John G

You may want to ask to speak to a IRS supervisor. It sounds like your auditor did not understand the rules or was misapplying the rules from some other situation (to be charitable you might say misheard or misspoke). It will not hurt to say that you received the advice from a few accountants who are knowledgeable on IRA issues! Keep a record of your interaction with the IRS. Be polite, but insist that they send you a letter acknowledging that you handled your taxes correctly.

I agree that a direct transfer is generally the better approach and has fewer problems. However, the 75/25 issue may cause some problems. Most institutions assume that a rollover is for the complete amount. Even if you specify otherwise, a harried clerk may click the wrong option. I have had two friends that for complicated reasons wanted to break up one IRA into about 5 pieces. They had many problems where the new custodian tried to grab the entire account, even though they have specified otherwise. I still believe that the best way to proceed is to have a clearly written letter of instructions to attach to the new account papers and alert your current IRA custodian of the transaction. I have a question. WHY? In an era where most brokerages allow you to hold assets from almost any mutual fund, stock or bond, I wonder why you would want to split up the account. The annual account fees might not matter to you, but they may increase. The existing IRA custodian might charge you a liquidation fee. Your paperwork and tracking will increase.

A post that was on this message thread was deleted because the advice given did not match the stated problem (calendar year 2003) and included suggestions for donations to specific organizations. This site is not a billboard for promoting personal points of view. Responses should be on-topic. Authors should have expertise on the relevant issue.

Patrick, if the letter of instructions were clear and the funds are now in a Roth, is this just an administrative error that can be corrected, or is it a bigger problem because the year has ended?

First, double check what you accountant has said against IRS Pub 590. This is a common problem, custodians have procedures for backing out the funds. More than likely they will send you a check for the contributions plus their estimate of the earnings on those contributions. It sounds like you can then turn around and make your contribution for 2004. You may need to draft a letter to your custodian. This is a busy time for custodians, so get started.

I noticed that Scottrade has an number of banner ads promising zero fee IRAs. I believe that they have about 140 offices around the US. I have no direct experience with them and make no recommendation, but for folks getting started there are lower cost options than the full service / high fee bank and brokerage options.

akscott - the account amount and the student part are puzzling. Did you inherit this IRA? If so, your options will be limited.

You explaination is confusing. It sounds like you put the company funds into an IRA, then "converted" the IRA to a Roth (by moving all the funds from the IRA to the new conversion Roth). I could be that your funds were converted to a Roth, but the year-end paperwork is not coded correctly. I suggest that you call E-trade to confirm how the request was handled and to discuss how the transaction was coded. The difficult part of dealing with E-trade is getting a customer service rep to answer the phone... actually that is the difficulty with all online brokerages. You may want to ask to be put in touch with the retirement accounts desk which will be more experienced in answering your questions.

The first problem I have with your description is that you refer to rolling IRA funds into a Roth. The correct term is "conversion" of funds in an IRA to a Roth. Your custodian should know the difference and not just rolled funds from one account to another. They should have asked you questions about your request if it was unclear. The first step in getting this issue solved is to read your letter of instruction to the custodian to see if you correctly made the request for a Roth conversion. Then, call the custodian and ask them about how it was processed. If they made a coding error, I believe they can correct it now. This type of problem happens fairly often, and I know from prior experience that custodians will often issue corrected 1099-r forms... can't tell you if it is legal, but it has been done. Your problem demonstrates the importance of knowing the terminology and following up on requests for action to make sure they were handled correctly. Who was your custodian? If there are significant amount of funds involved, you may want to hire an accountant or tax specialist to assist you in getting this resolved.

