John G

I ask the sysop for permission to "revise and extend my remarks". Ah, some new voices on this topic which is good as there are no precise answers. Who knows what your income will be 10 years from now, what state you will be living in, how many more kids you will be raising and what the Federal tax policy will look like then or 20 years from now. First the college question. You have 1 year old twins. I have two kids in college right now and just went through the process. My first observation is the ironic point that the less you prepare for your children's education the more support they will receive in the form of scholarships and aide. There are a ton of scholarships in the US for all sorts of students... I know in part because my kids did the search and they qualified for quite a few non-income based. Other options include sports scholarships and the US military academies which are free. Then you have the great values in most state universities of instate tuition. Want something more exotic, try McGill in Montreal at less than 17K per year for the equivalent of our Georgetown, William and Mary or ivy league schools! Courtousy of the 63% Canadian dollar. Kids with good grades, kids with average grades... there is some money in every niche. With two kids going to college in the same year, you will score high on the financial aide calculations. Take a tour of the Princeton web site and use their calculator as an example of the math at a high end school. You will be surprised. The cost of college is actually exagerated! Yes, true. Here is why. When your twins are 17 you will be paying for food, clothing, gasoline, dental, medical, insurance, and of course the essential "entertainment emergencies". And the following year... you will be paying exactly the same amount but it is often cited as the "cost of college". The real hump to get over is tuition (put a tape recorder in your twins room with Gregorian chants of "in-state tuition). Each year your kids should also be working to build up their college fund. In our household, I have told both kids that they are responsible for 20% of their education. They can choose to meet that by scholarships, summer jobs, campus work, or ek! loans. This sure helped light a fire under them to find jobs and crank out scholarship applications. [i don't think your twins are ready for the percent concept, keep that for later] Did you also know that some schools and states offer tuition reductions is the student is pursuing a degree in public service, teaching, advocacy law, etc. It is noble to want to pay the ticker for your kids education, and I very much respect that. However, they will NOT be denied opportunities if you have little money. And, I almost forgot, some schools do not count retirement assets or home equity in their formulas for financial aide! I know someone who is sitting on 400k in home equity and has a bright son getting a free 4 year ride at one of the elite schools. For these reasons, I would start with your own IRAs and put less emphasis on the kids college accounts.

Ok, this has been covered from a variety of angles over the past year. Readers of this message board can utilize the "search" feature at the bottom of the main Roth page to pull up matches with a topic like "tax losses"... it searches the entire Benefits Link web site, so if you question is just about Roths or IRAs add that to the key words. Check these threads: http://www.benefitslink.com/boards/index.p...ST&f=18&t=12458 http://www.benefitslink.com/boards/index.p...ST&f=18&t=17047 http://www.fool.com/taxes/2002/taxes020222.htm The most likely scenario is that your taxpayer will not find it attractive to jump through all the hoops to write off $1500. It takes effort, eliminates your shelter and must exceed the threshold to be deductable. My advice. Remember the lesson learned. Don't bet narrowly on just tech or growth stocks. Over a lifetime, this amount will eventually become rounding error, regardless how painful it is right now. You can find this topic in IRS Publication 590, although it is covered very briefly and is not the clearest writing.

Yes. There is not limit on the number of IRAs. From a practical perspective, you might not like paying extra annual fees. These IRAs can be with the same custodian or with various custodians at different types of institutions. You can not increase the contributions by having more than one IRA custodian. The $3,000 is for all IRAs combined for one taxpayer. You may find that some mutual fund families will charge just one annual fee even if you have money in two types of funds (such as a money market and a growth fund). Of course, zero is a very fine number for fees.

Well, it is very late tonight so I won't try to add to my prior answer. But, I need to respond to a new point you raised. If you want to jump start your Roths, you have to April 15 of this year to make a contribution for 2002. If you wait until summer, the maximum you cancontribute will be the 3k (each) for tax year 2003. Act by April 15 and you leave the door open for boosting the funds before year end by catching the second tax year. Two suggestions for how to take the first steps in learning about investing and personal finance. First, the March issue of Consumer Reports always has a major article or two on retirement planning, IRAs and investing. You will find it a big help, if you don't see it in the local library... try March of 2002. Second, I very heartily recommend that you subscribe to a general purpose "personal finance" type magazine. I think you will find Kiplinger Financial to offer a lot of interesting articles on IRAs, investing, home mortages, credit, college savings, etc.

