John G

As a beginner investor, I can understand the shock you feel from watching your assets decline. The last 16 months have been pretty awful and lots of folks have had the same problem. We are in a recession that started perhaps a year ago and will probably run another year. The economic news and the scandals are driving the price of all stocks way down. But....economies have natural cycles. During a downturn, in efficient operations are shut down. At some point the combination of low interest rates, moderated wage rates, readily available work force, etc. spark investment in new businesses. Before an upturn begins, some investors will sense the change and start buying stocks, driving the market higher. Boeing (BA), Home Depot (HD), Intel (INTC), Merck (MRK) and a whole bunch of mid and small size companies will start to rebound from very low P/E ratios. I can't tell you the timing. Honestly, no one can. Lots of folks will try and say they can, and about 95% of those that put in writing will be wrong, and 5% will be just lucky. What can you do? You have a looooonnnnnggg time before you will be tapping your retirement funds. On any given year or even 5 years, you can get a wide range of positive and negative returns. But, historically, all 20+ holding periods have given positive returns. Investments come in many flavors and the many choices all have imbedded in them a combination or risk and reward. Investments with little risk (government insured CDs) don't need to have bigger rewards to attract money. Other investments that flucuate (like stocks) over the long haul must offer better returns to attract capital away from the low risk options. When you invest in stocks, you are investing in a better future (better technology, better Rx, better communications) as opposed to just taking an IOU and hoping that you get your money back with a little interest. We live in a market driven, capitalist economy (now there are two terms that are getting black eyes right now) that in the long run provide profit incentives for folks to take risks and build new products (Iphones, Lipitor, GPS, etc.) and offer new services (Internet, FEDEX, Netflicks) that your parents never had. Personal freedom, entrepreneurship, private property, open markets, world trade.... these are very powerful forces, something akin to DNA and evolution. I would suggest two options: (1) Write the check now and put all of 2009 into the market. Stocks are "on sale" and you want to buy low! You need to understand and tolerate short term uncertainty and risk. (2) If #1 is too difficult to do, then consider dollar cost averaging. Put all of your 2009 contribution into a money market account. Then shift 10% into a stock based mutual fund each month. In down months, you will buy more shares. In up months, few shares. You custodian might be able to automate this process internally from one fund (MM) to the stock fund. But if they can't do that, they surely can arrange a monthly checking account to IRA transfer. Just a short note: Target funds are a marketing gimic of the mutual fund industry. They work for some folks, but their main feature is promising simplicity. The investor still needs to understand his choices and monitor the results. You might want to do a keyword search on "Target" on this message board to see other comments I have made.

Well....what the accountants and attorneys suggested is true. Most of the folks who post here are some version of tax practitioners, rather than financial planners or investment advisors. I would caution you against single source advise. You need a variety of perspectives on most investment choices.

Ah, come on guys. I know something about this stuff! The 15% refers to special rules Canada imposed on some stocks based there. The greatest impact occurs with high dividend yield resource companies. This is a complicated story, that involves a political flip flop (aka broken promise), some unusual effective dates, and the accompanying confusion when a government makes poorly thought out decrees. Generally, there should be virtually no overlap with a foreign bond fund. First, because you are talking bonds, not equities. Second, because there may be minimal overlap with Canada since foreign includes significant markets in Europe, asia, and the BRICs. Some cautions are worth noting: (1) when you buy a mutual fund, you only get information on their historic holdings, (2) funds may be subject to drift, a term that refers to divergence from their committed investment focus, (3) in this highly uncertain period if we have learned anything it is "know what you are buying", which is extremely complicated when you introduce international instruments, and (4) your investments will have currency exchange risks which means that you can gain or lose just because of currency flucuations. If you are interested in this fund primarily because you are chasing high yields, you may find some nasty surprises. Much of the high yield instruments sport the exagerated yields because they have oversized risks. The currency exchange issue can be more significant than a bond yield. I have a real estate LLP that invests in Europe. When it was initiated, the Euro was around 1.15. After the 4th capital call, the Euro went over 1.54 only to decline to the current 1.26. All of that "action" occurred in less than 2 years. While I would certainly suggest that you talk to the funds management to better understand special tax treatments (such as other countries imposing taxes on foreign holdings), you probably will not get much advice on the currency exchange or underlying risks issues. PS: The original post author has mentioned CEF - this stands for a closed end fund, which is a little different from a typical mutual fund.

