John G

Why did you take a distribution from a Roth if you were not planning to use the funds? You do not say if you took a premature or qualified distribution. If you are under the 60 day time period, you may be able to redeposit the funds in a Roth, but these rules are relatively complicated. You should immediately call (1) your custodian and (2) your tax accountant or tax advisor. Folks! Think twice before you take any major action on a Roth or IRA. If you are not 100% confident that you understand the rules, call your accountant. If you are completely confident - call your accountant anyway. The penalty for a mistake can be very costly compared to an hour of professional help. I am not an accountant. I have read IRS pub 590 three times and read many of the technical articles at ROTHIRA.com ..... but I spent a number of hours with my accountant before I ever did an IRA conversion in 1998.

Replies: (1) Not sure what you mean here. If by "Fund" you mean a mutual fund - there is no earned income. Earned income does not include: dividends, capital gains, real estate gains, gifts, tax returns, etc. Earned income for most people means income related to a paycheck, but can include certain consulting, self employment, and part time job income. For example, teenagers can qualify from earnings associated with a newspaper route, babysitting, or mowing lawns. Not that those kinds of jobs may be a fit for a retired person.... but some creative thinking may allow you to qualify for 2004. (2) Over contribution is a common problem. IRA custodians have procedures for handling this and methods for calculating the earnings on the overage. Call you custodian (now is probably a lot better than later in tax season) and talk it over with them. You probably can get the adjustment made after you send them a letter. PS: Don't forget that you spouses income can help you qualify, even if you are not working.

Geez, someone is now quoting me! Let me say it this way. If you have not exotic transactions and take normal retirement distributions.... no taxes on any transaction inside the Roth, no taxes when you take distributions. That statement probably covers 99% of the population. As note above, there are some really obscure issues that can trip you up. Perhaps you might even run into the alternative minimum tax issue or Congress may make some technical modification that will have an impact. BUT, for 99% of the folks who read this site. The ones with basic investment accounts and own either mutual funds or standard publicly traded stocks or bonds.... there is not tax impact. You also do not have to keep track of dates of purchase and sale as the LT and ST gains concept within an IRA or a Roth is meaningless. IF, you have any doubts that you live like 99% of the general public. IF, you think you have some scheme that is growing hair. IF, you are just the nervous type. Check with your tax advisor or tax accountant.

IFL - you need to do some basic reading on Roth IRAs. There are no tax implications to transactions within the Roth account. Under standard retirement withdrawals, there are no taxes on Roths either. Your other questions are not especially clear, and may be linked to a misunderstanding about taxes on transactions. You may want to repost avoiding compound questions. On options: your custodian will set the ground rules on any options. Generally there are only a few types of options allowed . . . such as covered calls, and not all custodians will even allow these. Since you can not just add money to a Roth, no custodian I know will allow naked options or any type of option that exposes your account to unlimited liability. I know of no normal Roth custodian that will allow a short sale. I highly recommend that you do some reading of IRS pub 590 and perhaps tax season articles on Roths that you will find in all the financial mags in a few months. Most folks are well advised to avoid "gimmick" style investing in Roths. You don't need to bet on long shots, complex strategies or highly risky investments to achieve outstanding results when you are investing for many decades in a Roth. When I review the investment decisions and approaches of folks - I find that bad results are heavily correlated with investments that are not well understood. It concerns me that you are wondering about "wash sales" when you don't yet understand the basics of a Roth. That is sort of like worrying about what is the best pitch count to steal home when you have not mastered getting a single.

1 - No. 2 - No. Earned income is income from wages and can include some self employment type incomes like lawn mowing, babysitting jobs, and newspaper routes.

While there are a number of ways to do this, the single best method is a direct custodian to custodian transfer. You start with the custodian that will receive the funds/stocks and fill out a form indicating the "source". They usually ask for you to attach a copy of the last month's statement. You turn that in to the new custodian and they process it in usually about 6-15 days. Your job is to monitor that it is done correctly. You may request all components to be transfered "in kind" or all positions sold and transfered as cash. The first is often preferable. Note, you may have termination fees for the closed account (like $50 for some brokerages) and fees for loaded mutual funds.