If you have no investments right now, then I would focus on your Roths and put less weight on the kids college accounts... but you will get a range of opinions on this point and I hope others will post. The time horizon till college and retirement is quite long, making predictions about rules and results more difficult. Lets discuss the Roth option: "$5,000 - to open a Roth IRA for my wife and I to retire (or should it be two Roth IRA's?) How can I figure out how much money this will bring us when we retire? Even if not accuate, is it possible to make a guess? Assume worst case? Best Case? Average Case?" The "I" stands for individual... so you and your wife will each have individual accounts. If you qualify on income for both last tax year and this year, I would highly recommend adding 3K+3K = 6,000 for your initial contribution for each of you. This would take 12k of your total funds. A reasonable rule of thumb is that your assets will double in approximately 7-8 years. So this initial 12k becomes about 384,000 in about 36 years. That is a healthy start for retirement. If you keep adding 3,000 each year to each account, you will eventually pass the million mark (in current year dollars). You need to put the majority of these funds in the stock market in a very broad NO LOAD fund and let time be your friend. In any given year, you can be up or down... but over three decades you should do just fine. The key is to start a plan and stick to it. I will post some more numbers when I find where I put my HP 12c and have some more time. "$5,000 - into an agressive Mutal fund, because we are in our early 30's and can take the risk." $15K stay in checking account to keep liquid. Reply: take out the word aggressive, and I have no problem with these numbers. You don't need to be betting on long shorts to accomplish your long term goals. Yes, you certainly need a liquid component, and $15k is probably not enough. However, the mutual fund shares can be sold and are almost as liquid. Conclusion: I would not worry a lot about your initial $$ divisions but focus on getting started. Personally, I would emphasize the Roths first with 12, then scale the other numbers back keeping cash or similiar core amount as the next largest park, put your toe into mutual funds and make a smaller contribution to the kids account. Then next year, you add to each as you can.

Sorry that one of your first leasons in investing was so expensive. They must have been investing in internet startups or something radical in telecom... as very few funds have gone down that far. Your problem was that your fund choice was way way tooooo narrowly cast. Seeking this years trendy choice has very little to do with a good performer over the next 20 years. Stay away from fad investing or chasing last years best return, it does not work. Your question on mutual fund choices is tough. Two years ago everyone was talking about no fee and low initial cost IRAs. The brokerages and mutual funds lost a lot of revenue when the market turned south, assets shrunk and trading volume declined. The trend in the last year is to start charging fees. For example, Etrade went from zero fees to $25/yr unless you have significant assets with them. The low asset taxpayer is often ignored. I suggest that you wait for the March issue of Consumer Reports and look at the list of mutual funds they provide. Many mutual funds will waive the initial amount and sometimes annual fees if you set up a monthly withdrawal from your checking account. You can set aside funds in a regular bank account until you can meet the initial amount. If you can put aside $100 or $50 per month, you will be beyond the initial deposit hurtle in a year.

I am not very familiar with 457 programs, but matches in other programs like 401k are often 50% or 100%, so my general rule of thumb is that you want to maximize any account with a high match. That gives you an immediate high return in the first year. Then for most people, the Roth would be second best choice... as I assume long periods of growth to significant assets, that successful people often have high tax brackets in retirement and tax rates in general are not shifting lower. You can ever know exactly which plan or approach is optimal as so much changes over time... tax rates, health, longevity, job status, etc. A blend stategy might give you the best answer. Other factors that may influence how you balance things out include: current credit card debt (high debt families might be better served by retiring debt), restrictions on investment choices (eg. if company stock was all you could invest in and your company was weak, it would be a bad idea to go for the match), who has the account (spousal balancing is often desireable), and perhaps other obscure issues such as control over the account or access after retirement.

The I in IRA stands for Individual. IRA accounts carry only one name, so you would need two different IRA accounts. Roth IRAs have great tax shelter features, but deductability is not one of them. Instead you eventually get flows out of the Roth without tax liability, and no mandatory distributions. Your wife can qualify based upon your earned income. I assume that you file a married filing jointly return.