A reminder in these financially challenging times ~ not all CDs are created alike! Some are insured the by the federal gov, others are un-insured. High yielding accounts of all kinds (like high dividend stocks) should be given extra scrutiny because the market is suggesting there is some risk of loss that you may not be seeing.

1. Conversion must occur in this calendar year. Given all the turmoil in brokerages, I would start ASAP because you made need even more cushion this year. Once you submit the paperwork, you need to watch frequently to see that the conversion occurs. 2. Yes you may recharacterize all or part. But, remember that the Roth conversion amounts do not effect eligibility. I will repeat the advice I have posted many times here. Go spend a couple of hours with your tax advisor or accountant. Run through the scenarios. Get their "second" opinion on the adviseability of the conversion. There are many technical issues (such as your tax filing status) that impact the decision. Making a mistake can be very costly. Spend that $300 or so from a professional. One possible advantage of conversion this year is that stock prices are very depressed, which a likely to owe less than if you converted a year ago.

Some of the material in this thread uses loose language, so its hard to know exactly what is going on. Here is my 2 cents. 1. Banks are regulated in the US by the government. When a bank goes bankrupt, generally the government tries to find another bank that will take over the business, sometimes offering sweeteners or other inducements. It is highly unlikely that a bank goes BK and just disappears. 2. IRA administrator and IRA custodian seems to me to be the same person. How can you talk to the IRA administrator at a bank, but not be able to talk with the custodian dept? 3. A hedge fund is typically an "outside investment" only allowed by some custodians to "sophisticated investors" or "qualified investors" (these are legal terms defined by statute or regulation based upon recent annual income and total assets) by a few IRA/Roth custodians. Hedge funds vary substantially in how they are constructed and operate, so generalizations might not match this specific fund. Hedge fund investments are not going to be covered by FDIC, but some of their cash might be in an institution that has some limited FDIC or SIPC insurance coverage on a fund basis, not individual basis. Typically the threatened bank is one entity and the hedge fund is something completely different (most likely clearing trades via some brokerage). {My wife has an IRA and Roth at Fidelity and has part of her funds in a hedge fund. Fidelity doesn't just accept any hedge fund, they have a review/authorization process. Fidelity does not do transactions for the fund. They don't hold cash or other assets for the fund. The hedge fund periodically reports data on assets to Fidelity. They send us emails and letters monthly.} Given the turmoil in the stock market, you might have a bigger issue with a potential hedge fund failure rather than a bank failure. Because hedge funds operate under a complicated "high water mark" system that effects compensation, many hedge funds with paper losses may elect to close and dispurse funds. This could be tricky if your custodian status is also in turmoil.