Jblarson, you used the term "private investment fund". Can you provide some additional details about how you heard of this company? Did they represent themselves as a legitimite custodian? I am surprised that someone could operate without any registration... for example that your 401k custodian would transfer the funds to someone that was not known to them without check for their legitamacy. You should talk to the district attorney for your area. There is a slight chance that someone that handled your funds had insurance. If anyone recommended this bogus firm, you may have recourse against them. You may have recourse against any bank or brokerage that handled their accounts, or any lawyers or accountants that advised them or audited their books. If the key personel knowingly committed fraud and violated the banking/SEC rules, then I believe you may have recourse against any of their personal assets, since they would not be protected by any incorporation laws. Your situation is a cautionary tale for others at this site. Thank you for posting.

The answer to complex questions posted here often lies in the details, and we find that some critical information may not be disclosed in the Q&A. I highly recommend that you use an accountant or tax advisor before completing the transaction to make sure that you get it done right. The modest amount of cost associated with getting expert advice is tiny compared to the major headache of losing your tax shelter or having a tax surprise.

Wdik, you have asked good questions about a message posted by dh003i, who appears to relay what he has read about investing. He has never been very clear about his credentials for making the sweeping statements about what works best. His 90%, 80%, "never be a loser", and "all the time" statements are typical of the mythology of investing that makes stories are Buffet, Lynch and Graham interesting. Vague claims that rarely survive serious scrutiny. Using Warren Buffet to vouch for a particular approach is ironic since Buffet has often made statements to the contrary and has performance problems of his own. In publishing you need a good story to tell and many of the examples in these works are "spin", told from the advantage of hindsight, and embellished to make a good read. The victories are not documented by some detached academic study, but usually self-proclaimed. An arms reach away is a bookcase full of award winning tombs on various styles of investing. I've read them, they are interesting. But I don't find them terrible useful in day to day decision making. A couple of decades of investing experience and the activities of a dozen associates that have been as deeply involved has given me a fairly solid base. When I say that no one single style of investing works all the time, I mean two things. First, that different styles of investing (momentum, fundamental, SDMA charting, small cap, large cap, growth, dividend and income, etc.) may be superior for a various 3 to 8 year period. Second, that the most advantageous style of investing jumps around enough that during some period of time in the last century it can be demonstrated to be superior. The pursuit of a single strategy that is best is a waste of time. You don't need the best, just an effective strategy that produces reasonable results. {It may be exciting to pick the winning horse. But, finding a horse in each race that will show will produce a very effective stream of wins.} The investment world has had a continous flow of "hot" investment approaches that history shows us are just flash in the pan. The Nifty Fifty, Dogs of the Dow, momentum trading, international swing, interest rate swing theory, are just a few that garnered the support of multiple authors. The half life of an investment theory is less than 2 years. At the end of two years, less than 50% of the public still believes the theory because fickle markets have turned against the formulae. A wounded approach sometimes gets a second life via a "revised model", which then suffers the same fate. The sad truth is that by the time you read the new hot theory, the window for action has often already started to close. The problem with developing a theory and publishing is that markets react. Folks want to move to the best opportunities, and this migration of money is the first factor that weakens the opportunity. Once everyone recognizes an approach, the advantage it offers becomes diluted. You need to guard against anyone talking about sure-things, guarentees, never a loser, or success rates over 55%. This is Pied Piper talk, not experience investing. I don't know a single person with more than 20 years of investing that thinks one style always work. That is just nonsense. On some previous threads dh003i has put up a number of completely rediculous posts, making claims and assertions that have no factual basis. As one of the moderators, I have deleted some of his posts, closed some message threads, and caution him to not post beyond his expertise. Subsequently, his posts improved and were often factually accurate and including useful material. The last couple of posts here combine useful references and foolish claims. Because this message thread has begun to go in circles, getting more off topic, I will be closing this message thread for new posts. Any reader can start a new thread and hopefully the responses will stay on point and live up to the standards of this website.

