John G

Accounts might not yet show up as unclaimed funds. You might want to look old checks for deposits. Ask at each institution where you find funds if there are any other accounts. Ask at each institution in the neighborhood. My mother assisted a relative when a very distant relative died in NYC. She walked to the nearest four banks and asked "I would like to obtain a list of ALL of the accounts associated with Ms XYZ". This lead to lots of leads, safe deposit boxes, etc. They also used the names on the sides of toaster oven boxes (gifts from new accounts). After four weeks, they had discovered nearly a million dollars in obscure stock certificates, old passbooks, CDs that kept renewing, etc. They concluded that there was clearly things they did not find. The deceased woman had lived as a bag lady for many decades in a rent controlled apartment. No one in the building knew about her resources except perhaps the landlord who "volunteered" to clean out the old apartment. Volunteered? In New York City? That gave my mother an idea that there were assets.

You will not find this topic covered in IRS Pub 590. You are not likely to a brokerage that will support a "speculative" trading account for an IRA or Roth. It does not make sense to me to have a small trading account in a tax shelter where you have trouble writing off any losses. Any kind of trading takes up a lot of time and concentration. It seems unlikely that doing all this just to work a 10k account three years in the future is cost effective. You original post did not suggest that your had the investing experience, assets, income or academic training to qualify for a speculative trading account. I would not recommend this path.

The fee is an annual fee. So, if you have accounts in 2004, 2005 and 2006 you pay 10 x 3 or $30 unless you rise above the 10K threshold. Vanguards $10 is at the low end of the range for custodians.

None. You can always withdraw contributions to a Roth without a tax event. You actually have a slight loss, but claiming a loss is complicated and is probably not going to work for you. I am curious why you withdrew the Roth funds. Normally, you want to keep you tax shelters for as long as possible with as much inside as possible. It looks like you invested too "aggresively" as after four years you are modestly down. Stock markets due flucuate, but most broad based equity investments are up slightly over this time period.

Reporting in on the road in Florida.... Options in a Roth. There are two sources of restrictions. First the IRS rules on what are allowed in a Roth or IRA. I have never found a really definitive source for these and if my memory serves, Pub 590 does not cover this. By far, the more important source of restriction are the rules/guidelines set by each custodian. Custodians can refuse to support some investments that the do not upset the IRS. Not all custodians will impose the same restrictions. One of the reasons some investments may be restricted is because they expose the Roth/IRA to unlimited liability. For example, sell a naked call. Consider someone who has a 10k Roth and sells a naked call in XYZ Corp. Suppose the market moves against his position and he needs 20k to close out the postion. How can he do that in a 10K Roth? Another reason why custodians limit the types of options you can use in a Roth is because they either are not interested in that narrow market segment or perhaps they assume that most folks with Roths (a relatively new investment vehicle) are not likely to have the skills to use options. Or maybe they want a simple Roth department and don't want to devote labor to fixing problems that may arise. Another reason you may find your account restricted is because you either never filled out the option part of the application or you did not meet the experience, asset or income tests for your specific custodian. Options that may be allowed: selling covered calls and simple buying of calls. The first means you are selling an option on a stock you own. If the market moves against your position, you simple have your shares called. The second type puts only the "premium" paid for the option at risk. While you may not have the funds to exercise the option, you could certainly sell the option if the stock price rose. Note to novice and intermediate skill investors - You should not even be thinking about options in a Roth or IRA. If you do not know what a "straddle" is or know the date each month when options expire... then you should not be even considering any options. Option investing requires more intensive monitoring. The spread between bids and asks is large. The percentage of the trade that is consumed by commissions is high. Options are leveraged transactions and are not needed in a Roth to achieve basic retirement objectives. You are likely to be limited to just a few simple options (if any) in a Roth or IRA. Disclosure: I do a lot of different kinds of investing and have used various options. They are no magic cure or miracle solution, just one of many tools an advanced investor might consider.