It is sad to hear your tale of woe, but you are not alone in facing this problem. It sounds like you invested narrowly in techs or telecoms as a broad based portfolio or mutual fund would not be down so much for that time period. I know it is little consolation, but if you consider the 8k as tuition and you learned from your investing decisions then something of value can come from the past few years. Even if you are 50+, you probably have many decades of investing as you don't burn off all retirement money the year you retire. More specific to your question about the loss and your options, the following references to earlier discussions of this issue should give you some guidance: http://benefitslink.com/boards/index.php?showtopic=12458 http://benefitslink.com/boards/index.php?showtopic=17047 http://benefitslink.com/boards/index.php?showtopic=11989 http://benefitslink.com/boards/index.php?showtopic=8252 No magic bullets. The "solution" is often as disagreable as cod liver oil. I highly suggest that you consider an index fund or a very broadly based stock fund for you Roth. This will give you market performance and a little more stability on annual returns. Yes, I know market performance has been awful for almost three years. A down cycle that long is a very rare event. Good years normally outnumber bad years anywhere from 5:1 to 8:1. I would expect the next few years to be better than average for the stockmarket... capitalism is a very compelling force in the world and growth and profits will again be solid.

2002 contributions can be made up to the tax return due date in 2003 (April 15 unless that falls on a weekend or holiday each year... my birthday doesn't count for the later) not counting any extensions to file. You can open a new IRA up to that time, or add to an existing one. 2003 contributions - anytime up to the due date for your tax return in April 2004. Note that there are 3.5 months over overlap in every year. It is important for the taxpayer to clarify for what year contributions have been made. Start by writing it on the check, deposit form (if any) or letter of instructions. Then... follow up on your next months statement to be sure the custodian did it correctly. Custodians make mistakes, it pays to catch them sooner rather than later.

While you are at it, you might want to consider making the contribution for 2003. Early contributions means that your Roth funds are sheltered longer. At year end you just double check to make sure that you meet the various income and filing qualifications.

This has come up lots of times at this message board. You can use the search capabilities at the bottom of the prior page to find the references. Here are a few locations you may find interesting: http://www.fool.com/taxes/2002/taxes020222.htm not on this thread, but is a good article at Motley Fool http://www.benefitslink.com/mbmirror/17047.html http://www.benefitslink.com/mbmirror/12458.html http://www.benefitslink.com/mbmirror/12730.html http://www.benefitslink.com/mbmirror/8252.html read especially the last few comments

If you can manage to keep the marginal tax rate low in the year of conversion, such as converting in a year when your income is down (or by doing a staged conversion), you get two possible benefits. You can shut off the dispursement stream and you can leave it in your estate to pass to members of the family that may have a much higher tax rate. Someone who does not need the income flow, has control over the timing of when they take income, and has heirs that are in high tax brackets would make this more attractive. I am not saying it is easy to craft a significant benefit, but it is possibly worth examining.

The main rules apply to the qualification to convert. Qualification is determined for the complete tax year and if you income is borderline you will know for sure when you crunch the numbers and prepare your return. You can clearly do more than one conversion in a year ... but after a while your custodian might start getting annoyed. The paperwork burden is mostly on their side, you just need to hand them a letter of instructions. There are other limitations if you try to reverse the process and undue a conversion. But that does not appear to be your question.