Thanks for responding. Sounds like you got the tax issue corrected. The fee for closing is in my opinion excessive - not that you can do much about that. A suggestion for others thinking of closing there IRA/Roth .... money is on sale right now, you can get a home equity loan, roll a credit card balance into a new account at 0% interest, get a signature line of credit at a very low rate, etc. I would kill a Roth only in truly desperate circumstances. - - - - Some points for novice investors... you don't need to swing for the fences (baseball) or look for the dark horse (racing) or bet the farm (agriculture?) to achieve long run success. A well balance equity portfolio will, over many decades, get the job done. Chasing performance.... the hotest mutual fund in the past year, the hotest stock in the past year, the hotest international market... is not a very solid approach to investing. We just came through 3 ugly years for stock investing, which was then followed by an excellant 12 months. Don't over react to a hot market or a couple of ugly years. Think long term and let time be your friend. Yes, there are many accounts that are down over the last three years. But a well balanced portfolio did OK, especially if it included some stocks paying dividends.

Let me be very clear about my view options investing. Not even 2% of the investing public has enough experience, mathematical modeling skills and patience to be using options. I have been investing for a couple of decades, and I rarely use options. I have four books on option strategies on my shelf. I have read them all. Maybe one or two times a year, I use an option strategy. From the questions we see here, and the problems we are asked to address, it is clear to me that most people who read this message board should not be even thinking about options trading. After a couple of years of responding to questions here, it seems to me that most folks who post should not even be buying individual stocks, but sticking to mutual funds. Custodial IRA/Roth accounts allow only the most limited forms of options investing. The "covered call" is a method of collecting a small premium to boost your returns by giving up any large potential upside. The downside to going this route is that you have a lot more transactions, spend more time on your investments, and if the market climbs you don't get much of the upside before your shares are gone. The multiple posts about options are a big distraction. We need everyone standing up and taking first steps forward.... not trying to reach Mach 1. If you are new to investing, please take the last two sentences to heart. There are no risk free approaches, no shortcuts to success, no miracle solutions, no ultra fast way, and no single style that works all of the time in investing. You develop investment skills over years (not hours) and you need both patience and time (decades) to achieve your investment goals.

Whoaaaa ! You are clearly talking to the wrong custodians. $144 is absolutely way too high. You said "But the problem lies in the fact that each time I buy that mutual fund (once per month for each account) I will be charged a trade fee whether it be stock or fund that I buy, plus account management fee. " I don't know where you are getting that information, but for many mutual funds that is 100% wrong. There are two issues to address: transaction fees and annual fees. NO LOAD mutual funds do not charge you a transaction fee, every. You might be looking at brokerage charges for funds or perhaps loaded funds (commission based funds). In are era when there are thousands of NO LOAD options, it doesn't make a lot of sense putting your money into a system that keeps draining away your assets. You have the choice of opening a custodial account directly with a mutual fund or via a brokerage house. You need to shop around, and ask them tough questions about their fees. Almost all of the mutual funds and brokerages have websites with basic information. You can also get info from the March Consumer Report, Kiplinger Financial, Money or other investment mags. The better mutual fund families, and many brokerages, charge a modest annual account maintenance fee. If you have other business relationships, or assets above a specific $$ amount, the annual fee is often waived. ALSO, some custodians/funds will waive fees for IRAs or Roths where you set up an automatic deposit system - like a monthly debit against your checking account. AND, you can often just flat out ask them to waive their annual fee.... the custodians that are eager for your business may say yes. If anyone tells you there annual fee is more than $25... go talk to someone else. Free sounds better, but $10 to 25 is not bad. It sounds like making your own investment decisions is something new for you. Do some research. Then if you have questions, post them here again. There are lots of folks in your situation. We will try to help you get started on the right track.

I have two questions. Why did you close the Roth which is a great tax shelter? What kind of investments did you get involved with that only got you about a 5% return over multiple years? Your experience might be instructive for others. If it is not too personal, please expand on your situation.