Glad we got you off to a good start in 2005. Remember, we are mostly talking about very subtle shades of gray, rather than black and white terms, and that no one can tell you with any reliability which approach will work best over any particular timeframe. Often a simple approach can be very successful. DH, TY, and Gburns all gave you useful feedback. Post again if you have other issues.... and good luck with the business courses.

DH, it looks like you have fallen in love with Fidelity. Yes, they are a great outfit and they have some of my money, but they don't need a billboard advertisement on this message board. They are one of many choices and there are not huge differences between brokerages and mutual funds. Spartan funds do not apply to someone who thinks they have only $2,000 to start an IRA. Please focus posts on what is relevent to the original question. We want to encourage people to read info here and bulk posts that stray off the question can be detrimental. (done that a few times myself, a tight focus on the question can be elusive) Your point about monthly contributions is a good one. Many mutual funds and brokerages want to sign folks up for monthly contributions and often give a break on initial contribution or annual fees. It is always worth asking about this with each custodian. I hope everyone had a prosperous and enjoyable 2004. Book another positive year for the major markets. No reason at this point to think we can not "three-peat".

Mushberger? Not! I go OT (office topic) to clarify that it absolutely was Keith Jackson, who broadcast football games for ABC for 32 years, retired, then came back again. Q: "Whoa Nellie" and all of your sayings- where did they come from? A: "Whoa Nellie" is an overrated and overstated thing and one that I almost never use. Bob Griese, my former broadcast partner, would chirp about it until I'd finally say it... It was something the media picked up on. I had a mule, all right, growing up as a kid on a farm, but her name was pearl. From an interview with Keith Jackson: http://www.americansportscasters.com/jackson5.html There were some prior uses of the phrase on Sky King, which I know was before your time. I was mimicing Keith Jackson. The comparable phrase today on ESPN is "not so fast, ____" Back to business - I very strongly recommend two easy reads for folks just getting started. Each March, Consumer Reports, puts together a number of articles on investing designed for those with limited investing experience. Kiplinger Financial magazine has coverage of Roths, IRAs, credit card, debt mgmt, home ownership, careers, etc. that you should find useful. The annual subscription is around $15. (Note, they are a little too cheery about individual stock selections... and those ideas are often outdate by the time you read about it in Kiplinger. )

Round 2 : Vanguard Vanguard has been around for a long time and is a well respected mutual fund family. They are most noted for index funds (more about them later) and have generally focused on low cost mail or internet connections to customers rather than having branch offices like Fidelity. I am going to narrowly look at just two options: the S&P500 index fund and their Target Return 2045. The 500 index fund has been around for a long time and done a great job for it shareholders (you own shares of a mutual fund) and annoyed almost the entire mutual fund industry because they have ultra low annual expenses and given a great long term net of 12.29% return since 1976. What do you get with this fund? Probably a desktop PC making simple mathematical decisions about how many shares to own of the 500 largest companies in the US. Turnover is just 2%. Holding include names you will recognize: GE, Microsoft, Johnson & Johnson, Pfizer, Citigroup, Walmart, etc. These are all call big cap companies. Since everything is done based upon a list, costs are very low.... annual expenses are 0.18%. What you don't get is Harvard and Wharton graduates in great numbers reading company filings, visiting corporate offices, reading analyst reports, etc. A short digression: When John Bogle first came up with the concept of index funds, the "actively managed" fund families said it would not work. Surely, smart people picking great companies is better than a stupid PC making small adjustments based upon a list. Well, that debate continues because the performance of the S&P500 fund has given a great net return to investors. When this fund was created, many managed funds were charging LOADS (commissions) and annual expenses were often much higher than today. Even the early NO LOAD funds often had annual expenses in the 1.5 to 2.5%. A dumb list with very little taken out for expenses embarassed a lot of actively managed funds with high expenses. Bogle's invention changed the industry. Target Retirement 2045 is a very different beast. First, this fund is very new (Oct 2003) ... probably a marketing reaction to folks like Fidelity a few years earlier. The 2045 does not directly hold any stocks, rather it invests in four Vanguard funds, three stock and one bond. About 11% of the portfolio is in bonds. Somewhere in the 17% range of this fund is in Asian or European funds. The annual expense ratio is 0.21%. No reliable return data, this fund would have the composite return of the four underlying funds. In Vanguards case, you are getting a blended "life cycle" fund at a very low annual expense that has not significant track record. The annual rate of return over the long haul will be suppressed to the extent of the bond holdings. The bond component adds a steadier income flow at the expense of growth. I don't see why you want this at the age of 20.... but that is my bias. I am not a big fan of letting others make your investment decisions and putting everything on auto pilot. You might be well served by this choice, but it does nothing to encourage you to learn about investing and making choices. Simpler, yes. Better, not so sure. The S&P500 fund might be a better choice from the perspective that 100% of your funds would be in equities (aka stocks). While you have good diversity in numbers and industries, you get nothing from small and mid size companies that are often the growth engine of the economy. SUMMARY: I would give a slight edge to either of these two products from Vanguard over Fidelity, and favor a 100% stock over a blend strategy for some your age. Actively managed vs. passive indexing. They both work. You are looking at a subset of choices from Fidelity and Vanguard that are significantly better than many other investment options. All would likely meet your investment goals. My purpose in these two write-ups was to give you some ideas about how someone with more investmetn experience might think about the choices. I could have added more info on Beta and manager tenure.... but I think I may have already given you too much. Think Nike. Just do it. Don't use perfection as a standard - it can't be done.