You are presenting a very misleading example of your own investment. There are at least four problems with your dramatic story. OK, so you found an undervalued property and wrote an option on it. I am very familiar with this type of transaction. It sounds like you got extremely lucky finding an owner who both failed to recognize the potential and was foolish to tie up his real estate for such a long period for so little. In the 1980s, these kinds of options often cost $2,000 every six month to hold a lot. I read many, proposed many and wrote some. So, the first problem with your example is that you rarely can lock up a property for so little for a long time at a very low rate, the example is an outlier of these kinds of transactions. Second problem is that you fail to account for the time and money spent to upgrade the facility. All funds spent to upgrade the facility reduce the return on investment. The option owner's time also has a value, often expressed in terms of "opportunity cost" or the amount he/she would have made if those hours were directed towards other money making activities. It is highly unlikely that a token amount of money would improve a facility by that much. It would certainly not be a easily found project. "There was very little risk" - lets see, you were talking about owning real estate and leveraged investments. Very little risk? That is a highly misleading statement. All investments have risk and leverage investments have high risk. The first risk is that your option expires before you can make it attractive and your investment becomes worthless. In my experience the majority of all real estate options expire. Neither you nor the President "control" the economy and certainly not local property values. Understating risk is the third problem I have with your proposal. Lack of general applicability is the fourth problem I have with your type of investments. Perhaps you swung a great arrangement. It is clearly possible to find some great deals. But, to paraphase a general rule of thumb in real estate, you walk away from 9 possibilities for every one that is worth seriously trying to implement. Less than 1/2 of all deals seriously worth looking at tend to get done. Great deals are rare and take a lot of time and energy to find. I leave it to the accountants on this web site to evaluate the technical tax/legal issues you have raised. And... I am not a professional financial advisor. I used to be a economic analyst, computer modeler and troubleshooter and I still keep a hand in these areas. Your presumptions about me are complete wrong as I have invested in a wide range of investments and consulted on everything from IPOs, real estate, spec construction, straddles, hedging, shorting stocks, currency trading, trading and long term equity investing. I don't talk about the unusual stuff here because this is a general forum. I do no fee based business with any party as a financial advisor and I sell no product to the public. All of my business investment and business relationships are conducted entirely with high net worth people that I have known for 15+ years.

The above post says "To be specific, I have increased the value of my Roth IRA fifty-fold in less than three years ". The BS imbedded in this statement is best illustrated by doing the math: Investor starts with $1,500 and gets 50x return every three years. After three years $75,000. After 6 years $3.7 million. In 9 years $187 million.... after 15 years this lucky person would have assets of $468 BILLION. Move over Bill Gates. {The "gentlemen" example this clown cites says $1,500 became 220k in three years -- that is 146x... what is another 96x over 50 amongst friends. Even Hillary Clinton never did so well with pork bellies!} If anyone believes this "get rich quick scheme" send me an email and I will tell you about a great bridge for sale in NYC. There is nothing magical about options. Technically it is possible to make huge amounts of money with any kind of leveraged investment like an option. Is it likely? Not even remotely. Guard you wallet. Guard your email. Do not ask for information about this bogus scheme.

You question is akin to asking "what is the best religion". No one can give a "best" answer. It sounds from you question that you are uncomfortable about making investment decisions and do not understand the basics. First, in any given year your assets can move up or down. There are no short term guarentees, but over many decades investments tend to provide reasonable returns. Returns vary by asset class (bonds, blue chip stocks, growth stocks, CDs)... inversly related to the short term risk (low risk CDs have the lowest return, stocks typically the highest). Sadly, investing usually means you get bruised in some years (like the past two) but do better than average in other years. Good years outnumber bad years typically 5:1 or 7:1. Note, mutual funds come in many many forms and can extend beyond stock funds to bond funds, so some folks with bond mutual funds for the last two years have had great returns. It is not the "mechanism" but the components of the portfolio that make the difference. You are clearly not alone in the past two years in seeing some losses. When an employer is changing the 401k provider, the first option to consider is rolling it to the new provider. You did not say what investment options you were offered. When an employer switches providers you generally do not get offered and chance to walk out the door with your assets a select a provider on your own. You normally "roll over" a 401k when you leave the employer. Perhaps I am not understanding your situation correctly or you are not using the exact terminology. Given the modest size of your 401k assets, a single broad based no load mutual fund might be your best choice. Index mutual funds tend to have extremely low annual expenses and will give market performance. You may want to read some of the March Consumer Reports which cover retirement planning and provide a short list of mutual funds. Post again if I am not reading your circumstances correctly.

Sounds an awful like self dealing to me, which would make me suspicious about all transactions. Legal? Don't know, let the accountants respond. Lots of custodians would prohibit the investment simply because of the year end valuation issue. One reason you may NOT want to do a transaction like this is that you lose the normal tax write-off if the business has a loss or fails completely. You did not describe the entity... but if it was a high risk start-up, that could be an issue.

