John G

You can not borrow from a Roth. You can take out contributions (not earnings) without a direct penalty. Indirectly you are penalized because you are eradicating some of the value of your personal tax shelter. You might want to consider a couple of other options. First, you can roll your credit card debt to another card and utilize a 90 to 180 day grace period on interest rates. Second, you could start directing discretionary savings towards rapid payoff of the credit card debt. Third, someone in the family could take a part time job and devote all of those checks to erasing the credit card debt. All of these steps might be preferable to drawing funds from your Roth. But, I am just giving you some creative options because you did not provide much in details about the terms of your debt and how much free cash you have each month. I am very concerned that you did not mention anything about your cash reserves. It took me a while to realize that HELOC probably means home equity line of credit. The picture you paint seems to translate into no cash reserves other than the Roth and you are spending beyond your means. I don't mean to nag, but this may be the most fundamental problem you face. If you don't throttle back on spending, all your plans will be for naught. I grew up in a family where we rarely did the expensive things like own new cars, take flying vacations, eat out a lot (we were more likely to picnic at a rest stop then stop at a restaurant, stay in hotels (camping was the preferred method of seeing the country), or costly entertaining. We bought things on sale, traveled off peak and learned to negotiate everything including hotel rooms. My folks did careful pruning which left enough money for all the important things and a little for the fun things. No one felt deprived because all the essentials were covered and lower cost substitutes were stimulating. While as an adult, I can now afford to do almost anything such as international travel and two homes, I still enjoy a good P&J or tuna sandwich. I enjoy camping. I am more likely to visit a National Park or the local library than Disneyland or Seaworld. My wife and I got a head of the curve early, avoiding car loans and credit card debt. We don't spend money to impress our friends (many of whom are in debt because of flashy spending habits). We use 15 or 10 year mortgages. We buy off season. We rarely buy anything that is not "on sale". We often buy in larger lots (cases of wine, OJ). We buy new cars for cash and keep them for ten years. We take reasonable career change risks. And, we have always invested for the future. In the 30 years since college, we have been essentially debt free and building retirement and taxable assets. We have put two kids through college by paying about 85% of the out of state cost, they paid 10% and picked up a few scholarships. Our kids did not get new cars when most of their high school friends got them... few survived the first year and our kids now better understand money matters. Budgets are boring, but you may need to do the mechanical process of tracking your spending to see where it all goes. I would not recommend opening up the Roth to solve what appears to be a bigger problem. I hope this helps.

Simple answer to your first Q is NO. No earned income, no Roth eligiblity. When you have some earned income, the cap on contributions in any given year is either: the amount of your earned income OR the maximum allowed for your age and filing status, whichever is lower. Qualification to contribute is determined for each calander year... so while you might qualify in 2004, it says nothing about your qualification in 2005 or later years. Examples: You have $1500 as earned income in 2004, then you can contribute $1500 to a Roth in 2004. You have $4400 earned income in 2004, then you can contribute only $3,000 (because you have no "make-up" qualifications if you are in the 20s). Your SPOUSE has income in 2004 but you do not, then total combined contributions to the two Roths can not exceed $6,000 (max $3,000 each) only if her income exceeds $6,000. There are no rules governing how you divided up the contributions as long as you don't exceed total earned income and each account does not exceed $3,000. Earned income is most often "payroll" but can include self employment income from odd jobs like babysitting, mowing lawns, shoveling snow, painting houses, etc.

Spounds like too much smoke and mirrors to me. I would suggest that you use a local accountant and run the numbers for him. I see no advantage to your plan. You might want to wait a few years to see if they change the Roth conversion rules.