It is good to see that you have taken the plunge. Yes, I am very familiar with Fidelity and many of their products.... my first brokerage/fund accounts were with them. They offer over 175 mutual funds. Do note that Fidelity wants $2500 initial contribution for Roth retirement accounts. This entire message focuses just on Fidelity choices. They are a very reputable firm but I make no endorsement or recommendation - I firmly believe in informed citizens making their own choices. The Fidelity web page list reference is: http://personal.fidelity.com/products/funds/ Angie, I am not surprised that the Fidelity rep talked with you about the Freedom 2040 fund. Most fund families keep inventing new funds as part of their marketing strategy. The Freedom series appears to be designed for the novice investor who might be happy about being relieved of "decisions" about investing over time... its on auto pilot, changing as you get older. Great name - "Freedom". The 2040 fund may do just fine, but basically it is a gimic. From Fidelity's perspective it works if they get your money and since they promote that it is on auto pilot for 40 years, you are likely to stay around. The question is does this choice work for you, and you, not Fidelity is responsible to deciding that. (just straight talk, I am not trying to be overly cynical) Why do I not like these new gadget funds? Well, lets look at this one. As you noted, the fund "leaks" 0.91% for expenses each year, which while in the middle of the range for the industry is high by my standards. Did you look at the "portfolio"? This fund basically farms out blocks of money to a other Fidelity equity and bond funds. There are zero direct holdings. So you are not directly investing but investing in another layer of Fidelity. Layers upon layers is not efficient and some day Fidelity might increase the expenses of this fund - they even told you this "The fund's investment adviser has voluntarily agreed to limit expenses. Without the adviser's reimbursement of some expenses, the fund's total return and yield would be lower. A fund's expense limitation may be terminated at anytime, unless otherwise stated. The Combined Total Expense Ratio for Freedom 2005, Freedom 2015, Freedom 2025, and Freedom 2035 is estimated. " Funds holding other funds does not dramatically change your "diversification", there is a lot of overlap in holdings. I remember one TV guru saying funds holding funds therefore represents the "whole market" - and the moderator queried "Don't we already have whole market index funds that do the same thing?" Bingo. Why have high expenses for a fund of funds when a total market index does virtually the same thing at less expense? To see the data I reviewed before making the following comments, open a second window with the above webpage, click "Fidelity Mutual Funds" on the left, then click on "175 Funds", then click on "Domestic Equity" to display over 40 mutual funds emphasizing stocks in the USA. If you were to go with Fidelity, I would pick from this list of domestic equity funds. (Note, many of these like Fidelity Fund, Growth and Income, and Equity Income are components of the Freedome 2040) No one can tell you which choice will be best or even in the top 20% over any given period of time. Past performance of funds can NOT tell you about future performance - the SEC requires this statement for a reason. I look at the 10 year and "life of fund" annual returns because they suggest how the fund investment theme works. If you have read my prior notes on this message board you will see that I have warned many times about chasing last years performance winners. Lets examine some of these equity funds, keeping in mind the prior performance caveats: A few funds included in Freedom 2040: Fidelity Fund - large company blend of growth/value, 0.61 expense Growth and Income - large company blend, 0.70 expense Equity Income - large company value, 0.70 expense These three funds have all had long run averages above 10%/year which is good. You will meet most of your investment goals if you can average 10% or better. Because the expense ratios of these are a little less than the 2040 fund, you might net more by directly investing with a component fund. I found it interesting that a few Fidelity equity funds I like better are not in Freedome 2040: Contra (FCNTX) - large cap growth / contrarian , 0.95 expense,13.6%/year increase over past ten years, over 13% annual return since 1967 and a Beta of 0.52 (meaning does not ramp up and down as much with stock market, a measure of volatility) MidCap Stocks (FMCSX) - mid size companies and growth, 0.70, averaging 14% annual since 1994 Value Strategies (FSLSX) - small company growth/value blend, 0.84% expense, averaging 13.65% in the past ten years and 14.15% since 1983. Contra has been a champ for a very long time and seems to not get hurt as badly in down years. Midcap and Value Strategies are what I would call more "aggressive" funds, they typically swing more than the market. I am not happy about the expense ratios for Contra and Value, but the net performance has been good on all three. These funds shift their strategies slightly to improve their returns. I might be inclined to go with Contra... run by William Danoff, a Harvard and Wharton graduate. SUMMARY: If you decide on Fidelity, all 6 choices I have listed are likely to do just fine over a long period of time. I would expect them to do better for you than 2040 because they do not have the bond component that "stabilizes" the annual returns. At your age, if you understand short term stock market flucuations, I would put all of your funds into one of these equity funds. (again, remember the $2,500 initial requirement) Next message on Vanguard.