If you are talking about just 3k per year for the next ten years, you will not even have 10% of your assets in a Roth. I really urge you to talk with your accountant about the various other retirement plan options that anyone who owns a business can develop. You shelter a lot more than 3K... more than 25% of your income, and the income limitations of Roths do not apply. Initially, I would not expect you to invest your Roth or other retirement account in individual stocks. A much more likely investment would be in an NO LOAD index fund that would hold 300 to 5000 stocks and be extremely low cost. Perhaps you should check out a couple of general investment books from the library or subscribe to Kiplinger Financial mag. I am absolutely NOT telling you to shift away from your real estate and business activities. You seem to have a good personality match and are doing well. What I am recommending is that you start developing a third area of building wealth - some kind of tax sheltered retirement account. If you are going to exceed the Roth limits, then you clearly should look into your other options. Over the next few years, you can build up your investment knowledge with a couple of hours of month devoted to reading. The index fund approach is relatively low direct involvement... just looking over periodic statements. That should appeal to you since I would imagine you don't have a lot of "spare time".

I don't understand why someone would want to reduce the IRA assets by taking out attorney fees? Ussually folks want to take any charges outside of the IRA and maintain the max amount of assets. If the assets are substantial, then why worry over 12k? If they won their position, why did they not get compensated for attorney fees?

First, congratulations on your achievements. You are probably in the top 3% of all people your age in terms of networth. That you are wondering about other options is good. Lots of questions - I will try to answer them. Timing: You can make the 3K contribution in a Roth now, but you can also make the contribution as late as April 15 of next year. Your choice. Yes, you can also make next year's contribution in January. You need to make sure that the custodian designates the funds to the proper years. Now or January will avoid the IRA department congestion around tax filing time. I assume that your income in both years does not erase you eligibility, that you have "earned income" and that you file a joint return if you are married. (spouse can contribute based upon your earned income too) Since you are successfully running a business, you have other pension/profit share type options in addition to Roth IRAs. I think you should take your accountant to lunch and ask him to tell you about some of your choices. Average rate of return in last 1-2 years: Not sure the question is relevant and answer would clearly depend upon what type of investments people made. While the stock market has been down for 2+ years, investors in bonds have done very well. CDs have more or less kept pace with inflation. All of this is highly irrelevant to the long term performance of various asset classes in the future. You should not make investment decisions based upon the instant snapshot of market conditions. Neither you nor I can have any certainty where real estate or stock market values will be 1 year later, but we should have a good sense for 20 years down the road. The long term annual rate of return in the stock market is in the 9-12 % with the low end being a balanced portfolio with some bonds and the upper end being a mix biased towards growth. Some people beat that range, some don't. Worth while? You seem to be doing well with your businesses. You did not say what you were doing about retirement funding or if there were children and college bills in the future. The real estate investments appear to be working and you seem confortable with those decisions. No problem there. However, I would suggest that you should put a third leg on that biz/bldg stool. It looks like you may be fairly dependent upon the local economy and your able bodied skills of running things. Going 100% local in real estate and business may work just fine and lots of folks do this, but I like the idea of a "third leg" to broaden your investments. Funding a Roth for you (and your wife) should probably not put much of a dent in your finances. Also: Have you considered what would happen if you could not run your business or real estate holdings? At some point, you may want to consider some insurance options for life or disability. "I recently sold off a piece of commercial real estate and made a pretty hefty profit. I used this profit to pay off my only existing debt...my house, which added another 300k to my assets. After this was done, I was still left with 175k cash. I plunked all this money into a monthly renewable bank CD, and after 7 months (at 2.35%) I am still wondering if this was a wise move. I like the security of knowing the money won't lose any principle, but I do hate the low rate of return"... If this profit shows up in 2002, then you may have erased your eligibility for a Roth. Also - why do you think paying off all your debt is a great idea? You may be held captive by some old family attitudes about the role of debt and burning the mortgage. Money is "On Sale" right now. I am more interested in buying what is on sale, and if you think about it your probably have the same view. You can get an extremely low interest rate on mortgages. Normally you want to pay off high cost debt like credit cards. I found it interesting that you made comments on being debt free but said nothing about growing your business. You may have a lot of peace of mind about no-debt, but your return on investment (commercial, home, etc) would be better off if your investments were leveraged. I am not talking about going hog wild, but just prudently using debt in your real estate and business areas. "I am very conservative in nature, and do feel safe with my present situation." You have been apparently successful in both real estate and running a business. The above comment seems overly cautious for an entrepreneur. Feeling safe often comes at a price of opportunities not taken. The toughest question I have faced in business and consulting is "am I taking the right level of risks?" A zero risk environment is a illusion. But if you strive for ultra low risk you may be settling for weak returns. "My old college buddies, whom invested in stocks and mutual funds, over the past 10 years, are now crying the blues. I feel I took the right path over them, by investing in real estate. Also, while they were leisurely playing many games of golf and trying to keep up with the Jones by acquiring the latest stock market offerings, I was steadily and methodically devoting my time & energy to my businesses." If your friends were investing over the past 10 years, they are probably just fine. Two bad years hardly erases a decade of good returns. If they were emersed in dot.coms and IPOs and chasing unrealistic returns..... then perhaps they did not know very much about investing. It sounds like you are starting to craft a myth akin to the tortoise and the hare. I applaud you successes in biz and bldgs, but be careful about self deception about other types of investing. My guess is that you would also be a good investor for exactly the same reasons you have been a good builder of wealth in the other two areas. If you can successfully continue on the path of commercial real estate you will have some nice capital gains down the road. The same would be true in investing. I don't think the issue is choose one... you can do both. Post again if you want to talk about investment choices.

