John G

You have asked a good question. I can probably give you a better answer if I have some additional information. About what year do you think will be the start of your retirement? Can I assume that your health is OK and you will have an average life expectancy? Have you gone to Social Security to get some idea of what your SSN payments might be? If not, you should do this. Are you likely to have a pension upon retirement? What is the rough amount of the lump sum you are expecting? You are likely to chose different options if it is under $20,000, or under $50,000. Would you like to grow these funds until a certain date and then take monthly amounts for living expenses? I am assuming that the reference to 25% is the match in your 401K. One of you options is to invest $3,500 each year in a Roth as long as you have earned income and otherwise qualify. This amount and any additional funds could be invested mutual funds, CDs, or bonds. There are many many choices. Post again and I will try to respond.

Yes, I assumed that from the dollars and the age. You are way ahead of most folks your age... maybe ten years ahead. Don't worry a lot about your investment choice right now. In a bad year, consider the loss the "Tuition" you are paying in the real world. Some of my bad years could pay for 4 years at Princeton, but you want to understand enought to realize that your good years will over the long haul be more common and get you that long term 10% or better. Do embark on perhaps 2 hours a month devoted to reading about investing, finance, home ownership, credit, etc. Kiplinger Financial mag is probably the best choice for 20 somethings - and a year costs about $15. You will get many good ideas and save more than that for sure.

My response based upon a quick look.... Vanguard says: Vanguard® Target Retirement® 2045 Fund invests in other Vanguard mutual funds... designed for investors planning to retire around 2045. The fund's asset allocation will become more conservative over time. Within five years after 2045, the fund's asset allocation should be similar to that of the Target Retirement® Income Fund. The current four funds: 72% Vanguard® Total Stock Market Index Fund 10% Vanguard® Total Bond Market Index Fund 13% Vanguard® European Stock Index Fund 05% Vanguard® Pacific Stock Index Fund The fund's indirect stock holdings consist substantially of large-capitalization U.S. stocks.... Its indirect bond holdings are a diversified mix of investment-grade taxable U.S. government, U.S. agency, and corporate bonds, as well as mortgage-backed securities, all with maturities of more than 1 year. Average Weighted Expense ratio as of 08/31/2004 0.21% Inception date 10/27/2003 FEES: Roth $10 a year for each fund account having a balance of less than $5,000, although we automatically waive this fee if you have assets totaling $50,000 or more at Vanguard I say.... Vanguard is no load, no expense... that is good. This is a very new fund... but it is really a composite of funds that have been around for a while. You want to go more aggressive on a total stock market fund? Did you know that 2045 is 72% total stock market? Total stock market gives you market performance, I would not call that very aggressive since total market includes utilities, railroads, basic materials, and is mostly large size (cap or capitalization) companies. If you want to be slightly more aggressive, mid or small cap growth would be expected to give you slightly better returns. Why have multiple accounts when this account already covers four areas - three accounts are $20 higher in fees then if you have only 1 account. For the moment you only are talking about $3,000. The fees are inconsequencial later on when you assets grow... note above 5k and Vanguard does not charge any annual fee. If you want to have three funds to see how they perform.... then have three funds and skip the multiple fund composits. Second, this is a awfully conservative portfolio for someone investing for the next 4 decades. It should do the job, but I would be inclined to bias your portfolio more heavily on growth. This assumes you understand the short run fluctuations and have no problems with the risks. You shouldn't have problems with risk if you understand the long term trends in stocks. Good years out number bad years by 5:1 or better and the good years tend to be more up than the worse years are down. Pick one fund this year. Either fund it again next year, or choose a second fund. Do not go fund happy, there is a lot of overlap in fund holdings. You may never need more than a few general purpose funds. There is a lot to keeping your investments simple.