"make it 4,000" - not allowed for 2004. The max contribution is $3,000 for 2004 unless you get the $3,500 max if you are over the age of 50. DH, you keep flooding newbies with books that are way beyond the scope of the person who first posted. It does not make a lot of sense to recommend books on banking, economic cycles and the great depression. Flooding folks with too much information can backfire, suggesting that you must read all these books before you can get started. Beginning investing is just not that complicated, and the books your list for the most part far removed from "how do I do this". Please keep your response focused tightly on the question and what the author has disclosed about their circumstances. Before you post, read your draft carefully so as not to inadvertently mislead folks, such as the current year maximum contributions. As one of the moderators of this message board, I will step in to close a thread, delete posts, etc. when answers are either non-responsive, include errors, use inappropriate language, drift too far from the question, appear primarily self promotional, or make commerical plugs.

Contributions can only be made if you meet the income qualification in the year of the contribution. Once put into the Roth account, there is not further qualification for those assets. However, new contributions must each year be supported by income and tax filing status qualifications. As prior author said: yes, you "deploy" the funds in some kind of investment, stocks, bonds, money market and mutual funds are the primary choices. The whole point is to grow these assets to stay ahead of inflation and to meet your objectives.

Yes, you can go directly to mutual funds or a brokerage. With a mutual fund, your choices normally are just from funds in their "family" and since most fund families have lots of choices that is not much of a restriction. Annual fees may be lower. Almost all funds have website services, but are less likely to have a branch office in your city. Brokerages generally have more branch offices, offer a wider array of fund choices, and anywhere from zero to too high ($50) annual fees. Remember the "I" in IRA stands for individual. You are going to be opening separate accounts, each in your own name. As you can tell from many of the "I'm getting started" posts on this message board, it is easy for folks to get confused. New terms, new institutions, first choices.... if you need more info, post again. I can't say anything about ScotTrade as I have had no prior business relationships with them. Competition drives all brokerages to offer nearly identical services... there is probably 90% overlap. All brokerages/funds have a very low percent of problems.... annoying if you get caught up in one, but in my opinion a much lower error rate than car dealerships, airlines, dry cleaners, schools, etc. Assuming that you have a sufficient number of NO LOAD mutual funds and that there fees are reasonable, go ahead.

Dollar cost averaging can be done with both stocks and mutual funds. Additional comments: First, i know that i should be investing in more aggressive stocks? since i'm starting young..... When i was looking at vanguard's website, I would probably consider myself a "balance" stock risk taker.. (FDEGX)... spartan 500 index fund (FSMKX).... are these all mutual funds as oppose to stock?? REPLY: They are all mutual funds. Anything with five letters ending in X is a mutual fund. Since you are wisely starting early, any general purpose mutual fund representing broadly the stock market is a reasonable choice. For some people, "aggressive" is investing in any stocks. I view "aggressive" more