Newbie - - your post demonstrates that you are clearly smart enough to develop an understanding about investing. You are absolutely correct about investment advisors "selling" ~ they do need a method of making a living. But the bigger problem is that advisors are not a "solution" for many reasons: (1) most of them really don't know much about investing, just a little more than you do {the best and brightest run pension funds, hedge funds, etc. because it pays more}, (2) they are not going to think of calling a small investor at key decision times {how many folks that read this post got a call from their broker in the past month?}. Track record is historic data - and as the saying goes past experience is not a reliable indicator of future performance...and that assumes that they would be telling you the truth about their track record and not just peddling some selective good results. What exactly are you looking for in an investment advisor? Do you want individual stock picks? Have some idea about a target rate of return? How much expertise do you expect from someone you pay just $200 a year? My mechanic charges me at least that much each year for his auto sense. My accountant charges me more than 6x that amount for tax advice. There are lots of "vultures" in the market place that look to prey upon folks with money but no time or training. You are going to be considered small potatos if you are starting with 10k. Doctors and lawyers are considered prime targets. I am sorry that I can't offer great ideas on how to find a good investment advisor. You could pay me the $200 and I would give you specific funds to buy... that would mean an investment of 2 to 4 hours of my time. I would send you a set of questions about your goals, knowledge, income, other assets, etc. We would exchange emails and phone calls and develop a starter program. A good investment advisor starts by trying to understand the client. Your not going to get much more concrete advice for $200. No one is going to really monitor a 10K account all year long for that amount. A talented advisor is not going to work for $25 per hour...or let me put it this way, you don't want the advice of someone charging you at that rate. Target funds are basically a marketing gimic aimed exactly at YOU, the novice investor who is busy. They promote simplicity. Essentially they are someones notion of what a person like you should have in asset allocation, with that mix changing slightly over time by their formula. Maybe that works for you. Each chunk is invested in that firms fund for each catagory. It is something you can do your self - by using a percent of your assets to buy a general stock fund, bond fund, and CDs. Some of these target funds have very annual expenses...some even are LOADED (this means they have front end or exit commissions). But... don't think that investing is some kind of set it and forget it when you use target funds. What can you do on your own? Note, I am the guy who says you should spend 1-2 hours a month reading about investing and do-it-yourself. (I have clients who pay me for advice, but they operate at a different level than what we are talking about ther, and the investment choices are much more complicated) Here is my suggestion for the next three years. Pick one or two no load general stock funds. Pick one or two general bond funds. Select either a money market or CD for cash. Given the depressed state of the equity (stock) markets and noting that you might retire in 14 years, I would allocate perhaps 60% for stocks, 25% for bonds and 15% for cash. I might modify that allocation if I knew more about you. You would then use what ever custodian you have selected for you tax shelter - Roth, 401K, 403b, etc. and make your choices. These picks might work for many years, or as more money gets put into your Roth other choices might be made. Do you need an investment advisor for this? Probably not. You could avoid their bias and fees for the next few years. Use Morningstar ratings for anything with 3 or more stars. That's probably the same screening tool an investment advisor who is not steering you to high cost funds would use. Neither you nor the advisors would make a "perfect" choice. You don't really need perfection, just a reasonable set of funds. Don't want to make a choice of specific fund? Then look for a no load total market fund - this means the equity part of your assets would give you average market performance. This is my short term recipe. After two or three years, perhaps you will have a little more time to more actively manage your investments. Note, you can not get a guarentee with any kind of investment, not even cash (because inflation erodes away the value of money). You need to think long an hard on how much "risk" you can tolerate vs your need to grow your assets to meet retirement goals. Part of that is how many years before you tap the funds. Part of that is your temperment. There are lots of other factors. I hope this helps. Post again if you need additional pointers.

Generally, taking a match is a great idea, you get a 100% or 50% immediate return. But....you need to understand any constraints on how those funds are invested. As long as you have a range of investment options - well diversified stock and bond funds then you get the green light. If your company plan has odd limitations on investing, then perhaps this is not the best route, but you could post those concerns here and I will try to reply.

WARNING - Do you know who is the benefitiary on your IRA accounts? There are lots of benefits in sensible designation of benefitiaries. These include allowing the beneficiaries to have some choices in how the funds are distributed. Another benefit is that benefitiaries can "decline" to accept the funds allowing the assetts to cascade to other primary or secondary benefitiaries - a little known "toggle" that can be built in to allow spouses partial or complete refusal of assets to move to perhaps children. I am not suggesting that you have some say in the benefitiary designations of the IRAs of other family members. But the concepts are worth discussing. When IRA assets are moved or transferred, one part of the process should be to insure that benefitiaries are current.

Message from one of the moderators: These are trying times. A lot of folks have seen assets diminish, and the erratic performance of our political leadership stimulates a lot of additional anger. Let's try an keep a sense of perspective and not taint this message board with un-informed commentary. The credit seizure crisis is fast moving, and I think it is important to distiguish between factual material and ienundo For example, lots of folks are trashing "wooden arrow pork". Here is my understanding. In prior tax legistation, Congress missed the distinction between adult ammo and hunting arrows with wooden target arrows for kids. Wooden arrows got unintentionally hit with a higher tax. Some lawmakers have tried to attach a technical correction to a number of bills... and it finally made it here. {It looks silly in this bill, I concede the point. Who knows if there is some rationale behind the "rum" components of the bill.} Unfortunately, our beloved media read two sentences and made a target (pun intended) of "wood arrows" for kids. I believe another part of the so-called pork number pushing the AMT rules further into the future - which I understand is an annual exercise because no one wants to make it permanent. This isn't Yahooland. Let's remember to hold commentary posted here to a higher standard than those of CNN, MSNBC, CNBC, FOX or the bloggers.