Vanguard and American are "families" of mutual funds. You did not provide two specific funds. However, no contest on the choices. Vanguard is more like Lance Armstrong on hills. It is one of the premier low cost mutual fund operations. Newbie, there are only 8,000+ mutual funds out there. You are overthinking the issue and the choice. At this stage you only need one good mutual fund.... it doesn't have to be the best performer in the coming year. Just a decent performer. No one can tell you which funds will do best. Not me not anyone. But over the long haul, a fund with low expenses and a broad portfolio of different kinds of stocks will do just fine. Don't sweat the details on which one, focus on the concepts of broad coverage of the market and low expenses. In my prior posts, I have recommended that you only look in the universe of NOLOAD funds. Apparently the American fund you are considering is not a no load. I would imagine that a total market index fund or an S&P500 index fund would have a huge overlap with almost any general purpose mutual fund. Why pay the commisson and higher fees for much the same stocks. Do some real homework and ask for the prosectus of the funds and then set them side by side and note how many stocks are found in both. I am begining to wonder if you just can't pull the trigger and make a decision. Listen carefully, in investing you can never be completely assured that your choices will be successful. If you are frozen over "the right choice" you may never make any choice.

Your question is a little off topic for this site - but here is the quick response. Your timeframe is too short for most investments like mutual funds or stocks. I would suggest that you look at the CDs offered by your local bank, savings & loan or credit union. You are not going to earn much with a 1 yr CD, but almost all of these accounts are insured against a loss of principal. If you need more flexibility on when you are going to take you funds, consider a money market account. Talk with these kinds of institutions and let them know your plans... they may be able to offer you some flexibility if you flip to a mortgage from them. If you are a first time buyer, it may be productive to also talk with realtors and builders. Some cities/counties have special programs for first time buyers. Programs like this from for profit businesses are likely to be equivilent to the "$5000 trade-in on any car" promotions... a discount against a bloated price. But, it is worth exploring.

The reinvested dividends are not considered contributions. Contributions are your "deposits" to the account. Everything that happens within the account (stock splits, stock dividends, regular dividends, return of capital, interest, etc.) are part of your performance or annual return. You will need to talk with your IRA custodian as to what kind of dividend reinvestment options they support. The custodian may have restrictions based upon their concept of admininstrative simplicity or cost. Note, I am not talking about DRIP type programs, just basic dividend reinvestment.

You have hit on the key reasons. Many folks will not use a broker is because they don't want to insert a middleman who will syphon off a percent of the funds. Opening a Roth account at most institutions takes only a few minutes. There are folks at each institution willing to help newbies. Info you will need: name, address, SSN, and birthdate. You will be asked a few questions about your level of experience in investing. You will be asked to designate a beneficiary(s) in case of your death. It is probably easier to open a Roth than to get a driver's license, purchase a car, or register for college. Do not assume that because you are paying someone a fee that the advice or service you will receive will very good. While there are excellant financial advisors, there are also plenty that have little experience, minimal insight and are not especially good at listening to their clients concerns. If you are comfortable with posting on a message board, you probably have the basic skills to visit the websites of various custodians, brokers and mutual funds. Most have good materials for beginners, including FAQs and fund profiles. I believe that YOU are the best person to be in charge of your own finances. It is your money, and I believe you should decide on you tolerance for risk and what you understand about investing. Not everyone agrees with this philosophy. But, from my viewpoint, it is not rocket science or brain surgery to learn basic investment concepts. There are a lot of folks who never went to college but have mastered the basics of investing. I assume that you are willing to put some time into reading about investing - say one or two hours a month. (Some folks spend more time than that deciding on what electronics or cars to buy.) You won't learn it all in a month, year or decade... things change and there is always something to learn. I don't see many pluses in the average person using a broker to "handle" these basic matters. Theoretically, some brokers can offer advice... but for something this basic I am not sure that applies. The negatives include: extra cost, possibility of mistakes, extra layer in the decision process, and may foster a reliance of the decisions of others rather than the tax payer.

You kids can only have Roths in their names if they have earned income. As soon as they start snagging jobs they will be eligible. You and your husband are eligible for your own Roths if you file a joint return and satisfy the income standard. Only one of you need to be earning income. One of the advantages of the 529 approach is that you can get more money into the account. Some of these plans are very good, some pretty poor in terms of investment options, flexibility and expected returns. One of the advantage of the IRA is that retirement money often does not count as heavily in financial aid calculations. You can reduce the cost of college by finding in-state schools that work for your kids. But, you might find a lot of financial support at extremely expensive private schools.... Princeton used to have a online calculator that could show you how much they expect you to contribute, and in some cases you would pay less than going to a local community college. I talk to a lot of HS kids about paying for college - the worse input they get often comes from their own family where the cost is used to discourage college selection. The worse part of your post was the "wind up doing nothing" part. Sure there are lots of choices. Get moving. Set a deadline for making a decision - something like 30 days.