This fund has an annual expense of about 1.1 and I prefer my mutual funds to be significantly below 1%. I am not sure what this fund buys you that you would not get with a general index fund at a much lower expense ratio. No general problem with Templeton. Don't know the manager, but he has been there for a while. Asset size is neither too big or too small. I don't know much about their holdings - I would assume there are hundreds of stocks rather than a concentrated 20-30. Its OK, but not great.

Based upon my experience, the answer to your question is NO. There is no single strategy or hybrid strategy that fits different market conditions or economic cycles. Try not to believe all the self promoting hype you read. As the Beardstown ladies eventually discovered, most of the huge stats don't surivive close scrutiny. I doubt that even ONeil would claim any method can avoid down years. Think of variations in investor knowledge, risk tolerance, available time, procedural constraints (like limitations in a company plan), and then consider how very hard it is to comprehend what is actually happening in our economy. Layer on how difficult it is to predict events even just a few years out - like Sept 11, bird flu, Mount St Helens, an NYC blackout, hanging chads, and other "surprises". You want one approach to investing that works in sun or rain, summer or winter, in daylight or dark? Its a huge waste of time to make such a search, the perfect approach to investing does not exist. Markets are essentially by definition unpredictable. Voters are unpredictable. The weather is mostly unpredictable.... certainly when you talk about climatic cycles like drought. People are unpredictable. So.... does it not follow that investments which are derived from human endeavors would also be highly unpredictable? If everything can be known or predicted in advance then no one would ever hold a losing investment and we would overrun the best ideas. That is not how markets work. There is always a high level of uncertainty. For the novice investor, the closest thing I can think of to a single approach to investing is to use broad market based index funds. The advantages: easy to purchase in dollar amounts, very diversified (at least among equities, aka stocks), low maintenance (fewer hours needed to monitor) and tiny loses related to expenses. They are no magic bullet - if the overall market goes down, you slide down too. They are often over weighted toward large corporations. You can still have bad fund manager behavior. Etc.

I can not recommend Orman. Right now she most of her pitch is reactionary, playing to investor fears associated with the past three years. She cuts a lot of corners with her explainations and often leaves out important qualifiers. She is more of a TV personality than a knowledgable investment advisor. Her presentations are based to much upon slogans. I also do not recommend that folks with limited investment experience fool around with options. This is akin to giving a youngster a jet plane when they were just learning to fly a kite. Options magnify the impact of decisions. The commissions and "spreads" are expensive. You can lose 100% of your investment in a single day. Here is a good test to see if you should even be thinking of options. Answer the question "The average spread for an option typically represents what percent of an option price?" If you neither understand the question or don't know the answer.... then you are not ready to use options. PS: Most of the authors on this message board have a background in tax law or accounting. They are generally not trained in investment analysis.

Some quick responses: o No, they don't show or submit proof of earned income, but to qualify they must have earned income. Earned income does not include gifts, dividends, or interest. It may include newspaper route pay, lawn moving, babysitting, and paycheck type employment. If the IRS automated systems don't find an income match, you may get a letter requesting information of earned income. o No, their income is not tied to yours. The only income outside of your own that is ever relevant, to my knowledge, is when you are dealing with spouses, which would not apply to children. o In 2003, the maximum each child could contribute to an IRA $3,000 or their earned income, which ever is lower. Note, each childs calculation/qualification is done separately. You never are forced to contribute a max amount. o You will need to find a custodian for the IRA funds that will handle a minor. Some custodians restrict IRA accounts to anyone 18 or older. This is not an IRS rule, just a custodian issue. I know Etrade did not used to allow minor children IRAs, while Charles Schwab and many other brokerages, banks and mutual funds did. o You will need SSNs and perhaps a photo ID plus the usual basic data to get started. Each account will require a two page form. o You have a choice. IRA or Roth IRA. I would highly recommend the Roth IRA because of the long term favorable tax treatment. o The child does not have you fund the IRA/Roth with there money. A parent or relative can make the contribution. I would suggest that you explain what you are doing with your kids.... begining their basic investor education.... and avoiding the lack of info that you faced. o Avoid the last minute rush, and get the process started before the peak of tax season. Post again if you have additional questions.