15-20 years? That may be the years to retirement, but you are going to need to understand investing for a lot longer than that, it is not bizzare to think you might live 30 years beyond retirement, even more if you are retiring early. Steps you can take to learn more about investing: 1. Subscribe to Money, Worth, or Kiplinger Financial and dedicate 2 hours each month to reading the articles and the ads. 2. Ask your brokerage if they have "classes" or tutorials. For example, Charles Schwab holds some seminars for beginners. Many brokerages have on line tutorials. If you expect to use mutual funds, try visiting Vanguard's web site and look at their support. Almost every brokerage and mutual fund has pamphlets on investing basics - ya just gotta ask! 3. Your local library and every bookstore has way too many books to read about investing. 4. Consider joining an investment club. Some are very good, others are weak. The concept here is that you learn to research stocks as a group and contribute some amount of money each month that goes into an investment portfolio. Normally this does not do anything for your retirement account, but it might help you learn more. Why is your 401 not working out? They are better when there is a match - true. But, who is making the investment decisions now? And what are your choices? Did you know that you can do both 401 and Roth? Doing both might make sense iIf you are far from your retirement goals and have the funds. There have been many posts on this message board about mutual funds, no-loads, index funds, and just getting started. You might want to use the search engine to look at those posts. I am not sure if you are looking for help on how to start a Roth or investment choices within a Roth. Post again, and I will try to respond. Please indicate your current age, some idea of your background (engineer vs English major?), what kind of investments have been used with the 401 and some numbers about the results that disappoint you. The last few years have been less than stellar for many investors, so you may be disappointed because of high expectations.

Employee plans normally have some kind of master document that spell out all the procedures: roll overs, early withdrawals, loans, investment options, vesting schedule, etc. This document will often cite the legislation or IRS code underwhich they operate - which would help clarify what kind of plan it was. I wonder if they just issue a check if the amount is below some threshold for their own administrative ease. Then again, maybe this is not exactly a normal type of retirement program or the original post missed the key words to explain their problem. Perhaps they will post again.

You might want to use the search engine capabilities at this sight using "new investor" or "starting" as the key words. There have been a ton of posts on this subject by me and others. In brief: Get a copy of IRS publication 590 and keep it with your tax records. To open a Roth you must qualify for that year, you don't need to qualify in subsequent years, only if you are trying to contribute in the subsequent year. Qualifications are based upon a combination of "earned income" (all payroll and some other types of income qualify, but not dividends or interest), limited by adjusted growth income thresholds and 1040 filing status. For example, if you are single and have and adjusted gross income below six figures and earned income (perhaps the most common status for Roth starters) - you qualify. You may also qualify if you are married and your spouse has earned income, even if you have none. But... qualification rules are a little too complex to summarize all the possible combinations here. There are no age restrictions on a Roth. If your circumstances are odd, post the details and we will tell you about qualifying. Roths are INDIVIDUAL accounts, not shared with a spouse. Roths require a custodian - a bank, mutual fund or brokerage that will hold your assets. You make the custodian choice. Annual fees, convenience, range of investments, etc. are factors that might influence this choice. You can find lots of choices by searching the internet or looking under investments in your yellow pages. Contact at least three potential custodians and ask lots of questions. Most have good materials for someone just getting started. People new to investing probably should be selecting a mutual fund or funds for their assets. An index fund or a general stock fund is often a good choice, but this depends a lot on your investment experience, age, risk tolerance, etc. There has been a lot written here on this topic which you can find by searching "index", "noload" or "mutual funds". {Noload means a mutual fund that does not charge a commission on the way in or out} If you don't find anything that seems to answer your questions, post again. Amounts? The max is $3,000 or your earned income, which ever is lower.... but if you are over 50 the max is boosted to $3,500. Maximum amounts are scheduled to change in future years so in 2005 you need to check again.

Date transaction occurred is the key date. All components of the portfolio will be valued as of Jan 4 and you will have a 2004 tax event. I hope you qualify for the conversion in this year! Note to all readers: Custodians are very busy at the end of the year and in March/April (tax season). Do not wait to the last moment to try to get something done. Also, follow-up and make sure your instructions have been carried out. We get a few posts each year where the taxpayer did not look at subsequent monthly statements and did not catch errors.