as narrowly cast investments such as sector funds, high growth companies, micro-caps... in other words any narrowly defined investment that seeks above average returns at higher risk. You are going to be investing for way more than 40 years (40 just gets you to retirement age, you will likely live many decades beyond that point) so you can get good results with even a fund that has a stock/bond blend. Don't worry too much about what you choose initially, you will learn more as you go. So, the next part of my question where I'm a bit confused is,.. let's say i choose the index fund, is all of the $2000 going to just (FSMKX)? and if so, then the next year, if i put in another $2000 or i choose to put it in monthly, do i put into FSMKX again or should i choose another one??? don't understand what happens afterwards (the first year i suppose).. but i'm sure that shouldn't be a main concern at this point, just curious. REPLY: Keep things simple initially. Just choose one general purpose fund and put it all year 1 contributions in that fund. You can put all of year 2 there as well. After your assets grow beyond 10k and you have a better feel for your choices, you might want to have two funds.... but some folks use one general fund for a very long time. A general purpose stock mutual fund gives you a lot of diversification - often holding 500+ different stocks. Note, at your age you can contribute up to 3,000 in 2004 and next year the max jumps up to $4,000. Monthly or lump contributions - the choice is yours, both work. Monthly would be the dollar cost averaging approach. Some folks like to max out in January so that funds are in the tax shelter longer. Both approaches have advantages. Do what works for you. If you were to just do 2k each year for till your are 62 and obtain an average 10% gain, you would have just over $1 million in your Roth. You probably did not expect to be a millionaire some day, but in all likelihood you will do even better than that if you have the discipline to stick to a plan. I also understand that no one could possible tell me which is the right one to choose from.. but i have no direction.. When peopel open up roth ira, is it mostly done online? I tend to like face to face interaction. REPLY: If you live in a major city, you will find some local "branches" of Scwab, Fidelity, Scottrade, Etrade, etc. For face to face choices, look in your phone book under stock brokers or mutual funds. Remember, some of these folks make their money by selling you commission products... so ask for NO LOAD funds, ask about fees and commissions. If you have trouble decifering what they say, post again here. Lots of folks also are very comfortable with online transactions - just be sure you are dealing with a reputable firm. Virtually all brokerages and funds have "I'm just a beginner" material. Ask for it. They want the business of young customers (retirement investors tend to stick around for many years) and my experience is that they will spend some time with you on the phone or in person to get you started. You might want to contact three custodians, ask for assistance and beginner info and then decide on who will be your custodian. You always have the opportunity later to change custodians and change investment choices. SUMMARY: Don't overcomplicate your initial step. While you want your investments to grow, equally important is learning more about investing. You are wise to consider investing early - time is your friend. On your investing education, I suggest that you get a subscription to Kiplinger Financial (about $14/yr) and spend 2 hours a month reading about investing, credit cards, careers, etc.