Confirming - - Roths created in 1998. No conversions could have been done before that time. Your own tax returns might have some of the info you are looking for at this point. Each custodian mails a summary statement out at year end. Often folks keep that with their tax returns. The IRS should also have this information I believe. I hope you do not have issues with your earned income in the year the IRA was created and each year it was funded. You had to have "earned income" to be eligible for an IRA...typically some kind of payroll income, although newspaper routes and other self employed income might qualify if you or your dad filed a tax return.

Can we agree on some "facts"? 1. Target funds are recently created investment designed to appeal to new investors who don't understand the details. I would call them a marketing gimic. You can search under "target" to see more of my comments on these funds. If they give you some comfort as a beginner, then perhaps they perform a reasonable function. But over the long haul, you need to understand what you are doing and not believe is "automatic" investing. 2. Investment advisors - there are a huge range from dangerous to ineffective to knowledgeable. It is hard to know in advance who will be helpful. Clearly, one concern is that some advisors have conficts of interest - mixing advice with pitching products where they get a financial fee for sales. 3. There are lots of magazines and publications that provide general knowledge to beginner investors. A taxpayer who invests 2 hours a month reading Kiplinger, Worth, Money or books from the library will be miles ahead to someone who completely relies upon others. At a minimum, it will help you understand jargon, recognize the array of products, and help you identify critical questions. 4. Vanguard and T Rowe are long established, solid companies that offer an array of products with low fees. Since no specific products were mentioned, I won't step into details about active managed vs index. The original poster can search on the terms "beginner" or "no load" to get more info on fund selections. 5. No one can tell you which fund is "best", nor can they tell you in advance which asset class, industry or specific company will out perform the others. Not me, not Charles Schwab, or Bernanke or any investment advisor. Frankly, "best" is not the criteria to use. You will probably reach your long term goals with a reasonable no load mutual fund. 6. Throwing around 10-20% annual decline and 50% down in year 3 sure looks like a boogieman story. I don't understand why it was brought up in this thread. Was the author warning against do it yourself investing? It is highly unlikely that a well diversified mutual fund (especially one that included dividend paying stocks and bonds) would have this kind of performance. A country or sector fund might whip around like this, but it would be extremely rare for a broadly based mutual fund. See next point. 7. Single year results can be up or down, sometimes rather dramatically. But we have a 100 year history of investing that suggests that over decades investments provide positive returns. To the best of my knowledge, there is NOT ONE twenty year period where overall equity markets declined. I think there is only 1 or 2 ten year periods in the last century where the markets ended up slightly down. 8. History is informative, but can not predict future results. I agree that if you are talking about putting a few thousand in a new Roth, the best thing you could do is just get started using one general purpose no load mutual fund. Perhaps choosing a different fund in year 2 or 3. After you have been doing this for 4-5 years, you will have amassed a modest amount of retirement assets and can consider making some changes. I am not sure you need a financial advisor at day 1.

Target Funds: You can search and find more comments on these on this message board. Basically, Target funds are a marketing gimic of the mutual fund industry. Something new that addresses the vague apprehensions of initial investors. They may work out for you. If they are no load and low annual expense (not all target funds are) then they meet two key criteria. But, don't buy into the idea that T Rowes notion of asset allocation (stocks vs bonds, domestic vs international) best matches your specific needs. Think of Target funds as sort of men's socks - one size fits all. Hitting Home Runs in a Roth: Belgrath? I am curious about how you know in advance which assets are going to be your big winners? If you could sort them out in advance, then why invest in the others? While having your max gains in a Roth is wonderful from an academic tax perspective, I don't think I would try to manipulate/sort your investments in this fashion. There are just too many unknowns with investing. I also don't think investors should be focused on making long shot bets. If they have that compulsion, then spend $2 on lottery tickets and get it out of your system. Beginning investors don't need to "hit home runs", they can reach there goals by lots of walks, bunts and singles. Success in investing is heavily connected with asset allocation (the balance or mix between equities, bonds, etc.) and holding time (retirement investments are very long term investing and time is an investors friend). You are investing in capitalism -- that tomorrow is going to be better than today because of economic profit -- a portfolio of companies that strive to market new products, operate efficiently and reward their stock holders based upon their long term performance. Accounts in One Place: You are investing in a mutual fund package that is diversified. Each fund family or brokerage offers enough choices that you can easily find different types of funds for each account (note there will often be substantial overlaps in portfolios because lots of funds hold Microsoft and Exxon). You may find it convenient to have all the accounts at one location, or prefer different locations to clearly segregate His/Hers. Its really up to what you want to do and what works for you...there is minimal investing issues. You may find some custodians will waive fees if the cluster of your accounts exceeds some number like 10 or 20k, but fees tend to be modest at the financial houses you mentioned.

