principal? OK, challenging question. The simple answer is that "no risk" equals worlds worst annual returns. Why? Because you don't have to offer much to folks that are fearful of risk. Reward is related to risk. You don't want to be zero risk - crappy returns. You don't want to be high risk - high rewards. You need to understand more about investment risk. When you do, you may be able to make good decisions. First, lets talk about two risks... risks related to failure to obtain your goals, and failure to keep ahead of inflation. Right now your money market account is, at best, staying even with inflation. The purchasing value of your money market account is roughly staying even. It will be very hard for you to have a reasonable retirement if your money does not grow in real value. What are your choices? There are many, and a balanced approach may serve you best. Lets look at bonds, stocks and mutual funds. Bonds: Bonds come in many flavors. All have some degree of risk both in terms of failure to get repaid and to a lesser extent failure to give you a reasonable return. Federal paper, GMAs, local general obligation bonds, local revenue bonds, corporate bonds and junk bonds are some of the main catagories. The "coupon" or interest rates on these rise as you move from the lower risk US government paper to more risky corporte and junk. Think in terms of 4% to perhaps 12%. Tax treatment also varies. Bonds can be bought in various increments, often 25K is the low end. For many, that means using bond mutual funds rather than own individual bonds. However, if you own the individual bond, you generally have the expectation of getting the full face value when it becomes due. Stocks: There are stocks that pay fairly reliable dividends. In days of yore, this often mean owning utilities and railroads. Now there are also preferred stocks - stocks that have first call on dividends - which gives you a higher priority. Preferred stocks often have cummulative rights, which means they must get all preferred stock dividends current before awarding any dividends to common stocks. Another class of higher dividend stocks are things called REITS. You can use investor magazines and electronic search engines to looks at candidates. Some examples: Capital Automotive (symbol CARS) is a REIT that buys the land under auto dealerships and leases the properties back to the dealership. They are paying out at a 5% rate and the stock has risen over 300% in the past five years. Capital Federal (symbol CFFN - a Kansas bank) is paying out 5.5% and has also risen about 300% in the past five years. Ship Finance (symbol SFL - a Norwegian crude oil tanker company) is a very new company, paying a dividend of around 7,8%. Alert: no recommendations, these are just examples. Mutual Funds: It is hard to buy individual stocks - it takes time to research, time to track, commission expenses, problems having a diverse portfolio. The mutual fund industry was created decades ago to address this problem. When you buy "shares" in a mutual fund, you are taking a very small ownership interest in a large basket of stocks or bonds. Soon after mutual funds were invented, someone decided to offer NO LOAD mutual funds to eliminate commissions. Then INDEX funds were invented to "automate" the selection process and reduce overhead. Now we have "sector" and "life cycle" funds. You have about 10,000 choices. You might be especially interested in less risky dividend paying funds or perhaps growth and income funds. There are also a full array of bond funds. More material to follow in next post......

Mbozek, you raise a good point. Not only do you lose some of the tax writeoffs if your RE investments are in an IRA, but you also give up the option for long term capital gains. All gains coming out of an IRA are taxed as ordinary income.

You can always take out contributions to a Roth IRA at any time. Your understanding is correct. Some additional comments: 1. Why close your account? You have a viable tax shelter. Why not keep it? 2. It is extemely rare for a tax payer to be able to take a write off for a tax loss like this. 3. Stock? I would not recommend someone to open a Roth a buy a single stock or even two stocks. No diversification. Not very efficient. 4. You actually bought a stock mutual fund? OK, ignor comment #3. The last five years have been tough in the stock market. The dot.com crash was nasty. We had three down years out of 5, an extremely rare event. Normally good years out number bad by 4-6 to one. Some of newer investors may be getting heartburn. But, 5 years is a short time period in investing. The average retirement investor will be investing for decades. You just paid $800 tuition in the school of hard knocks. What lessons have you learned? I can think of a few. Diversification helps manage risks. Stock markets don't go up all the time. But, when you invest in stocks you are backing capitalism, growth, a better future, etc. compared with "zero risk" CDs and other IOUs. Join me on a historical digression about the Dutch in NYC: "It was under Stuyvesant, in 1653, that the town was formally incorporated as a city.... The struggling days of pioneer squalor were over, and New Amsterdan had taken on the look of a quaint little Dutch seaport town, with a touch of picturesqueness from its wild surroundings. As there was ever menace of attack, not only by the savages but by the New Englanders, the city needed a barrier for defense on the landward side; and so, on the present site of Wall Street, a high, strong stockade of upright timbers, with occasional blockhouses as bastions, stretched across the island. Where Canal Street now is, the settlers had dug a canal to connect the marshes on either side of the neck. There were many clear pools and rivulets of water; on the banks of one of them the girls were wont to spread the house linen they had washed, and the path by which they walked thither gave its name to the street that is yet called Maiden Lane. Manhattan Island was still, for the most part, a tangled wilderness. The wolves wrought such havoc among the cattle, as they grazed loose in the woods, that a special reward was given for their scalps, if taken on the island." [ http://www.bartleby.com/171/3.html ] Wolves in Manhatten! And this kind did not whistle from construction sites. The historical legend is that Stuyversant's son convinced dad to surrender to the British because as mechants they made money regardless of who owned Manhatten. Wall Street was created in a time when wolves were as much a threat as terrorism British. Buying stocks and owning stock mutual funds is buying into growth, a better future (bulls and bears rather than wolves!), invention, productivity, etc. Some of the reasons why we don't wear wooden shoes and own blunderbusts.