As one of the famous football announcers would say "Whooooaaaa nelie". Schedule D ? ? Are we talking about Roths or IRAs? These retirement accounts do not produce any reportable transactions for a schedule D. No custodian gives you a schedule D for any kind of IRA/Roth. Long term, short term capital gains - are a meaningless concept with IRAs/Roths. Schedule D is for your taxable accounts. Normal Roth dispersments are not taxed. Normal IRA dispersements are taxed as ordinary income. (please pardon the simplification of those two sentences) There is not a lot of differences between custodians in the US. Almost all have websites, lots of investment options, decent reports, and very similar monthly/annual statements. It does not matter much if you choose a brokerage or a mutual fund. Personal tastes are likely to rule - do you need a local office, do you have an existing relationship, etc. If you rule out high fee brokerages and loaded (commission based) mutual funds, and high annual expense funds, you are left with about 1/2 of all investment options where the fees do not vary that much.

Can't answer your question, but I suggest that the issue might have been addressed by the court that ordered or signed off on the settlement. A closely related issue would have occured with the NASDAQ settlement about trading practices where checks were distributed to "damaged" parties.

I should have addressed brokerage vs mutual funds (direct). You can go either way. If your income is high and you plan to have other investment activities, perhaps that tips the decision in the direction of brokerages. I still would be expecting you to buy mutual funds through the brokerage because stock picking requires more time and experience. Most brokerages (Schwab, Fidelity, Etrade, Scottrade, etc.) offer a large range of mutual funds that can be purchased at either no fee or minimal fee. You will have access to more funds that if you just chose a mutual fund family. However, if for the next few years the Roth is going to be your primary investment activity, then just selecting a mutual fund family has some advantages. You will probably have the lowest possible fee/expense overhead. While you may not have as many funds to select from, each family has plenty of choices. There are close to 10,000 mutual funds. You are not going to study them all, not even 1000, not even 100. I suggest that you use a short list, such as provided by Consumer Reports each March, and choose a maximum of 5 funds to examine. Then stick with one for atleast two years. Some folks want to have 2, 3 or more mutual funds initially. Why? As a beginner you probably do not have the skills to make fine tuning choices. A mutual fund, by its very nature, is a diversified investment. When you own three, there will be a remarkable amoung of overlap in holdings.... a chunk of Microsoft, Johnson and Johnson, Marriott, etc. Overlaping holdings does not improve diversification, it might give you a false sense of "safety". Keep your life simple, chose one fund and you will have less paperwork and can track it more easily.

Hidden fees? The SEC works very hard to make fees transparent, you just need to read the materials. Annual custodian maintenance fee - per IRA or per fund, usually in the $10 to 40 range. Some places are zero. Some are zero if you contribute monthly. Some are waived if you have other business ties or assets above a specific threshold. If I recall, Vanguard is $10, Etrade is zero if you chose electronic notifications. Commissions - none if you chose a NO LOAD mutual fund. I do not recommend beginning investors owning specific stocks for many reasons. Annual expenses - low end for index funds is under 0.2% annual, high end for international and sector funds (not recommended for other reasons) can be significantly above 2.5% If all other things are equal, a lower annual expense rate is better... you keep more of your returns. Other fees - some custodians will charge for closing an account or taking distributions, probably not a factor for you. My advice, spend more time learning about investing in general. Sketching out your plan and tracking your progress. Initially, I would pick a good general purpose mutual fund or index fund and not sweat the details of performance. It is not possible to optimize ever, not now when you are getting started, not latter when you have years of experience. Pick a fund and just get on with your life. After two years, maybe, just maybe your will be looking for another fund. You don't want to chase last years winners - this is a losing strategy.