There are no IRS limitations on the number of IRAs, Roths or rollover IRAs you can have. Yes, you can go ahead and have two different IRAs based upon what you have written. There are practical considerations such as annual fees, account tracking, types of services offered, etc. that are more likely to shape you decision. Please note, while you can own multiple IRA or Roth accounts, the contributions maximum is set for the combination of all accounts. This does not apply to your situation, but a novice reader might think they can open multiple IRAs, each with $3k contribution.... we have been asked this before.

First, the $3,000 annual max (soon to be increased) is only the maximum if you earned income is over $3,000, otherwise your earned income is the maximum. The Roth option may be reasonable because it is "tidy" - relatively clean and simple. Anyone can fund your Roth, such as parents or grandparents funding a teenagers IRA. Your employer could fund your Roth as a "gift". It is unusual for an employer to both pay someone and give them a gift, but not completely unheard of. The accountants might want to weigh in on the question of if the IRS might consider the "gift" a bonus and expect taxes all of the payroll taxes to be paid. My experience on that point is limited. Your employer might not like the "gift" approach as you would not be taking a business expense. There are other retirement plan options for small businesses that may be apply, although they would not have the same tax benefits to you. You might want to post again to clarify if keeping it simple, maximizing the contribution, getting a tax write-off for your employer or some other goals have priority. Her accountant would also be a useful source for discussing options.

Clarification: the individual limit this year is 3,000 or your earned income if you meet the general qualifications. This does not have to be spread among you existing IRAs, it could be allocated in any way you want. You are absolutely not allowed to put 3,000 in each IRA you own. Your spouse has a separate $3,000 limit if all the above qualifications are met or if your income is enough to cover both amounts. IRAs are seperate accounts for each person - no blended or joint accounts.

Your question is oddly phrased. I think you are talking about a mandatory distribution schedule due to age. IRAs have these. Roths do not.

A few comments on the other advice above: Someone who is 22 years old and just learning about investing should not be seriously looking into sector funds! Newbies to investing are often looking for the magic bullet, the approach that gives them the maximum performance. There is not such bullet. There is a reason why the SEC requires a statement that past "performance is not indicative of future results" - because it is true. Sure, it might be interesting to know more about the range of options and really neat to pick a great performer - but a 22 year old newbie does not have the experience to make educated choices about narrowly cast funds. There is no reason to try and chase top performance: (1) because you can't tell in advance what type of fund will perform best and (2) you don't need "top" performance to reach your goals. You are very likely to amass multiple millions of dollars in your retirement accounts if you start at age 22 and set aside the max each year and invest in the overall market in some form. DH is correct to suggest that because of your age you may bias your investments towards growth or even aggressive growth. But, you can get execellant results with a broadly based mutual fund and perhaps that suits your risk tolerance. IRAs are under your control, so it is your choice. Your questions: - The maximum I can put into my Roth IRA is $3000/yr, is there a way to invest more? Yes, and no. Right now Roth IRAs are capped at $3,000 if you earn that much. The max will be increasing again soon, and there are some legislative proposals for other investment vehicles and other limits... so the max number may change. You should also look into any retirement programs offered by your employer such as 401k, thrift plan, pension/profit sharing, ESOP, or 403b (the most common types). These plans have various tax shelter properties and some may have a matching component from your employer. As long as your employer offers a range of investments that you consider reasonable, this is often a great way to build additional assets. Beware of any plan that forces you to only buy company stock - these are less common than years ago, but tell that to the folks at Enron who had their jobs and their fortunes tied to the firm. - What are the advantages/disadvantages of having a second fund at Vanguard (does that mean I can have 2 Roth IRA's - if not- what other funds should I look into)? Advantages - slightly more diversification, another fund to watch and potentially learn about. Disadvantages - more paperwork and effort required, possibly more fees. My view: do it only for the learning part if it only costs you time. - Down the line am I able to change my Roth IRA fund to a more aggressive fund or vice versa? Sure. Mutual funds most often come in "families" that include money market, growth, dividend, bond, index, international and sector funds. Switching between funds can be done by phone or internet. By switching, I mean changes after a long run, not jumping back and forth to maximizing performance (which usually gives the opposite result).