I wonder if this client has exhausted all the other avenues for coming up with 30k. The taxes and penalties should be a big incentive to avoid taking out a lump sum. Suggestions: Home equity loan Refinance home mortgage and take out cash Signature line of credit (banks are trying very hard to loan money) Sell some asset Margin borrowing on stock portfolio (not likely given this scenario) Try for an intra-family loan Work with creditors to arrange an extended payoff - for example with a hospital, contractor, or Talk with your employer - possible advance on a commission or bonus Borrow against a life insurance policy Even credit card debt might look better than triggering all the taxes and penalties. It looks like he might just need a short term bridge loan if the next payment in coming in early 2005. Bridge loans are short term loans that are paid off quickly based upon a subsequent sale, deal or receipt of funds.

In a nutshell? Read my prior answer again because you missed my point completely. If you want to boil my response about real estate investing down to a sound bite - then the answer would be "forget about it". Why? Too many landmines. Real estate is complicated. Higher fees. Multiple areas where you can go wrong. Very few professionals have any experience in this area, with good reason. There are many tax advantages to real estate investing that are eliminated when it is in a tax shelter. And... you don't need it because there are thousands of other investment choices that will get the job done. I don't think much of the website you referenced. Their web pages refer to "secrets" , "little known facts", and imply that custodians/government/advisors are trying to keep people in the dark. A BIG photo of a dollar bill? Exactly what are these guys selling? I did not see any place where the owners of this website indicated who they are and their bonifides. I would not use an anonymous website as a definitive source of information on real estate investing. Perhaps you should talk to your accountant or financial advisor.... you need someone you trust to keep you out of trouble. It looks from you posts that you are inclined to believe things because you want to believe or because you think real estate investing maybe the magic answer to your retirement planning. I will acknowledge that there is a role for real estate, IPOs, options and other unussual investments in an IRA/Roth. But... you better be willing to spend a tremendous amount of time studying these issues using diverse sources of information. This does not come close to being a reasonable choice for maybe 98% of all the folks who own IRA/Roths. Nothing that you have said would indicate that you have the experience or background to delve into real estate investments in an IRA. Background: I have started multiple businesses. Participated in IPOs. Bought and sold a wide array of complex options. Participated in non-IRA LLC real estate transactions. Participated in sophisticated investor and Reg D activities. I ran an investment business for three years, and have 25+ years of investing experience in common stocks, preferreds, REITs, international businesses and bonds. I have bought and sold land, real estate properties, done evaluations of the finances for others, and run a residential construction company.

With most brokerages and mutual funds you are not "locked in" for many years. Yes, there are a few front loaded and back loaded funds where the penalties can be severe.... but if you stick with NO LOAD mutual funds, this is not a problem. You can always decide to not only shift funds between different investment vehicles, but if you don't like the custodian you can change that as well through a direct custodian to custodian transfer. There are dozens of prior posts dealing with "just getting started" or "first investments", or "index funds". You might want to use the search engine on this message board and read some of the prior posts. Basically, there are no guarentees when it comes to investing... you looks a choices, make and educated selection and then monitor the result. Folks that chase performance look for perfection usually do poorly because they are constantly moving their money to what was a great idea in the recent past. You may want to consider either: (1) a very broadly based NO LOAD mutual fund that has a slight bias towards growth, or (2) a stock index fund which usually features extremely low annual expenses. Remember, a Roth is a type of account and has no inherent investment choice. Having opened a Roth - you have an account in which you can make investment choices. I am not sure if any brokerage or mutual funds will set up an automatic system for Jan 1 since you must qualify each year (income and filing status) to be eligible for a Roth. You can ask.... but how much effort does it take to write out a check once a year?

Ah research! Direct her to IRS publication 590. Some of the rules governing Roth IRAs 1. no age limit 2. a Roth is an individual retirement account 3. no deductions for any contributions 4. no required withdrawal schedule 5. to be eligible to contribute in any year, you must have taxable compensation - which for most people means earned income from wages or salary that would show up on a W2.... there can be other sources of earned income, but interest and dividends do NOT count 6. income (modified adjusted gross income) must fall below $160,000 if married filing jointly, or $110,000 for single... there are more complicated issues if you are married filing separately, there are also complicated "phase out" rules if you are close to the threshold 7. current maximum annual contribution $3,000 or earned income which ever is lower. But, if you are age 50 or older you can contribute $3,500 8. income to qualify can be your own or your spouses. For example, one spouse working and making $6,000 can allow each spouse to contribute $3,000 to their own Roth