A PS: Leave "no pain, no gain" to the sports page. It is a silly slogan that makes little sense in investing. You don't need to have pain to have gain.

Forprofit2003 - it sure looks like a lot of your investment knowledge comes from books. I partly agree with one part of what you said, there is a certain acceleration of events in our economy that means you must re-evaluate your investments more often. My father grew up in a world where many people worked for one firm for their entire life. In his case it was the Bell Labs, AT&T. At mid-century, a series of very successful firms emerged that dominated their catagories for many decades. ATT, Dupont, IBM, Xerox, GE, Catapiller, and Kodak were some of these companies. They were reliable stocks. The investment simpleton of that era would say - "buy these and forget about them". For decades that did indeed work. But by the 1990s many of these firms fell victum to changing times. Kodak was slow to see the impact of digital photography. IBM stuck with "iron" and tossed the software part of PCs to Microsoft. Xerox was slow to react to competition. Etc. I think that multiple decade ownership of the blue chips is no longer a great strategy. This is not to say that short term trading is the way to go. On the far other end of the spectrum are the day traders. Most do not make money. Daytrading for all but a few very bright folks is more akin to gambling. It is high stress, takes up enormous amounts of time, and is probably addictive. My 20+ years of investing experience tells me that no one style of investing is successful all the time. I don't recommend what I personally do to others because most folks don't have my mix of skills, available time, or tolerance for risk. Note, I did not mention transaction costs since the arrival of discounted internet trading, where some trades are just $5, has made minimized that issue. To suggest that average folks be more active traders, such as the 1-6 month holds, is to presume that folks have the skills, time, insight and courage. It is my experience that the average investor is not that advanced. Folks that have jobs can not be expected to be reacting to corporate announcements, listening to earnings calls, reacting to CNBC clips, and doing research on competitors. When someone asks me to comment on their investments - I will ask what does the company do, who is the CEO, what is the recent earnings growth rate, who are their competitors, where are they located. Way too many times I will be luck to get one of those questions answered. Then I learn they bought it because a co-worker owned it or a relative suggested it. I call that investing on "tips" and it is extremely foolish. To the relatively new investor reading this I will ask - "Are you prepared to spend 16+ hours researching a firm before you take a position? And follow that up with 4+ hours every month?" If the answer is no, then you probably do not want to be a short term stock picker. If you are unlikely to have the discipline to sell a bad idea and move on... you will never be a good stock picker. Two other reasons why shorter term trading is limited for most folks: (1) Many people have a false sense that it is possible to detect the change in direction in a stock or the market. It is almost impossible to know when high is high and low is low. After perhaps 3,000+ trades over 20 years, I can tell you that only once did I buy a stock just as it turned around.... and it was purchased for my mother and not me. (2) It is too easy to get emotionally attached with your stock pick. Investors often hold losers too long and collect gains on winners too soon. Ask most serious investors what they could do to improve their results and they will tell you that "timing of sells" is a huge area for improvement. What do I believe in? For most folks getting started and the majority of the folks who are likely to read this response - I think broad based index mutual funds are just fine. Stock picking is great if you enjoy it, can sleep nights, have a tolerance for mistakes and don't mind the amount of time it takes. Long term or short term? That depends upon the investment, no fixed rule applies. It also depends upon your tax bracket and if the investment is within a tax sheltered account. Summary: no one style of investment works all the time, not all approaches to investment match the temperment/training of the investor. What style have I adopted? No fixed style. What I do has continuously evolved. I focus on stock picking for most of my assets, but not all. Small accounts - like kid's Roths, my wifes smaller 403B don't have the assets or brokerage commission structure to justify individual stocks.... so each has a different no load mutual fund. Larger retirement accounts and taxable brokerages are mostly stock picks. About 1/2 of these assets are in stocks held for 1-5+ years... which is ussually about the time required to capture the expected appreciation. About 25% of my holdings are aimed at shorter term opportunities, 1 week to 1 year. Some times, I may have 20% of my assets in very short term opportunities - hours/days type transactions, but those opportunities are not just hanging there like grapes to be picked. I act on less than 1 in every 6 ideas I research. I am very willing to make a modest trade (a market overreaction to JNJ press announcement.... and some more complicated deals) to capture a 5 to 10% gain. About two times a year, I will have a strong urge to short a stock that is out of whack. My shorts are rarely held for more than a week. I might have up to 25 positions or as few as eight in my portfolio. I try to stay mostly invested - but for brief periods I may be using margin or as much as 80% cash. My investment skill is self taught, and I learned many lessons the hard way, paying a "tuition" many times what my two degrees cost. I also have developed expertise in two very narrow market niches where I have a distinct advantage over the average analyst. I will frequently violate almost every "rule" that has ever been written in basic investment texts. I spend about 30 hours a week on investment analysis. Most folks would say I am a professional investor.... I think of myself as retired. My long term record is 16 strong years, 2 flat, 2 slightly negative. Worth repeating: Summary: no one style of investment works all the time, not all approaches to investment match the temperment/training of the investor. I don't attempt to recommend that others try to follow my path. It works for me but is unlikely to work for others.