The rollover option is a well worn path because you can choose your custodian and through that selection give you almost unlimited investment choices. Taking the lump sum make all of these assets taxable and you will not only pay immediately, but everytime you make a buck on the remaining assets for the rest of your lifetime. You also need to check with your former employer about what their "plan" allows for rollovers. You ask some very big questions. Rather than try to respond to all your options, I would suggest that you do a few things to get up to speed. First, get the IRS pub 590 - its boring, but it covers the basics. Second, pick a few potential custodians (Vanguard, Schwab, Etrade, a local bank, etc) and ask them for general information on investing and rollovers. You may also want to check their web sites. There is too much info.... use the pieces that seem to match your level of experience. You will find good info in Kiplinger Financial mag and the March issue each year of Consumer Reports. At age 33, this money will probably stay invested for a long time. If you invest broadly in the stock market at about 10% a year, this lump would grow to about $160,000 by age 61 and $320,000 by age 68. Yes, inflation will erode some of this buying power - but it is an awfully good start towards a retirement nest egg. Reading between the lines and considering that you have about $10k - broadly based NO LOAD mutual funds may be the best option for you. You might be letting these funds grow for 30+ years, so the year to year flucuations should not be a big issue. The fund option may be just fine for a decade while you raise your family (my presumption). When your funds grow to 30 to 50k and your knowledge grows, you might want to consider individual stocks. Some folks never go that route, partially because they don't have the time requirement or feel comfortable with their skills at picking investments. Post again with additional questions.

Lots of folks use Vanguard for their IRAs and Roths. They have very low expense ratios on their index funds. So far, they have not been tainted by the recent spat of mutual fund indiscretions about short term trading. My advice would be to not worry a lot about your short term performance, the big picture is that you were wise to start early. Think of your first few years with an IRA as primarily a learning experience. Don't spend a lot of time pondering your $1,000 but spend 2 minutes looking over every statement they send you. Perhaps the next time you put in money you may want to consider a second fund at Vanguard. Time is an investors friend - ignor the short term ups/downs and stay with a regular plan of funding your IRA. No one can tell you which Vanguard fund will perform the best over any given time period. That is the nature of markets and investing - the ebb and flow are in the short term very unpredictable. You are backing "capitalism" by investing in the stock market for the long run. Things tend to move up because of the entrepeneurial freedom, movement of capital, low governmental control (compared to N Korea or Cuba), and personal incentives to build a better world... for profit. You might want to subscribe to Kiplinger Personal Finance for about $10 per year to build a foundation of knowledge. That mag covers home ownership, credit, insurance, investing, mutual funds and a bunch of other stuff that a 20 something will find useful. Give it a try.

Dh003i - I have deleted your post in my roll as moderator. You need to demonstrate expertise to post "advice" on this message board. Random opinions that show no evidence of a factual basis, issue research, quantitative analysis or professional testimoney dilutes the value of this forum. It is also my view that comments such as the "government steals too much money from individuals" as a justification are inappropriate. You have made a number of inappropriate posts in the past, I will continue to delete material that I believe is inappropriate for the Roth / IRA message board.