A rural location is not much of a handicap in the modern era of communications. Go to the library first. Grab the March issue of Consumer Reports, or recent issues of Money or Kiplinger Financial magazines. They should all have articles about Roths - and because of their general audiances, the sidebars will give you most of the ABCs. Read some of the advertisements - especially in the Feb through April issues when IRA money is being actively courted by the industry. Next step, try looking on the internet for various mutual funds or brokerges. There are hundreds of brokerages and thousands of mutual funds. You only need to find one for the next few years. You might try Vanguard or Fidelity for mutual funds. Some of the major brokers are Schwab, Etrade, Scott, TD Waterhouse and Ameritrade. I won't give you a pick... these are the kinds of decisions you need to make. If you don't want to go that route, you can look into what your local bank offers. Some have decent options, some very conservative CDs only. I usually suggest that you pick 3 different custodians and call for information. Tell them you are a novice and ask for the "getting started" package. Some have very good materials for the beginner. The Ideal investment? Sorry, there is no such thing. No one can tell you what will work the best. This would be like using Lance Armstrong's great Tour de France as a guideline to say that his son will win the Tour in twenty years. The good news for you is that you can get great results without finding the ideal investment or custodian. There are lots of good custodians and solid investment options that will get the job done. My experience suggests that just an average mutual fund is very likely to make you a wealthy person over the long haul. You are going to need to dedicate some time to learning the ropes. Don't expect to watch your investments like you might ESPN... asset growth is slower than watching a garden grow. Keep your approach relatively simple - that is one of huge advantages of index funds. You don't want to devote too much time to studying your IRA investments.... especially at age 18.

"If the IPO hits a home run, instead of long term capital gains all of the appreciation would eventually come out of the IRA as ordinary income." No tax issues if it is a Roth. Second problem is that big gains need to be held for a year for LTCG, so selling on a shorter timeframe is more attractive with any IRA. Life is too unpredictable to fool with the 60 day rollover rule. The best plans can come unravelled very quickly and the taxpayer could be stuck trying to replace the funds.

The exact procedure that this writer proposes is not very clear - rollover from what, for example? It sounds to me like bogus advice based upon wishful thinking. The IRS conversion rules are clear. The taxable amount in a conversion is based upon the pooling of ALL IRAs regardless of their location and when they were started. The calculation is done as if you have one single super sized IRA.

My business teachers explained to me that I must immediately begin my Roth IRA for time is ON MY SIDE. The only thing "magical" about starting earlier is that your funds will compound within the tax shelter for a longer time and you are likely to have significantly more assets later. For example, if you average 10% a year, the "rule of 72" (at 10% your assets double in 7.2 years) says that starting at 18 is likely to produce a 100% larger nest egg in later years compared to starting 7 years later at age 25. I am aware there is a $3000 limit/year and because I'm going to college on several scholarships, I need not worry about not making the payment. Remember, you must have earned income equal or greater than your contribution, up to the annual ceiling of $3,000. You can remove contributions anytime without penalty, so in that sense a Roth can be considered emergency funds. "stocks are doing bad and probably will continue to do so" ?? There are lots of stocks doing just find. For example, I took a position in FRO (the largest independent VLCC and Suezmax tanker company) about 10 months ago and it is up somewhere around 300% when you include regular dividends, special dividends and a spinoff of part of the original firm. In any market, there are always stocks moving up and down. For a while, the Atkins related stocks were there own form of dot.com "gold rush". Generalizations about any market are often very wrong. I love the evening commentary "there was a lack of buyers" - everytime something is sold, there IS a buyer, by definition. "Index funds allow for the "dollar-averaging" scheme to take place. So now its really a matter of what index fund and what broker. Does it have to be a broker?" The main choices for custodian are brokers, banks and mutual funds. Among the hundreds of choices are hi vs low cost, limited investments vs huge array, and various levels of service or convenience. You can find names in any financial magazine (all those ads DH complains about), sponsoring public radio financial shows, on network TV, populating CNBC commercials, etc. I did a quick Google search for "index mutual funds no load" and had 190,000 hits ! NO LOAD is the key word for mutual funds if you want to eliminate commissions. The second issue is annual expenses - which are always labeled in the prospectus. Index funds have lower annual expenses and are simple to track. I have no problem with you also choosing a broadly based actively managed fund, but be wary of making a choice based upon recent performance. What worked last year often changes by the second year. If you go the actively managed route, then next year pick a different actively managed fund and the third year a completely different type of actively managed fund. You will learn a lot from watching how they perform. The final cost issue is the annual fee the custodian charges. Some charge none, under $20 is acceptable, but be aware that the more hand holding or special services, the higher this fee can go some brokers (including one I occasionally use) charge $100. Post again if you have other questions. Remember, the best return you will get from your initial investing experiences will be the knowledge of how to invest. You need to learn both from your mistakes and the things you do well.