It would have helped if you could have given a little background about yourself before asking the original questions. There is a big difference between the average person wanting to do real estate investing with an IRA and a professional involved in real estate. Your first post asked a lot of questions and provided very little background information. You made comments about a 2004 conversion and paying taxes our of your IRA which suggested that you had not read back posts at this site and was familiar with Roth conversion rules and math. Perhaps I got off on the wrong track trying to respond. Your follow-up posts said: 2. I am not concerned with spending $4,000 if it is the right price. I know the cost of setting up a regular LLC - it is nowhere near $4,000. REPLY - the last three real estate LLCs that came across my desk cost more than 10x the $4k to set up. Perhaps you are only talking about simple LLC involving just yourself - your post is not clear on that point. An LLC, private corp. or sub S can have a low out of pocket cost... under $100 in some states if you pursue the do-it-yourself approach. Jump that to $1000 using a lawyer/CPA and perhaps more in NYC. BUT, your proposal involves real estate and IRAs, which raises the complexity. Some professionals will not want this work because of the potential liability exposure of making a mistake - a cost associated with doing relatively rare transaction. Do not be surprised if the professionals you chose to hire are unwilling to give you a flat rate. I would want a time and expenses arrangement when there is uncertainty and perhaps iterations. There are plenty of ways to find a CPA... the internet, yellow pages, etc. If you are an active real estate professional, why are you bringing this question to this message board? Start with your accountant, lawyer, tax professional, and real estate contacts. Your local networking will narrow the field. 5. I am not quite sure what you mean by reserves. As Mbozek mentioned in a different post, how do you plan to solve the problem of a "cash call". If you buy real estate in a LLC and a downdraft in the economy causes you to go upside down, how do you solve a potential "cash call" problem? The actions you might want to take could violate the tax structure you have built. Sometimes folks who post on this message board have completely committed all of their assets leaving no available cash reserves. Your comment about paying the taxes with IRA assets suggested that you have no outside cash reserves, but your posts did not mention outside resources. Because you are planning to invest in real estate, your IRA/Roth is less liquid and can not readily serve as a cash reserve. Also note, there are prohibitions on pledging IRA/Roth assets for a loan. The CPAs and tax professionals who respond to questions may be able to help you if you post more details about your specific circumstances. No one can answer a generic question like this "Are there any reliable ways to calculate whether or not this is a good idea?" Try posting a tighter question with enough background information.

Valerie, Let me give you some perspective on my comments. I have been posting here for over 5 years. During that time we have probably had 30+ questions come up about unusual investments (some allowed in Roths, some not) and I don't remember a single time when the author provided any evidence of substantial experience in the field. My "esoteric" comment was made in the context of the array of alternatives that have been proposed and was made in a larger context than real estate. Of course, real estate is a viable investment. It is modest part of my investments including LLCs in Washington/LA and some condos. I know the process/math. Your question was not the viability of real estate, but specifically using a IRA. I concurred with Mbozek's cautions and my remarks extended beyond his points. There are two audiances on this message board, the specific author and the general public that also reads the answers. You gave use very little information about yourself, so I chose to address the larger issue of chasing performance by reaching for esoteric investments. For the bulk of the people who read this message board, real estate investments in a IRA or Roth just won't work.