The website reference has some deficiencies - some important details are omitted, some statements are missing the appropriate caveats, and some of the suggestions are not advisable for the average person. It seems like that site is only partly constructed, so I would suggest you post your questions here. Concerning real estate investing in an IRA/Roth, I will respond in general terms because you did not provide any information about your assets, experience or objectives. The average person should not consider real estate because it is complicated and there are many restrictions. Costs/fees are likely to be higher - this isn't simple custodian work. The level of effort and time required by you is likely to be higher. Some of the tax benefits of owning real estate can not be used with an IRA/Roth. Unless you have a huge IRA, I would not suggest even investigating real estate options. If you do have a huge IRA, and feel you are knowledgeable about the full range of real estate issues, then I would consult a local accountant or tax professional to advise you. The array of potential investments is gigantic (REITS, stocks, bonds, CDs, mutual funds, and even some options) and you don't need to look into real estate options to find investments that produce an acceptable rate of return.

I think you are confusing different issues. If you are talking about a contributory Roth (not an IRA to Roth conversion), you can take out at any time without penalty the amounts your contributed. Taking out the earnings may or may not trigger taxes or penalties depending upon complicated circumstances. A Roth is a great tax shelter. Rather than focusing on withdrawals, you may be better off in the long run to focus on using the Roth tax shelter to build your assets.

Absolutely. There are no tax consequences related to buy/sell transactions within a Roth. No IRS penalties either. No need to be concerned with long term vs short term capital gains. No distinction between capital gains, dividends or interest. Also, you don't report these transactions like you would a buy/sell in a taxable brokerage account. All of this is also true of standard IRA accounts. However, you should determine if the fund might be charging you if when you sell... either because of a back end load or because of a short hold period. If you only select NO LOAD funds, you will not have any fees with the possible exception of a purchase and sale in less than 90 days. You should probably look at you library or bookstore for a guide to investing, or start to subscribe to Money or Kiplinger Financial to learn more of the basics. And... if you have another question, feel free to post again. You can tell from the reader counts that lots of folks are interested in all of these questions.

You need to provide some additional details to get a good answer. First, what is the source of the funds? Is it funds from an employee plan, becoming a beneficary of another persons IRA, one of your own IRAs? You might have a tax impact if you don't roll over the funds, but I can't tell from the limited info you have provided. What is your age? If you beyond retirement age, the answer could be completely different than if you are in your 20s. What is the approximate dollar amount? Savings? Are you talking about general investing, or do you mean savings accounts or CDs? When are you thinking of using these funds, now or 3 decades from now? You need to provide a little more info. Please post again.

Roth withdrawals: each year you can take out funds from any IRA for a 60 day period and redeposit them.... I don't recommend ever doing this as many things can go wrong during that 60 day period and the downside is ugly in terms of taxes and penalties. However, you can take CONTRIBUTIONS out of a Roth at any time without penalty. Again, I don't recommend this as it should be a last resort source of funds. Once withdrawn, you can replace them only in the 60 day period. This second option does allow some tax payers to treat their initial Roth contributions as part of their emergency reserves. If you can avoid taping into the emergency reserves for the first 5 years or so, you are likely to accumulate other resources and improve your access to sensible credit such that you can avoid dipping into the Roth. School teacher marrying a school teacher does not commit you to a life of poverty. But unfortunately, school teachers rarely make the compensation they would receive in other fields. This is both due to basic supply/demand factors in labor force and the odd way our society values those who teach our children. I am married to a school teacher... she choose that field for reasons other than big buck compensation. New teachers rarely get the prime choices for assignments, often they are thrown into some of the toughest schools. But, you should find a reasonable number of openings in most parts of the country. If you really have problems in your area, consider taking a job in a different area for a couple of years. You may want to look for ways to supplement your income via summer jobs, part-time work or running a business on the side. But perhaps my very best advice is to "live within your means", avoiding the lure of credit card debt, impulse purchases, superficial trinkets, and ego purchases (impressing your friends by your vacation/car/electronics). The most succesful people in our society figure out very early on that in money matters, playing good defense is just as important as having a bigger income. My daughter is getting married this fall, and is "orchestrating" an outdoor wedding with 6 vendors. The headcount keeps rising, extras keep popping up.... I doubt that she will be able to stay in the 20k budget and I don't think she is making opulent choices... no limos, DJ instead of band, off peak schedule, minimal flowers, bridal dress made by mom, etc. Contrast this to how my wife and I were married - Justice of the Peace in our home with perhaps 24 friends and relatives. Don't press me to say which option is more sensible. Good luck with your plans.