There are probably multiple answers to your question mbozek, but I will suggest two paths with which I am familiar. First, if your IRA custodian is an underwriter of an IPO, you can often request for shares to be purchased directly from the IRA. An example of this would be and IPO or secondary via Schwab, which is also where the account is located. I have done this for a Nazdaq IPO and also for something you might call a private placement. The second example involves an IPO or other offering where there is a subscription process and you have some access or rights (such as by being an employee). A check is cut and sent to the entity making the offering and shares and cash (interest or partial return of dollars because you do not get all the shares you requested) is returned to the custodian. I am not sure if they have set this up as a custodian to custodian or via some other arrangement, but there have been hundreds of this type of transaction dating back at least 20 years. I have done many of these. Not all custodians will be interested in supporting these kinds of transactions. Some don't understand them. Some have cut their services to the bone and see these as high cost transactions. For example, Schwab used to do these transactions with out any fees. After the dot.com bubble burst and commissions dropped very low, they initiated something like a $175 fee. (I don't remember the exact amount) These are complicated transactions and I would not recommend a beginner investor to consider them.

Will this be a publicly traded company? Are you a Director, Officer or just a standard employee? How many shareholders will exist after the IPO? There are lots of examples of where a person invests in the IPO of their firm using a Roth or IRA, IF (1) it is a publicly traded company and (2) they are not part of mgmt, a Director, or a highly compensated individual. I can't address the technical legalities, but I know it is done frequently. Just conjecture on my part, but there seems to be a difference between large % ownership in a closely held company and a small piece of a publicly traded company. Not all custodians will handle this kind of transaction. It is very common for custodians to ask for you to sign waivers on any unussual transaction.... that they are relying upon your information and are not providing investment or tax advice, for example. I would be interested in the opinions of our other tax experts on this one.

Thank you for the additional details and I hope things look better in the future on employment. Something does not add up between your explaination and the IRS response. My best take on your circumstances about your Roth: If you put $2555 or more in contributions and that none of that amount is subsequent earnings, then you should be paying no taxes. If your actual string of contributions was less than $2555, then you would pay no taxes on the amount that was contributions, but would owe taxes on the amount above the total contributions. If you contributed more than $2555 and the account value at close is less than what you contributed, there is a possibility that you could get a tax deduction for the loss .... but that is not a simple process and you would probably need to as your tax preparer to handle it for you. However, I do have some questions based upon the language you used that makes me wonder if we are really talking about a Roth. First, you comment "I forfeit all gains" which is puzzling. If the gains were in a Roth, why would you forfeit them? Second, you said this Roth was set up and maintained by the accounting firm. Most folks set up their own Roths and make their own contributions. Are you sure you are not talking about some other kind of retirement plan? Exactly who is the custodian? Please explain how contributions were made to the Roth. Some possible ways: check written by you, automatic deduction from your bank account , somehow funded by your employer or did your accounting firm send in the money? Jargon can be a terrible barrier in communication. The world of Roths has its own language and the average consumer has normally no reason to master the terminology.