If I understand your question correctly, the answer is probably NO. There are at least three issues. First, you fund an IRA using dollars. You can not transfer stock into an IRA unless it is coming from an IRA. If you put dollars into your IRA you could normally buy any stock... but you indicated that this stock is not traded which means your custodian can not buy it. Second, you also have custodian rules which may restrict the kinds of investments you can make. For example, some custodians will not allow you to buy any stock that is not normally traded on an exchange. Third, custodians are required to produce an asset valuation at year end. If this stock is not trading, they would have a very hard time determining a market value. This is another reason why custodians often will prohibit these kinds of holdings... or pink sheets, or regional Nazdaq, or thinly traded issues. On your investment concept: I invest in a lot of regional and community banks and have positions in about a dozen at this time. Over the past three years, fianancial stocks have performed extremely well. This upbeat cycle is nearing an end. It is very likely that interest rates will click higher when the economy grows stronger. Financial stocks are likely to look less attractive and some of these stocks will give up 20 to 35% in a couple of months. If your time horizon is much longer, then just owning this stock in a taxable account may be a better idea. The LTCG rates are 15% for many people. If this holds, taking a LT gain would be less painfall in a taxable account. I do raise the issue of too much of your economic future hinges on the success of your community bank. Two jobs + stock holdings? There are a lot of Enron and Worldcom folks (plus some of my friends in other industries) who wish they had not bet the farm on just one business. This is a high risk strategy... perhaps for high return.... but it has been my experience that the average investor becomes too enamored with his own "investment concept" and fails to understand all of the odd things that can hurt his investment. Examples: 9/11, exec at Finger Lakes regional bank committing suicide when distraught over his alumni activities, Willow Grove questionable loans, regulatory intervention, impact of local industries closing, etc. Email me privately if you want to talk about details of your community bank. You did not specify the size of the assets you want to invest, your current ages or if this bank has an ESOP or other method for participation in your stock. If you are invisioning a modest portion of your total assets invested in this community bank, there may be simple ways to do this. You do not need to hit grand slams in an IRA to get excellant results. If you are just starting out on your careers, perhaps you might be better served by a S&L/banking mutual fund, or starting to assemble a portfolio of similiar companies. There is going to be lots of consolidation in the banking industry for probably the next two decades and having a position in TONE, PFS, SOV, HCBK, CFFN, NARA, EWBC and others could be a successful strategy.

Appleby, good catch. One PER IRA, not just one total. I can not stress enough for folks to run their ideas past their tax preparer or accountant. Conversions, recharacterizations, rollovers, etc. The rules are unfortunately complex and some rarely mentioned issues like tax filing status can create problems. Some folks are moving around very large amounts of money, and buying a couple of hours of professional support time is ..... "priceless". While you will get some good ideas at this site, the devil is in the details and we are always straining to imagine all of the issues that someone forgets to include in their post. Your local professional knows you and your tax situation a lot better than we can. It helps to have an independent pair of eyes looking over a transaction. It helps to have someone raise questions about if the transaction makes sense. In 1998, I did a number of transactions and my accountant was involved each time. Opt for the peace of mind. Get help. A pro can also help you anticipate problems and show you how to avoid them in advance. {I am not a tax preparer or an accountant, but I value their services.} PS: The clock is ticking for some IRA transactions. Custodians get very busy at the end of the calendar year. If you plan a transaction that must be posted in 2003, get started now and double check it gets completed before year end. By mid-December, your chances of getting something done quickly erode.

If you took a check and then rolled over the funds to another IRA, then you are limited to just one such event in a year. You can still do a CUSTODIAN TO CUSTODIAN, direct transfer. C to C transfers is the preferred method for many reasons, custodians know how to do these and they often are completed in a few days, you don't have any witholding issues, no limits on number of transfers or rollovers, no time window for getting the funds redeposited. The "take your check" version looks like a dispersment of funds... you had use for the funds for up to 60 days - and is probably limited for this reason. The 60 day option has multiple perils and too many people have gotten shafted taking this approach... failure to get the money back in, withholding issues, custodian fails to act in a timely fashion, etc. No matter what approach you use or what type of transaction, you, the taxpayer, should monitor that the custodian gets the job done correctly. Catching an error early is a lot easier to get it corrected. Recharacterization - to "undo" a Roth conversion, the reverse process of sending the money back to the regular IRA. Originally invisioned as the remedy for folks who converted and then found out they failed the income test.... it has apparently more often been used by folks who converted and then saw their assets shrink in a market downturn. By recharacterizing, they could avoid paying the taxes at the higher conversion level. Another proceedure that is complex and often gets screwed up... there are limitations, deadlines for completion, etc. I don't think this is likely to apply to your situation.