I think starting a Roth with a monthly contribution is a sound idea for many reasons: (1) you are planning ahead, (2) the Roth itself can be part of your emergency plan since you can withdraw contributions without penalty or tax in dire emergencies, (3) monthly process eases you into investing - you will see this refered to as "dollar cost averaging", and (4) I support the concept of folks learning how to invest instead of abdicating responsibilities to an "advisor". I am assuming that you are contributing to any employee program that offers a initial "match". Here is what you need to get started. Go to your local library and look at a couple of different sources of information. First, read the spring edition of Consumer Reports (I think it is either April or March) that covers investing/retirement planning. Second, spend and hour each with Money and Kiplinger Financial magazines which cover this topic and more. I highly recommend that you subscribe to one of these which gives you a monthly reminder via US mail to spend a modest amount of time reading/thinking about your financial affairs. Third, look in the book section for readable recently published books on investing or financial planning. Next big step is to find a "custodian" - banks, mutual funds and stock brokers are common choices. Convenience, range of investment options, and fees are some of the criteria. Most of your choices will have websites you can explore. Short term, I think you want to keep your financial choices simple. I suggest that you look for a custodian that offers a few NO LOAD mutual funds and choose one of those for your initial Roth contributions. You can search this message board for keywords like: beginner, Index, noload, mutual, custodian...etc. and find a lot of posts on this process. Put up another question if you need additional guidance.

OK, lets summarize this thread. The consensus opinion of the panel of responders is that you are looking at high risk and dangerous options that puts your entire (not just the part invested) retirement assets at risk.

I also would not sign and fight it out later. If you signed something you should not, your risk of losing is too high. You don't indicate that level of assets you are talking about, but it sounds like you may be dealing with substantial funds and you don't want to put its tax shelter status at risk. If you have substantial non-tax sheltered assets as well, why not do this type of investing there and do more conventional investing in the more restricted environment? Sure its hard to find a good tax lawyer or tax accountant (yes, that is what I meant), but its also hard to find a good plumber. Many tax professionals have no experience in some of these odd areas, so you will need to ask some hard screening questions - and you normally don't pay for advice until you find a professional qualified to help you. I would not rely upon any tax advise from a custodian. They tell you up front that you should not rely upon them for tax advice. In a large shop like Fidelity, Schwab or Morgan Stanley, there are layers and layers of staff. The most common layer people deal with a sales reps or "counter" help. These are generally the least trained. At a minimum, try to deal with the back office related to pension funds, retirement accounts, etc. You may have to persist to get to talk to these folks because some firms (like Etrade) try hard to keep the public out. Again, you are not asking for tax advice, but rather getting hardcopy of the firms policies and perhaps some citations of IRS regs.

I would suggest you hire a tax attorney and/or accountant before undertaking any of these types of transactions. You can be dealing with prohibited transactions, or just getting into gray areas where the "devil is in the details". This message board is no substitute for indepth consultation with someone who is going to ask lots of questions. It is not uncommon for folks to leave out important details, or incorrectly use industry jargon (a simple example is confusing conversions with contributions).

I will throw out a few reasons that come to mind: 1. Your account is essentially "borrowing" stocks that you don't hold - and there are prohibitions against borrowing. 2. Custodians aim for the common demoninator because its easier and because the vast majority of the accounts are there. Lots of custodians impose greater restrictions than the IRS. I don't recall any custodian going out of business because they turned down unusual investments in any of the shelter accounts. There is no prohibition against a custodian imposing greater restrictions. A simple example of this is will a custodian allow you to participate in: IPOs, stocks on foreign exchanges, pink sheet stocks, etc. 3. When you short a stock, you can expose yourself to more than entire assets of the account. For example, shorting 2,000 shares of Google at various times this year could expose you to $1.5 million in possible loss. Even if you have mega assets outside of the IRA...how can you make good on a problem? There are limits to how much you can contribute. Not everyone can qualify for a conversion......