Your post is confusing. If you were legally eligible to open a Roth and make contributions, then IRS code allows you to remove the original contribution without penalty. Either you have not posted the entire set of facts, or someone at the IRS has not been properly trained. Can you clarify the facts? For example, was this Roth based upon annual contributions or was it a conversion from an IRA? If it was based upon contributions, did you adjusted gross income and filing status enable you to make contributions. What were the cummulative contributions and what was the account value when closed. If this Roth was created by a conversion, were the taxes paid on the conversion? How did the IRS "inform" you? Was it just a boiler plate letter or did you have other communications? Does it have a standard code or can you quote specific language. For example, if it was just a standard letter than your problem could be just that someone miscoded the transaction. Unfortunately that happens too often. I am also curious why you would be closing in 2002 as Roths only existed since 1998. There is no reason to post a blanket warning about "double taxation" on this message board. I can't think of any normal circumstances where that would occur. Post again and lets see if the tax professionals can help.

DH - my recommendations were made based upon the person who originally posted the initial question... in this case a person who has yet to start serious investing and has asked a whole range of very basic questions. They are starting from scratch. Ten recommendations of things to read (I agree most are good sources) is very likely to overwhelm them. Books on stock evaluations and how to read a corporate financial report are way over the head of a beginner investor. Remember the customer, and tune your responses to their level. You may not like Kiplinger Financial, and it is certainly not an all purpose completely encompassing source. But it is written for the raw beginner to novice reader. Frankly, the Consumer Reports articles in March are more condensed and perhaps better focused on the begining investor. CR is all about mutual funds, boiling down the 10,000 funds to a manageable list of perhaps 100 to consider and explaining the basic jargon. The problem with most books on investing is that they focus on stock picking, charts, economic indicators and look back narratives of some prior investment. I don't see how that helps a person with limited time and rudimentary knowledge of investing who should probably be focusing on mutual funds. Remember the customer. Lets not misdirect folks because we are not sensitive to their level of knowledge and experience.

When you sell a stock that has lost value, you get no direct tax right-off. Just find something better and redeploy your funds. Take some time and try to decide why you bought the stuck and if you are doing something wrong. You can only get a tax writeoff in the rare instance that you close out all your IRAs and your net is less than your original contributions.... the proceedure is more complicated than what I said, very messy, usually does not actually work out for anyone who has had an account for many years, AND kills your tax shelter and you have to start over again. Investing involves making good choices, regardless of if we are talking about stocks or mutual funds. I saw something interesting yesterday on a Motley Fool article about when to sell. To paraphrase: if you can't talk intelligently for one minute about a stock you own or craft a full typed page of information about the company .... then you should not own it. I plan to deploy this "test" when folks ask me about badly performing stocks. I used to ask a few questions: where is the HDQ?, who are competitors, what are the earnings target for coming year?, who is the President or CEO?, what is the growth rate of the business? I find it odd that most folks rarely could answer more than one basic question, even for a well known company.

TY said: "The short answer is yes, mutual funds are stocks." Hey, we don't believe in short answers here! Actually, mutual funds can include stocks or bonds. Some of the various "flavors" include: sector (a specific industry), "value" (things perceived to be trading at a discount to peers), growth (rapidly growing companies), Blue Chip (old name for big, well known companies), international, country specific, "Technology" (anything with digital stuff, electrons and remote controls!), small cap (companies whose total number of share x share price is relatively small), mid cap, large cap, balanced, blend, short term, "opportunity", contrarian, INDEX..... you get the picture. They invent new ones every month. More choices than some local library's book count. Point 2: Yes, you can use a Roth as emergency savings in the sense that you can always withdraw contributions without a tax consequence. Not recommended by me, but better to get started in some way then to keep postponing action. Point 3: Yes, simplified Roth plan is just start with a basic index fund. You can't do this stuff perfectly, so don't fret over slight differences in fees or performance. You can probably stay with a basic index fund for many years. Keep it simple, look at the statements just a few times a year, and start working on learning more about all things financial. After a while, you will see that YOU are a key player in the process. It is your money. Sure, ask for advice from different sources, but don't give up on what you can learn about making decent long term investments. Point 4: Background. Two degrees from prestigous universities, never worked in either field that I majored in. (As in baseball, you need to be able to hit the curve balls that come your way) Second person in my family to go to college, first to get a graduate degree. Eight years as a consultant. Eight years in corporate planning. Started three different businesses. Ran a 4th for a while for a friend. More or less retired 10 years ago at the age of 43 to devote take over some of the household burden for my wife and to more actively work on various investments and community volunteer work. Over 25 years of investing experience including: common stocks, LLCs, private placements, mutual funds, IPOs, options, REITS, short positions, etc. Once made a $35 million dollar investing mistake... but that is another story for some other day. Attended the original Woodstock... I still do fun things. Kattpar ~ great posts, you gave use a lot of info to work from and had a wonderful sense of humor.