Multiple questions... here is my attempt to cover them: IRA to IRA: no limitation on $$, no limitation on numbers, many to one, one to many, etc. suggest that you use direct custodian to custodian and never handle a check. Within a custodian vs between custodians: No difference in IRS rules come to mind. Custodian may have some limitations or fees on internal transfers - ask your custodian. Traditional to Roth: This is a CONVERSION not a transfer, there are income limitations (which you may meet) and filing status issues (which you apparently meet filing jointly). You may make multiple conversions in many ways - at different times of the year, sending dollars to different locations. No limitation on dollars, but because of the tax consequences you should consider having your tax preparer do the math and show you the impact on your taxes. You can have a partial conversion or full conversion. You can convert in multiple years (as long as you qualify in each) to manage the tax impact. There is a limitation on 1 recharacterization in a year.... an issue that came up when dot.com investors wanted to "undo" a conversion when the stock prices collapsed. I don't know if that covers all of your questions. It sounds like you may be considering a complicated transaction. You can do yourself a huge favor and keep out of trouble by talking to your tax preparer or accountant before you undertake the transactions. I also recommend that you discuss you plan with your current or future custodian. Be sure to understand what annual fees you will incur and any exit or termination charges. Complicated IRA transactions should not be directed to the "counter help" but rather to the back room IRS department which is more likely to know the rule and proceedure details.

Appleby, thanks for the post. I learned something new - is there a good reason for two kinds of procedures? Yes, talk to someone else. Preferably talk to the backroom IRA department. The general front desk folks at most brokerages, banks and mutual funds are often the least trained staff. Any time you have a unusual question or problem, seek the pro (perhaps in the home city of your custodian) to get your question answered. Eligible investments, partial transfers, rollovers, conversions, early distributions, etc. all fall into this category of find the specialist.

Carl, where did you find this new custodian? Lots of custodians allow a partial rollover of assets of an IRA. Often the form allows you to specify which assets you want rolled over.... a specific stock, a group of mutual funds, cash, etc. The lack of flexibility of the new custodian is a warning sign of potential future problems. {a word of caution - IRA offices often goof on following the instructions, so they may try to transfer all the funds even when you said only partial. Partial is not a common transaction.} Why did you pick them? If they won't do what you want, find another custodian! What the new custodian suggests is stupid. It is suggested as a patch for their convenience, not yours. Anytime you receive a check from an IRA, you increase the chances of a foul up or a failure to complete the transaction. I highly recommend that you do not follow this "advice". Yes, you have the 60 day rule.... but the devil is in the details - not just the 60 days, but also only one transaction in a year. Then you have custodian misunderstandings about witholding. Plus their are "termination fees" - otherwise known as "gotcha". You are complicating your life by splitting one account into two. I sure hope you have a compelling reason. That you wish to let some assets remain with the first firm would suggest that you are not reacting to admin screw ups. I would be interested in why you are considering the split.

Yes, you can combine IRAs. You can also split one IRA into many IRAs. Usually the best way to do this is to contact the custodian that you want to handle the funds in the future. Ask for a direct IRA transfer application. Most custodians have a 1-2 page form that you fill out and then attach the most recent statement of the IRA you are eliminating. They will make the arrangements, your job is to monitor that the task is completely properly. Note: the custodian of the account you close may charge you an exist fee.