I may add to this reply if I get some more time..... First - - slow down. You don't need to learn all of this stuff in 5 minutes. You need to master a lot of jargon and not mix retirement with medical plans. You have blasted us with a half dozen options. That's fine, but, the single biggest thing you need to do to build a strong financial base is to live well below your income! Pay yourself first - and I would move the number higher than $400 per month. You didn't mention wife/kids or other financial obligations - if you don't have any, be a more aggressive saver. Suggestion: start spending some lunch time with folks at this new job that seem to have mastered the different parts of the plan. They may be able to save you a lot of time. A 401k with no match is not very attractive. Frankly, there should not be a lot of administrative fees. I would be inclined to go the Roth route and have better control over my investment choices and annual expenses. You can search this site based upon key words like: beginner, custodian, fees, mutual funds, noloads, etc. Many of the other questions you posted have been addressed before.

Misc. pointers on some of the issues raised: 1. $3,400 won't go very far in meeting the cost of college, even if you choose a public in-state school. Colleges do expect students to have summer jobs, both in HS and over college summers. The financial calculations often assume a few thousand in summer earnings. While some kids go to music/computer/design camps or get involved in church/non-profit activities, the general expectation is that students make some effort to contribute some of their summer or school year earnings. At the college level, during the term, this may mean work-study jobs. 2. Don't sell your self short on getting financial aide. There are both scholarships, loans, work-study, tuition rebates, etc. Because your parents do not have the academic experiences to advise you of all the options, you need to cultivate your relationship with: teachers, counselors, your coach and potentially the folks you meet from each school. (If you think applying to college is just a paperwork exercise, you are wrong. You want to have direct personal contact with people in admissions, recruiting, and alumni.) 3. Offsprings of immigrants, first generation college student - these are very powerful attributes. Good colleges want diversity. They also recognize that you may have more desire and a willingness to work hard...compared to some of their "legacy" admissions. 4. Here is the biggest upside down that most high school students do not understand...heck most parents don't understand it either. The more expensive the school, the more money available for financial aide. Here's a homework assignment for you. Go to Princeton's website and look for their financial calculator. Fill in your stats and get a quick idea of how Princeton would calculate your financial aide package. {One of my JA economics students said after doing this....if I had only known this, I would have gotten better grades. Another kid realized it was cheaper to go to Princeton then the local branch of the State U.} The reason I suggest Princeton is that they are very up front with how they look at the financial picture. You could easily substitute Northwestern, Rice, Stanford...or any of the high end private schools. They have big endowments and don't want to populate their incoming freshman class starting with the highest income family, with teenagers going my Muffy and Skip. 5. I have been a "reader" and evaluator for many private sector scholarships. You high school office is a good place to start to look. Disney, Cargill, GM and a host of other companies offer scholarships. Some scholarships go un-assigned each year. My kids orthodontist went to DU of a 4 year full ride scholarship. Later, he encouraged one of his patients to apply to DU and shoot for the same "dentistry" scholarship. No one had met the qualifications in those intervening years - so the scholarship sat waiting for an applicant. Some scholarships are based upon writing an essay, community service is sometimes featured, or it might be leadership skills. You apply to anything that seems to be a fit and hope to snag a few. If you are a strong student, you may want to track down the "Bird" scholarships...its been a few years, but when my kids were going to school, Colorado had 90+ scholarships (4 year, $4000 per year). These may have been named after Senator Bird of West Virginia. 6. Find someone who will help review your essays and other submissions for scholarships. I've read about 4,000 essays in the past decade, and I would say about 90% are terrible. My favorite person is my grandmother (they all sound alike).... I was born in Tenn and moved to Georgia (the worn out timeline essay).... If you want to win a scholarship, you better stand out from the mediocre crowd and take some risks. In my experience, risk takers virtually always survive the first cut. Don't write an essay about something that you are not passionate about - indifferent essays can cripple your chances. 7. Entering freshman have the greatest array of scholarship opportunities. But, upper classman often win substantial awards, especially after they prove their abilities and start running out of money. 8. Did you know, life does not end with a college degree. Many fields require advanced training and a masters degree (when education gets a lot more serious). Grad students often GET PAID TO GET THEIR DEGREE. Example, my wife went back for her PhD at the age of 52. On the academic application form there was a small line that asked "would you be willing to be considered for..." (I don't remember the exact wording, but I suggested she check YES. They clearly did not say scholarship or anything that we recognized.) Checking that little box got my wife an offer for full tuition coverage for 3 years and a stipend (also known as cash). 9. Since you did ask about Roths. Sure you can open a Roth, but almost all of your funds will be gone in two years. The Roth or 529 will shelter earnings... but how much earnings do you expect in two years. Beware of any setup that has fees and charges that would eat up the tax advantages. I think it is great that you posted your question. You have your eyes and ears open. Thats absolutely critical for the next few years. Enjoy your senior year. Do something extraordinary and then tell you favorite schools about it.