Mbozek, you are spot on with your comment about the opportunity cost related to what would be the growth of assets that are used to pay taxes. If you have taken an economics class, you might remember "opportunity cost". Even if you are trained in financial modeling, you still might make mistakes with the analysis of a Roth IRA conversion, much less on chosing the assumptions. Modeling a Roth conversion is not simple matter. You have lots of assumptions to make future: taxes, Roth/IRA rules, state of residence, life expectancy, investment earnings are just a few of the major ones. Our ability to predict future events is very limited. I was trained as a planner - and I know how hard it is to get it right even looking out just a few years. A little exercise for every reader. How good are your predictions about the future? Before you answer, do this exercise....... Go back 10 years and think about what changes happened in your life during that time you never predicted. Can't think of any? How about the Roth IRA itself... didn't exist 10 years ago. Did you move? Did you change jobs? An inheritance? A promotion? Children born or adopted? A health change? A marriage? A divorce? Now go back 20 years and do the same exercise. When I first started looking at Roth conversions in 1998, I too thought it was a slam dunk in favor of Roths. I now recognize that very often it slightly favors Roths or is a draw. What you assume about the future makes a huge difference. As I mentioned before, I have some experience with some clear exceptions for Roth conversions. Some simple guidelines: Consider converting in a year when your income is severly depressed. Consider converting if your future income tax rates are going to go through the roof (high income professionals - such as two lawyers in high income practices who are not likely to see lower tax rates when their income and assets climb. Consider converting if you have unusual investment opportunities - I have a friend who has been earning over 35% annually since 1998 in his converted Roth (a large account) which will throw him forever into the top tax bracket - a circumstance that not even 1 in 500 is likely to face. Don't convert if your conversion would be taxed in the state where you live but you plan to move to one of the state without an income tax (NH, TX, FL, etc.). Don't convert if you expect that your income or tax rate in some future years will decline (wait until then, run the risk that the rules and eligibility hold). Consider converting if you are luck enough to live in a state with no income tax but may move to a state with income taxes in the future. Never convert if you can't pay the taxes with non-IRA funds. Finally, DO NOT CONVERT if you have not run your idea past one or more neutral parties like an accountant or a financial advisor. Get a second and third opinion about your choice. Note this applies to Roth conversions. Roth contributor accounts are almost always a great idea and are influenced by completely different factors.

The rollover and conversion may be a good idea... you did not provide enough info to give you good advice. Info needed on: 1. Current approximate income. 2. 1040 filing status, married, single? 3. Can you pay the taxes for the conversion with non-IRA or non-401k money? 4. What 401K options due you have with the new employer (an alternative would be to see if you can move 401a into 401b. 5. Investing knowledge? How do you plan to invest the Roth? 6. Income tax rate (if any) for your state? It is a holiday weekend, I hope I got the key data right. You normally do not want to even thing about conversions if you must use the IRA or 401k funds to pay the taxes that would be due. Rollover and conversion might make sense if your income was lower this year because of a gap between the two jobs.

1. Taxes should be paid out of non-IRA funds. I don't think even twisted examples are exceptions. 2. For almost all people, the common assumption is that rates of return inside the IRA and for taxable funds are the same. With rare exceptions, the rate or return will not change the evaluation for Roth conversions. An extremely rare exception is when a taxpayer has opportunities for very high rates of return on only part of his assets. In this case, the Roth can benefit very much from the selective investments. {I am not talking about just "hoping" that your Roth investments will perform better, but in that rare instance when you know that a small part of your investments will perform way above average. I can't say anything further about this, but I know a few people who have these circumstances.} 3. Roth conversion is not a slam dunk better for all folks. In many instances it is very close to a draw because the best assumption is same taxation now and in the future and the same rate of return inside and outside the Roth. Where Roth conversions work best are when: (1) unemployment or other circumstance drops taxable income in one year, (2) early in your career when you expect to have higher incomes, (3) to gain some flexibility on mandatory distributions, (4) related to estate planning and (5) to convert before you no longer qualify due to income. DO NOT assume that a conversion is advantageous for you and get a professional (accountant, financial planner or tax advisor) to review your circumstance. There are a lot of assumptions in modeling a Roth conversion. It seems that if people want to convert, they tend to use positively biased assumptions. Get a second opinion.