Thanks for the private transmission of some additional data. You are correct with your assumption that you will not qualify for the Roth. BUT.... Don't walk but RUN to your accountant this week and talk about the various non-Roth options that "private contractors" or "consultants" have. There are multiple options, some depend upon if you file a Form C or classify your activities as a Sub S or some other format. There are ways to set aside approximately 25% of your income in a tax sheltered account. More money each year than a Roth, but not exactly the same tax treatment. My wife started a sub S corp in Virginia many years ago (various business services) and a few years later was doing well enough to create a pension/profit sharing account (originally under Schwab's umbrella, at minimal annual fees) and then started to put in a very large chunk of her earnings since we did not need it in the good years. If you don't have an accountant, time to find one. Talk to atleast three different ones. Get advice from other folks that own businesses. Good luck with these matters.

You left out a lot of background material that might help you get a better answer. What is your combined income after you marry? Do you work in the private sector, government or are you self employed. Ages? There are different income thresholds for Roths that depend upon marital status and income. You don't mention your likely joint income, but if it throws you over the top of the higher threshold for "married filing jointly" in 2004 you can't do a Roth. Filing separately is worse. Other options: company 401k and 403b plans, Keogh if you are sell employed, pension / profit sharing plans (especially if you are running your own business. If you can't find anything that matches your circumstances, then you might want to consider taxable investments where you can build assets and only pay the long term capital gains rate. Building equity through home ownership may be attractive. Future tax sheltered options - in two years a lot of things can change. There are proposals working their way through Congress to supersede the various IRAs with a single account with $5k contribution amounts. The answer to your two years from now question is probably best answered two years from now.

You can get a quick idea of the content of Kiplinger Financial by visiting their web site at www.kiplinger.com A quick search showed a number of sites on the web where you can sign up for a 1 year subscription for under $10! Now that is a bargain... hopefully, no strings attached.