Adult decision time! And, there are no easy answers. From many perspectives, maxing out your Roth might be a very good idea. It gets you started early, and is a great tax shelter. Because contributions can be removed at any time, you can think of the Roth as part of your emergency funds. But.... you have a lot of issues. How are you paying for college? Do you have any reserves if you get sick, layed off, or need to replace you car? How soon do you graduate from college and what is you major or employment prospects? (a computer science major with one year to go is a very different circumstance than sophmore philosophy major) Who is paying for the wedding? Is your finance also a student or currently working? And.... buying a house? Your children's future? (do you already have children? or is this after you get married?) Whooaa. I love it when folks start to plan ahead, but you have a full menu of issues. You can't solve them all, so prioritize. I would suggest that getting your degree is #1. Second might be continuing to build up cash reserves - via Roth or other savings account. Don't rush into that wedding until you know you are on the right path. House? Kids future? Stop thinking about these right now. Don't get distracted from your priority issues.

The only option for returning funds is when you attempt to use the 60 day withdrawal and return. I do not recommend that approach because so many things can go wrong with the plan - the "Murphy" factor. And, in you case it won't help you if you are looking for two years. Money is "on sale" right now. You might want to consider other options. These include: home equity loans, brokerage account margin, a signature line of credit, and an intra-family loan (borrowing from parents, grandparents, uncles, etc. where you can offer a better percent than their CD rates). While I am not recommending this, you might even find a credit card offer where you can buy some item and pay zero % interest for 6 or more months. {These are teaser deals, but if you have the discipline about credit cards it might be a viable option}

I do not have a lot of experience with the range of college savings plans, so I can offer no advice there. I would suggest proceeding with the Roths as soon as you are ready, but take your time with the other decisions. Be sure to read all the materials involved as often the negatives or problems are in the details. On interest rates - all interest rates are very low right now. Be wary of any marketing material that promises large percent returns as that is just not possible right now. While there are REITS and some stocks that promise dividend returns in the 6 to 14% range, these tend to be riskier options (often the underlying earnings are questionable or there is economic or interest rate risks) and I would not reccommend that approach.

Probably the easiest way to do this is to talk to the brokerage or mutual fund family where you want all the accounts to be consolidated and ask for a direct transfer. You will be filling one of their forms for each account which you want to consolidate - generally just a one page - but often the custodian will want a copy of the most recent monthly statement from each IRA. You give this back to the custodian and they get it done. Anywhere from 10 days to a month. Your job would be to check that it is all done as you request, do not assume, confirm each transaction. You can request all assets to transfered in kind. This can almost always be accomplished with very few exceptions. However, if your instructions are not clear, the custodian may liquidate all your positions and then transfer the cash. The receiving custodian rarely charges any fees, they are very happy to see your account grow in size as IRA/Roth accounts are prized because they rarely move. However, you may find that each closed account will trigger a termination fee. You should ask about this before you take this action. I have seen fees in the $20 to $75 dollar range. While you may pay termination fees, you are likely to save on annual custodian fees with a consolidated IRA.