Can you add some details on why your client is looking for an alternative custodian? I am curious.

"The devil is in the details" is an old expression that I used without noticing the symbol you had choosen. It means that bad results can come from the small details of a proposal. In this case, I mean that you can make some major mistakes by misunderstanding the details. For example, there can be big differences between rules for Roths and regular IRAs. There are also differences between types of pension plans. Making a mistake, even a well intentioned one, is not difficult and you need professional advice. You do not want to needlessly incur taxes or penalties because of some obscure regulation. If your wife finds another job, she may have more options with any retirement plan at that location. Please get some professional tax advice. Accountants see these kinds of issues frequently.... you hopefully go through it just this one time. I suggested getting legal advice to see if you wife has any rights with regard to her long service. Sometimes you don't have a right, but you might have some leverage with the firm where if you make a reasonable request it might be honored. Terminations often leave room for negotiating the specifics, especially if mgmt is feeling badly about the riff or relocation. I helped a women in Colorado secure an extra 3 months of work and a full year of medical benefits at a relocating companies expense. She just made a formal counter proposal by letter and they acceded.

I am assuming that the $3,000 was your initial contribution to your IRA an is therefore a calendar year 2002 contribution. If so, then if you expect to have sufficient earned income next year you may make a $3,000 contribution the first week of January. You can only trade based upon the balance in your account, since your maximum annual contribution is a legal limitation. However, you should understand some serious limitations to what you propose. It is relatively hard and very inefficient to buy individual stocks with just $3k. First problem is that you get no diversification (you need to own 8-12 different kinds of companies to begin to be diversified). Second problem is that transaction costs (even with a discount broker) account for a large percent of your transactions. Third problem is that picking stocks takes a good amount of time and is hard to justify when you have only $3k to invest. All of the above are true to some extent even if you have $20k to invest. On the possitive side, you can learn a lot from the decisions you will make. Note, I do not recommend that you plunge into the market to buy shares in just one company hoping for a fast big return. "Lottery investing" is a oxymoron. But if you viewed your initial activities as "learning by doing" and were willing to tolerate losses (such as down 50% in one year), go ahead and plunge. If you want to make your life a little simpler, pick one broad based NO LOAD mutual fund for the next few years. See the March issue of Consumer Reports for a good list. An index fund representing the broad market would be an excellant choice. When you assets grow to 20+K you may reconsider your choices.

You are using some generic terms and the devil is in the details. First, you will not be able to roll over any funds directly into a Roth but you may have the option to move some or all of funds into a regular IRA. You options will be greatly determined by the source of the funds. There are a lot a specific circumstances and details that a local accountant or tax professional needs to examine. If he/she determines that you can roll any funds into an IRA, then you may subsequently "convert" some or all of those funds to a Roth. Understanding the possible benefits and knowing the proper procedures of a "conversion" you should also consult your accountant or tax professional. I would also suggest that you spend 1 hour with a lawyer to see if you have any other rights regarding your wifes change in employement.