TY's advice looks pretty good. I will add some of my own flavoring as you need to have some confidence at this early stage that you are on the right track. Feel free to post again as initially as you learn you will have more questions about jargon and choices. First: take a couple of deep breaths and let the air out slowly! You may have gotten off to a slow start and are bewildered by choices, but you are asking good questions and have come to a good place for general guidance. We will try to walk you through it. You might also want to explore this website using the search engine for "beginner" or "new" or "starter" as you have a lot of company... perhaps 20 or 30 posts a year on "how do I get started". Some quick takes on what you said: 1. "My husband is with Primerica, don't know anything about them except his financial lady is pushy... " No reason to place your money with anyone you are not comfortable talking to. There are thousands of choices. It sounds like this woman may not have very good listening skills or is not used to dealing with folks just getting started. You can pass on Primerica or ask to speak to someone else. 2. The confusing part is once I open an IRA I've read that I have to choose what to put in it and that is where it does not make sense to me. You are correct. A Roth or IRA is just a container and your first decision is who to select as "custodian", that is the institution that keeps track of your funds. The investment choices are what is placed inside the container. The main choices for custodian are: mutual funds, brokerages and banks. Banks tend to lean towards CDs or more traditional mutual funds (and they sometimes will herd you towards those that charge you a commission and give them a financial benefit). I suggest direct connections to mutual fund families or using mutual funds though a brokerage for the beginner. The choice of custodian often narrows the choices of your possible investments. But before you get stuck on that point, read on. Investment choices: I highly recommend that novice investors start out with NO LOAD mutual funds. A mutual fund is a company that creates a portfolio of many investments and by buying "shares" of the mutual fund, you essentially own a little tiny bit of many different investments. The "many different investments" is often called diversification. NO LOAD means a fund that does not charge an up front or tail end commission to participate. (Note all funds have some kind of annual expenses that take a little off the overall performance... more about this later) There are thousands of these kinds of mutual funds. More specifically, I am going to recommend that you choose an INDEX fund such as Vanguard's S&P500 fund... but there are many competitors at other firms. INDEX means that the fund is based upon someone's list of stocks rather than based upon actively investigating companies and making individual stock choices. The problem with actively managed funds is that there is a real shortage of very smart people who can truely pick the winners year after year, but trying to do so eats up a lot of money in salaries, travel expenses and commissions. The index fund uses a simple desktop computer to make purchases. Expenses are very low relative to an actively managed fund. A commonly cited "fact" is that index funds beat about 80% of all actively managed funds each year. I would like to tell you I have the data to support that statement, but I have yet to find a rock solid source. Needless to say, even the actively managed fund analysts do not appear to dispute that conclusion. Owning an index fund means you spend less time thinking about buy/sell or market timing and should be happy with the overall performance of the market. It works for a lot of people. 3. "My husband has a ROTH AND mutual funds, so I don't get... How do I know what to choose?.... who charges the lowest fees?... do all companies charge a % rather than a flat fee?" As you might now see, Roth is a separate issue from investments (mutual funds in your husband's case). I think you are refering to how do you make a pick of which fund. It is both a good question and perhaps a misleading one. With many things in life you want the BEST ONE. With investing, it is not possible to know what will be best over any specific time period. But.... you don't really need BEST. Many broadly based mutual funds will serve you well, and I think that the INDEX version will serve you best initially. Why? First, because you do not need to know a whole lot about investing to get started. Second, the annual expenses of INDEX funds that are NO LOAD are often under 0.25% which means you keep almost all of the annual performance. Vanguard is currently the lowest cost INDEX fund company, but there are many others that are chasing down the annual costs trying to keep up with this industry leader. Perhaps 5 years from now, after you have built up your assets, you will be ready to consider other choices. One good fund is all you need to get started. Focus on learning about investing the first few years not worrying about performance. 4. "I'm low risk because of my mother (nickle machines in vegas!), but have been reading that I should not be too conservative. I still have a good 20-30 years till retiring." Correct! You may retire anywhere from mid 50s to late 60s depending upon your assets, type of career, and health condition. What many folks forget is that they don't spend their entire retirement nest egg in 1 year. If you retire at 63 and live to 93 (I don't think that is a huge stretch by any means) then you may be investing some of your funds for closer to 60 years than the 30 you mentioned. Please do not compare slot machines or the lottery to investing. Both have an element of un-predictable. However, investing is based upon concepts of capitalism and economic growth where you are investing in the future success of the economy. Because of your long term planning horizon of 30+ years, you should be taking reasonable risks. In investing, many folks strive to average around 10% annual return each year. Most years are up, some are down.... but over the long haul investors expect a better world ahead. Over the past century, through a bunch of wars, the depression, and more recently terrorism the investors long term approach has generally held up. You don't need to wager on long shots to get that 10% annual return. A portfolio (a basket of many investments) that is slightly biases towards growth stocks will generally get the job done. No guarentees, but the probabilities are heavily in your favor. Gambling is mathematically a fools game where your long term outcome is negative. The more you gamble the more you lose. I find it interesting in the high level of self deception of gamblers. Take a roundtrip bus to a casino and you will see everyone giddy with excitement. On the return trip, somehow virtually everyone was a winner. Not likely. What can you expect if you and your husband start today with $3k + $3k in Roth contributions and invest with a slight bias towards growth? After 30 years, the two of you would like see combined Roth assets of around 986,000. Since those are future dollars, they won't be worth as much as a million today, but it will still be a sizeable pile of mulla. 5. I also have a 401K plan at work that I have not started. My company does not match anything; they just offer it. Is it worth it?... I know you absolutely CANNOT touch it without penalties, right? The money does come straight out of my check and I wouldn't spend it because normally if I have money I'll spend it! With no match, I would recommend the Roth approach. What is all this talk about "touch it"? Resist I say! The whole purpose of a tax shelter like the Roth or the 401k is that the money is tax sheltered. If you want to have that great nest egg three decades from now, you need to enforce some financial discipline on yourselves. The 401k plan document will tell you what you can and cannot do. Ask again at the office and make sure there is no match. Sometimes firms start a match after you have logged a full year. 6. I'm 33 and married with 1 child and 1 step-child. We are going to purchase a home by the end of the year. We have a savings balance of about $10,000. I have about $500-700 a month to invest. I concur with TY. While you should try to start your Roth now even if you can't fully fund two of them, you absolutely must start building a larger reserve. Think in terms of how much money you could burn through in 6 months if you lost your jobs. Most of millioinaires I know don't own new cars, expensive watches, furs, or summer homes.... but they sure do have the confidence that cash reserves and a well funded retirement brings. Often they achieve their financial success by playing "great defense" - being very careful about their spending. Home ownership is both a better way to live for most people, AND a long term strategy for building wealth. Like investing, there are no guarentees, but over the long term, most folks build up equity in their homes. Go for it. 7. "I do know that I should put the full $3000 into the IRA which means I have already paid taxes on the money, right? " Correct if you are talking about a Roth account. If you don't want to do the $3k right away, consider setting up a montly withdrawal program to build your IRA throughout the year. That is often called "dollar cost averaging" and has some advantages. 8. "We have a Suze Orman book that I am trying to read, but I have a baby and work full-time oh... and have a husband to take care of so time I don't have. " Arghhh. I am no big fan of Suze Orman. Too much popular rhetoric and glib self promotion for my tastes. I believe in training people to thing rather than trying to be a geru for the masses. Go to the library and read a few issues of Kiplinger Financial Mag. which costs about $15 per year. It covers 20s and 30s, new home buyers and rookie investors. You can take a few years to build up your expertise if you adopt the 1 or 2 hours per month routine of reading about business, Roths, investing, homeownership, credit, etc. that is well covered by Kiplinger. You might also find the March edition of Consumer's Reports to be useful. There is always a good article explaining investment choices and indentifying some funds with solid performance. Good luck. And post again with your questions or to let us know how you are doing.