I am assuming that you might be just starting your Roth contributions and this may be your first investment choice. Some general suggestions: (1) Choose a fund that is broadly based, representing a wide range of stocks and sectors. There are over 8,000 mutual funds and some are very narrowly cast (like telecommunications or medical technology) which will be more volatile. There are dozens at Vanguard. The average investor should not look at investing as an opportunity to hit the jackpot by betting on longshots in specialty mutual funds. Time is very much an investor's friend, and over the long haul, getting a reasonable performance from a mixed of stocks in a broadly based fund will probably have you achieve your financial goals. An S&P500, overall market, Wilshire 5000, etc. will likely be just fine. (2) Vanguard has many extremely low expense index type funds. These have a significant edge in letting you retain a very high percent of your gains each year. (3) If you follow #1 above, you may not need to even consider more than one fund. Most funds have a substantial overlap in portfolio. Owning multiple funds initially makes your recordkeeping more complicated and may buy you no advantage. (4) As your assets grow, you may eventually decide to choose a second fund. While you don't need to spend a lot of time watching your fund, periodic reviews of your statement will give you a better base to make a future decision. Some folks never own a individual stock or bond. Some families move rather quickly to individual stocks. The first path takes less time and effort. The second requires more skill and knowledge but can be more enjoyable. I am not convinced that either path can be demonstrated to offer consistently better results. I am a stock picker, but would hardly recommend that to most people. It is more like an advanced hobby. My wife can hardly stand spending talking two minutes about a company. She prefers mutual funds. Different strokes..... Vanguard's website is a pretty useful mechanism for reviewing their choices. Call them if you need additional help.

Applby - It might be helpful to also explain the treatment for a Roth. Some folks use Roth and IRA interchangeably.

If you kids are not models, and are so young that they can't have a newspaper route or babysitting job.... you will have to wait. However, you may want to investigate the variety of college savings plans that are possible for children of any age. My kids are in college know so I have not been paying attention to all the details - so perhaps you might want to do a Google search on "college savings plans". There is a mini-IRA version. There are also state sponsored plans. Frankly, some of them are just miserable investments with poor returns and too many restrictions. However, the trend seems to be moving toward more flexibility and good old competition is forcing the weaker plans to improve their returns. Perhaps someone else at this site can lay out those options. If none of these makes much sense for you, consider this option. You can always open joint taxable accounts with you and your child and then invest in either a mutual fund (preferably a tax managed fund) or individual stocks that will be held for many years. When these assets are sold, you will have long term capital gain treatment.