What exactly is considered non-liquid in this IRA? There are not too many assets that can't be sold in 6 months.

Limits are higher if you are over age 50 - the "make up" provisions. Sounds like you might be more in the "make out" age catagory. Note, you can't contribute the lesser of $5+$5 K or your combined earned income. All of these numbers can change by act of Congress or as you enter a new year. You can keep abreast of these issues by reading Pub 590 (which is almost definitive, but definitely on the dry side) or subscribing to a monthly financial periodical like Kiplinger Financial - about $16 a year and very well target to young couple issues like credit, investing, employer retirement options, housing, etc. The "I" in IRA stands for individual. It is good for you and your wife to set up accounts. Search on the key word "custodian" on this message board and you will get some hints on how to begin. This is a big opportunity for both of you to begin your investing education. Your wife needs to be part of that process, even if it is looking at statements and making some mutual fund decisions. SAHM - is that some kind of Yiddish expression. Just joking.... It is hard in our society to do the stay at home route. In my wife's case, she created a sub S business in 1982 and made a pitch for better service, more design choices and a lower annual cost to a client of the graphics/publishing house she worked for. They got over it. During the first five years with two children, she was making about a year salary on about 16 hours a week. She discovered that she valuable more as a problem solver for small associations (writer, event organizer, research, editor, photo finder, and printer cost/contract negotiator). Our two girls learned a lot early on about typography... and are now both in grad school moving up the career chain and soon facing the same issue. My wife eventually went back and got her Phd a year ago, so we are now doing the professor shtick. If you need some help in thinking about how to invest your funds - do a search on any of these key words or phrases: index, no-load, mutual, beginner. Post again if you have questions. Watch out for salespersons and abnormally high fees/expenses.

I agree with the above on some issues and the lack of a information base. You can post again here and add some more detail - ages, significance of these assets vs other retirement assets, what incomes are you relying upon now or in the future, how aggressive or risk averse, tax bracket, state (or state tax rate), level of investing knowledge, estate planning objectives.... there are lots and lots of questions to ask. The advice you get here is not a substitute for a discussion about your financial situation with a local accountant or financial planner. They should ask a lot of questions and hopefully will be able to tailor their advice to your circumstances.

Some of the above has me confused on the details. Accountants! 1. Can the IRA holder return the shares or must this be a cash transaction? 2. In the initial example above, is there an immediate tax obligation or only when the shares are sold? 3. If the contribution is "unwound", is there a 10% penalty? I know that applies to pre-retirement distributions, but is an unwinding prior to tax deadline considered a distribution?

Some folks have a modest amount of control over their taxable income. You might be able to convince your employer to pay to a bonus in 2009 instead of year end. You might be able to switch away from dividend paying stocks. If you start a business and have initial write-offs - either as a Sub S or via schedule C on your tax return, it might offset some of your income. If you own a business or file a schedule C, you have non-Roth retirement options to consider. Your accountant can give you an idea of your options. Perhaps some day, Congress will decide that Roth income limits can be higher. It seems unfair to me that folks with higher incomes often have very generous options (setting aside more than 5K) while folks in the middle may have fewer options.