I would assume that you still have some paperwork or the transactions, or know the name of the custodian. If you don't recall who you used, you probably can narrow the possible custodians to places where you normally would do business. At year end, most custodians send out a statement that indicates the value of the account, you might find it with the 1099s. You can call and make an inquiry based upon your SSN. It would be somewhat unusual for an account to go dormant in two years, but if so you can track down the funds via the website associated with the state where you opened the account. Search under "lost funds", "escheat" or "dormant accounts". Your local banker or legislator will often know the website address. You can recover dormant assets by following the proceedures your state has set out. RECOMMENDATION: Start a file folder to cover actions for IRAs, Roths, 401ks, 403Bs, etc. Put a copy of all correspondence and deposit receipts. This folder should include date the account was opened, the account number, address and phone number of the custodian, business card of the person who assisted you, the designated beneficiaries and a running list of "actions" (contributions, year end balances). Keep this with your tax records - such as 1099 statements, copies of tax returns, letters from IRS, etc. I encourage folks to "set it and forget it" when it comes to initial IRA/Roth investments... to avoid watching the individual day action and focus on the long term. But.... ya' got to remember you have the account!

You can start your IRA or Roth in thousands of places. You can also start saving up those $50 for the rest of this year and then open an IRA or Roth if you can't find a custodian that will accept a very low initial amount. Generally, most custodians relax the rules a little bit if you set up an automatic withdrawal from your checking account. You can do some searching on the web - try Vanguard, Fidelity, T Rowe Price, Janus, Twentieth Century Funds .... examples of mutual fund families. Since you are investing for many decades, you want to think in terms of equities (stocks) rather than bank CDs. Over the long haul, you are trying to get something in the neighborhood of a 10% annual return average.