The actual time periods used are often found in footnotes. One way to minimize the differences is to use a third part source - Schwab, Morningstar, Money Magazine, Consumer Reports, etc. When they prepare a table, they try to get comparable data. Look for an explaination how they handled loads for example. Of course, the numbers that you seem to need have very little to do with future performance of the fund. Why? First, future performance is predictated on the focus on the fund and the past does not give you a great guide for what is likely to be successfull in the future. Often, the short term performance is a contrary indicator.... basic materials surges for two years then stagnates, tech is down then surges, etc. Second, the holdings of the fund are likely to change... Enron is gone, Pfizer is in. Some funds have stable holdings, others change the entire portfolio frequently. Third, the fund manager may change which might lead to a different approach to investments. Peter Lynch eventually left Magellan... but people still bought the fund, even after it became clear that the following stock pickers were not as good. They bought because those 5 and 10 year numbers looked good. And finally, the fund performance may change as it ages past those nimble early years and becomes another elephant. Magellan fund is a good example of this. Under Lynch, Magellan fund grew rapidly. Eventually it became so HUGE (the largest fund at the time) that it was no longer nimble and could not even invest in some of the smaller growth companies that made it famous. Chasing past performance? Take the required SEC warning seriously - past performance is not a reliable indicator of future success. Folks that chase performance are constantly looking over their shoulder for what worked last year. You can walk into a lot of walls acting that way. It is far better to reach a general philosophy about your investment style, current age and investment goals. For example, if you are in your 30s you might want to bias your portfolio towards growth stocks. If you are extremely risk averse, you may want to overweight dividend and income (a mix of stocks with dividends and bonds).

There are about 8,000 mutual funds, so it is easy to get confused. First, the MF world is divided into LOADED and NO LOAD. Loaded means that there is a "commission" or percent fee charged, often something like 6-7% up front. Loaded funds were the first to be developed. No load means there is no percent charge up front, but there are other costs which I will discus later. Of course, it gets a little more complicated than this (of course!) when you consider that there are low load (2-3% fees) and loaded funds where the fees are taken when you sell the fund rather than when you put funds in (back end loaded). Other fees? Yes, all funds have various annual expenses which are described in the prospectus. These fees can range from more than 2% (ouch!) to about 0.17%. More fees? Yes, many, but not all, mutual funds charge an annual fee for IRA accounts. These fees (custodial fees) can be as high as $100, but many are in the $20 range. Choices There are lots of investment styles to choose from. The original mutual funds where actively managed portfolios of a broad mix of stocks. Over time new kinds of funds emerged: growth, dividend and income, bond, and sector (telecom, retail, paper industry, etc.). A relatively new development is INDEX funds. These are not actively managed. The fund buys all the stocks on a well published list. Gone are the analysts, field visits, airline tickets, hotel bills, cell phones, etc. The mutual fund giant, Vanguard, was the first to develop these kinds of index funds. The advantage of index funds is that they have ultra low expenses and they are always completely invested. This means all your dollars are put to work and very little is skimmed off for expenses. Conclusion You don't need to know lots of funds. As a beginner, you really need 1 good general purpose fund... maybe a few years from now you might want to have part of your IRA in a second fund. An S&P500 index fund would do a great job. So would any general purpose stock fund. Remember, you should look for the NO LOAD funds. Consumer Reports prints a list of about 100 very good mutual funds each March issue. You can find this at most public libraries. Post again if you have other questions.

Yes, he can get started. The money that funds the Roth can come from you, another relative or your son. He does not need over $3,000 to qualify, the $3k is just the max for anyone earning more. If you earn less, the max for that year is the amount of earned income. Note, dividends and interest are not part of earned income. You may find that some custodians (like Etrade) do not want to open IRA accounts for minors. I believe Charles Schwab still does. You can look at brokerages, mutual funds and banks to be the custodian for your son's account. I would recommend that your son's initial investment would be in a NO LOAD mutual fund. A broad based stock fund would be fine. An index fund usually has very low annual expenses and would give you broad diversification. NO LOAD means that there is no front end or back end fees charged. If you need more information on the basics, post again.

I normally live in the cyber world of investors using a variety of channels/sites to communicate with analysts, brokers, hedge fund mgrs and investors. Many of my business associates lost friends two years ago on September 11. A few firms located in the WTC, above where the planes struck, were decimated that day. Yesterday, one of the analysts I admire said he kept his kids home from school. They went out an bought a range of foods and took packages down to their local police and fire stations. I thought this was a great idea. Although I live far from NYC, and I first read about this in the afternoon, I did some fast shopping for a few cheesecakes and at dusk dropped them off with a simple expression of thanks for the public services. I regret that my kids are off at college and could not participate today. Perhaps we will make this a family tradition in the future. Thanks for you patience as I digress from the technical questions about IRAs and Roths.