There is also the possiblity that I may get some money from the sale of my dad's property, but since I am not the executor of his estate (his two brothers are) and I have no idea what the will said I don't know if there will be anything left after paying his debts or if I would even get it. I am his only child. I am troubled by the above. Has there been a reading of the will? As the only child, I would assume that you would be notified about the estate/will. At a minimum, the executors should respond to questions. You did not mention if your mother was still alive. There are also public records that you can examine. Did you father own a house or any other property? If so, you can check with the county or city clerk about how the property was titled. Adding to the prior question about early retirement: If retirement at age 55 looks questionable, remember that adding a few more years of income (kids gone, house paid for, etc.) means you are banking more and delaying the drawdown. For example, adding 7 years to your retirement date means (if your assets are earning 10% per year) that you might be able to double the total nest egg - putting your retirement assets at something around 1.4 million. Finally, a word of caution. If you are too conservative in your investment choices (such as relying on bank CDs or just bonds) you are not likely to achieve an average 10% annual return. To have a decent chance to achieve the 10% annual return, you probably need to have about 75% of your assets in stocks with a slight bias towards growth stocks, a maximum of 20% in long term bonds and no more than 5% in money market accounts. If you are up to the task, you might want to create a spread sheet and a notebook to monitor your retirement progress. The spreadsheet would "model" the various pools of assets and attempt to project their growth. It should include all the income streams (based upon you best assumptions) such as pension, social security, 401Ks and Roths. At the end of each calendar year, you would monitor your progress. Did you contribute at the level you planned? Is your long term average gain around 10% per year? This is important feedback on your progress and may suggest some fine tuning of the strategy. [Don't be surprised if you initial forecast is way off. I did this exact exercise in 1994 and get a good laugh over the assumptions I used and the number of unpredictable events that have occured since then. I completely replaced the spreadsheet in 2002 and two years later even that is dated. BUT, the exercise is vital to keeping our family on track. I retired early (more or less) and still had two kids to send to college. Now my wife is persueing her PhD and so I have three "kids" in college. ]

My summary of your key facts: I am 35 and my husband is 40. We have two kids 12 & 6... seek to retire between 55-60. My husband has a 401k with 46,000 and mine is 3000. Our house will be paid off in 13 1/2 years. I make $46k a year and he makes $52k plus $5-10k a year from his Air National Guard job. He will have a retirement from the military & his government job. I will have a retirment from my company as long as there are no layoffs within the next 17 years. My husband currently has 10% of his income put in his 401, and I have 7%. Lets put a pencil to some of the early retirement numbers looking out 15 years. The 50k that you currently have in the 401k accounts could grow to about 200k if you get an average annual return of 10%. If you keep funding the 401Ks at around 10k each year, you will add 150K which could grow to 317 thousand using the 10% annual return on investment. My back of the evelope calculation suggests that the 517k would yield in todays dollars pretax income of about 25% of your current income if in retirement you made about 7% and only took the earnings, leaving the principal alone. (This is a very rough calculation. I used 3% for inflation) You did not indicate what percent of your income you would get as a pension. You did not indicate if you or your husband participated in the social security program. Add my rough 25% to the percent of income you expect to be covered by these other two sources as a quick check on your plans. It looks a little thin if the other two items are not over 50%. You might need to make some downward adjustments for college costs, but this might be offset my the absence of a future mortgage payment. Even if the result looks OK to you, there is a lot of work to do between now and then, and the 10% annual return on investment is a target, not a given. Your also said: "It seems to be too easy to get caught up in the "we have lots of extra money" spending. I want to pull a halt and get our savings in order before too much gets wasted.....Is an Roth IRA a good place to start? " Response: Sure, you can improve your early retirment math by building Roths to complement your 401Ks. However, the maximum you can currently contribute would be $6K - 3,000 in two separate Roths this year. It would make some sense to draw upon the insurance funds to contribute the max to two Roths for many years. Adding 15 years of maximum Roth contributions (the max will increase periodically) will boost your retirement nest egg 15 years from now by more than 200K. That would boost your retirement assets to 717K and I would estimate that you could translate that to an income stream with buying power equal to 35% of your current income. Since you can't just immediately flip the insurance funds into a Roth, consider a combination of taxable investments, annual Roth contributions and college savings. Your other questions: "Also where do I start. I looked at my personal bank (where the money is in a moneymarket) and at Fidelity (where my 401K is at). Where are the least expensive places to start a Roth IRA? How do I know I am chosing no-load mutal fund. Is it best to split my investments equally between a large cap, small cap and an international fund? I think I read about this strategy on the armchair millionare site." Fidelity, Schwab, Vanguard, T Rowe Price, Strong, Twentieth Century..... there are hundreds of places you can use for a Roth account. You can find them on the internet and in financial publications like Money, Kiplinger Financial and even Consumer Reports (March issues) magazines. No load mutual funds mention NO LOAD, if you don't see it, just ask. Since you would be just starting a Roth program, don't worry right now about different types of funds - you only need one each for a couple of years. Any broad based no load stock mutual fund could work. If you want to skinny out the fees, then consider an Index fund from Vanguard. I have a huge concern that you did not mention anything about cash reserves. Part of what you just received should be set aside for emergency issues such as losing a job for 6 months. I would reserve at least 25K for that and keep those funds separate from your checking or usual savings. Yes, you should start saving some funds for college. That is a huge topic and I will not get into it in this post. There are a variety of options, perhaps 10k and 10k would be appropriate. After pulling out a chunk for emergency, smaller amounts for Roths, and modest amounts for college funds from the insurance amount.... you probably will have about 40K left. I would invest these in a mix of mutual funds. You will pull from this account each year to make your Roth contribution, so some of this should be considered short term investments that will be transfered each year. You might want to have between 4 and 8 mutual funds. This is where you might want a big cap, middle cap and small cap fund... one with a growth emphasis and another with a balance of stocks and bonds. Don't get too creative, it is easier to track a simple system. Because very large mutual funds have a substantial overlap in holdings, you don't get as much diversity from having a larger number of funds then you might first expect. More comments on other issues raised in next post