Moderator to responders: I have deleted all of the messages associated with this question because 90% was completely off topic. Focus on the question, please! Do not promote OT products, detour into lifestyle issues, or snipping. I regret that some good advice was deleted, but suggest that a fresh start is in order. The message stream I deleted was not a good example of what we can do here. Ahighland: You can search this message board using key words or phrases like getting started, beginner, or newbie. You are wise to think about your future and to consider starting an investment program now, even with limited funds. Examples related to your topic you would find include: http://benefitslink.com/boards/index.php?s...t=0entry85197 http://benefitslink.com/boards/index.php?s...t=0entry62219 http://benefitslink.com/boards/index.php?s...t=0entry97194 http://benefitslink.com/boards/index.php?s...5233&hl=started http://benefitslink.com/boards/index.php?s...5411&hl=started http://benefitslink.com/boards/index.php?showtopic=24759 http://benefitslink.com/boards/index.php?showtopic=22096 http://benefitslink.com/boards/index.php?showtopic=24151 I did not test each of these to see if they work. Give it a try. All authors are invited to respond to the original question. But, please focus on "the customer", an 18 year old wanting to start investing with a Roth. Specifically, the original post asked about how to get started with a modest amount of funds, the "minimums" issue.

If all you are looking at is convert now versus convert later and there is a tax gap of 7% from one location to another, then your conclusion is correct. Some "buts" to think about: Nevada may change their taxation policy. You may not move. US government may change conversion rules. (+ or -) You may not be eligible in the future to convert because of your income. Rates of return have no impact on the decision unless they differ between taxable and tax sheltered accounts or unless the rate of return increases your assets and bumps you to higher tax brackets. You are correct that the current lower tax rates of long term capital gains and some dividends cuts into the advantage of IRAs. However, they have no impact between Roths and IRAs, just between tax shelters and tax able brokerage accounts. I am not so sure you should assume that the favorable LTCG and dividend rates will continue. Also note, not all dividends get this favorable treatment. REITS do not. I think some foreign company dividends are also excluded. There is also a complicated 60 day holding period so dividends from recent stock purchases don't count. Often, a hybrid strategy that combines IRA, Roth and taxable brokerage is a solid way to proceed. This gives you some control over distributions. You then have three different places to put your investment choices. I suspect that there are non-taxation issues that may also be important drivers. If you post again, you might want to add info about your age, current income, career/retirement plans, marital status, etc.

I understand that most major custodians, like Fidelity and Schwab, have handled recharacterizations many times and have proceedures for allocating earnings to assets that are moving back. Call your custodian and discuss the circumstances. In your example, you indicate a tax impact of $25K of just $2,500 or 10%. A conversion where you only pay 10% taxes should look very attractive. Don't forget to include state income taxes when you do the math.

Kathy, it is unfortunate that there are not more folks with investing experience that are willing to post on this site. When I first arrived here, there were none. I was looking for info on conversions in 1998. It is also sad that there are not many message boards were you can get investment advice. Yahooland is filled with touts, ill-informed, flames, vulgar, and deliberate mis-informing. As a stock picker, always looking for new ideas, I participate in a few niche message boards. One of these, www.valueforum.com , is a pay site ($100/year) that has about 800 members, but this site mostly deals with dividend paying stocks and various "value" stocks rather than any focus on mutual funds. They have over 100 posts each day and active debates about REITS, canroys, international stocks, oil&gas, tankers, etc. Perhaps other readers can suggest a message board or place for Q&A for beginining investors where mutual funds might be covered?