I second Barry's caution. We all laugh about Murphy's Law, but this is exactly the kind of transaction where an unintended delay can cause a massive problem. Mail gets lost. People get sick. Cars crash. Deals get delayed. You might want to consider using a line of credit for a short term transaction. At a minimum, you should think about what is your back-up plan if timing becomes a problem. For example, do you have other funds, a line of credit or the resources of a relative to cover if the 60 days are about to elapse. If you do proceed, keep a clear file on the paperwork. Questions about this transaction are likely to come up years from now when you may forget the details. Leave a track record so your accountant or spouse can answer questions.

Ah the dangers of trying to respond to a question when you are only aware of a limited amount of info. I appreciate how things can bunch up on you. Your mortgage company may mark the extra payment as the next payment, or count it as a reduction in principal. It may even be your choice as to how to count it, so it is probably worth a call. Also, the first response must have been posted while I was typing my response. There is a distinction between withdrawing contributions or earnings in a Roth. There are no penalties or taxes owed on withdrawals of the original contributions to a Roth.

Your question is pretty complicated..... First, there are no rules governing how many times in a year you can designate some funds to be converted from an IRA to a Roth. However, I believe that one recharacterization starts to impose limits on your activity... perhaps one of our accountants will explain the details. The Big Picture is ..... why go through all the turmoil? You did not provide all the facts so let me make some assumptions. You converted 10k and your tax impact might be 3000 for state and federal. If your Roth dropped in value by 20%, then it looks like the impact might be 20% of the 3000 or about $600. Sure, no one wants to give up $600 but your time is worth something and your plan to recharacterize and then convert again has many possible flaws. First, you don't control the precise timing of the custodian transactions. Second, when you elect to convert again you may not be eligible. Third, you may find that your returned assets shot up and now you are paying the same or more taxes. Fourth, the Roth conversion program could get changed. And finally, your time is worth something! This seems like a lot of hoops to jump through for a modest savings, if everything breaks correctly. OK, now for the Big Picture question. Exactly what were you investing the 10k so that you have such a big drop in 1 month that makes you contemplate the undo/redo? A markets move up and down, but rarely by so large an amount in one month to warrent your proposed transactions. I would not sweat the small changes in any given month and focus on the overall concept of how I was investing, the risks I was taking, and the knowledge base on which I made decisions. Lets put my hypothetical $600 savings in perspective. You probably spend more than that on tuition for just 1 course. Or, its the cost of one "option" on a new car.... like those heated seats or the CD player. My guidance to you is that your proposed changes back and forth are probably a distraction and that the time spent dealing with your custodian and the timing risks mean that you would probably be better off focusing on other issues.