John G

I was thinking more in terms of the 25K for a single person or single parent household... the low end in my town for a school teacher with a BA. Sure there are a large number or percent of these households. But, my point is that when you are below this income level I would imagine it is extremely difficult to set aside 8% of your gross for an IRA. The law provides a nice incentive but from a practical perspective, I would imagine that few eligible households will make use of it. It is certainly a not well publicized, and definitely not commonly known provision among the target group!

Students can not claim the credit... at least that is what I recall and I can't find it now. I looked it up for my kids and seem to see that it is specifically prohibited. Parents or grandparents funding a working students IRA... or matching contributions.... is a solid idea. It gets them thinking longer term, introduces them to investing and gets them started early. All plusses. Perhaps someone else has a cite on the "students banned" language.

I seem to recall that this "bonus" is not available to students. It would be just too juicy to give away the bonus to college students. Which raises an interesting question: Just who would fund an IRA on so little income? There just are not many folks who will be in a position to take advantage of this "bonus".

You are allowed by law to transfer assets from one IRA custodian to another. Like to like is what I think you are suggesting. Your current custodian may charge an exit fee if you are in a loaded mutual fund, which should not be the case if you are in a money market account. They may charge a fee if the account was just recently opened. An account closing fee is relatively rare. Ask them. The key word is "transfer" of your account. The best way to do this is to go to the second custodian and fill out forms asking for them to initiate a direct fund transfer. Bear in mind that custodians vary in the annual fees they charge. Zero is good, but found with a small number of institutions. $10-15 is a modest amount. Anything over $25 is a ripoff. If the next institution suggests they will have an annual fee, ask them to waive it.

I am not sure I fully understand your question. You can start a Roth now related to earned income and this account is not related to the prior activities. Each of you can combine all regular IRAs into one large IRA to reduce the number of accounts, ideally you would want to use a direct transfer from one custodian to another if you go this route. You can not rollover a regular IRA into a Roth. However, you can convert and existing IRA into a Roth, an action that triggers taxes on the converted amount and you must meet various income/tax filing status rules to be eligible. Deciding if a Roth conversion makes sense requires some thinking about current/future tax rates, income, regulations, future elibibility and a range of other factors. You might want to discuss this with your accountant.

The additional paperwork and increased time can also come from having too many accounts to monitor. I suggest that simplification has some virtue in easing the burden on the taxpayer. As shown in other message threads, folks have been hurt when they have not tracked various transactions to be sure they were done timely or correctly. The more accounts you have, the greater the burden, the more likely and error slips past. One unfortunate consequence of the Roth bill is the proliferation of new accounts. We can be our own worse enemy by splitting things further between mutual funds, work vs personal, rollovers, adults vs kids, Roth vs regular, etc.

As the percent of taxpayers owning a Roth grows, it will become harder to change the rules because you affect too many voters. Look at how effective seniors and the AARP are in setting the agenda for elderly issues. Any proposals to kill the Roth would generate a lot of heat, which probably means Congress would grandfather existing accounts and just end new participation if they act at all. Think about Roth conversion families. They already paid taxes on the conversion. If Congress tried to tax them again on withdrawals I would not blame these folks for bolting the country. Nothing like majors lies from your government about taxation to generate some Thomas Jefferson like revolutionaries or perhaps get a few new faces running for office. A much more likely and sneaky way to try to tax Roth distributions would be to use the AMT and claim you were only taxing the "super rich". There are problems with that as well. As the number of millionaires swell [yes, even in this stock market], the "super rich" are not just a handful of Rockerfellers and Vanderbuilts. They include some grandmothers who never went to college but were buy-and-hold stock owners, some folks who owned residences for four decades, the carpet cleaner guy with 6 vans, etc. As the number of people with substantial capital gains imbedded in their home grew, Congress changed the laws to allow a taxpayer to keep up to 500k in capital gains on sale. Members of Congress have also grew uneasy about the 600k estate tax threshold when the number of families that hit it grew. It is easy to tax a small group of wealthy families. It is hard to make those rules when the percentage of those affected grows. Safety in numbers. An odd concept, but it sure seems to shape tax policy.

With no ages, current tax rate, state of residence, possible future tax rate, health expectations, etc. provided it is extremely difficult going beyond the basic question of IRA eligibility which has been answered. Real estate has a high washout percent because of the difficulty in getting income above expenses. You have to get over that hump before other options come in to play. Without knowing more about the existing taxable and sheltered assets, it would be very hard to know if any inheritance should be redeployed to generate income or towards investments that produce capital gains.

Barry, I wonder if this guy is testing the validity of online advice? Jason, You could do some great investigative reporting on horrrible technical/financial advice on the web. You just won't find much of that here. The answer you got above came from the Barry Bonds of this message board. John G an aspiring Yogi Berra.

Also beware of loaded funds sold by brokers. I would recommend that you stick with NO LOAD funds. You can change plans without exit fees. Loaded funds are funds with either front end or back end commissions of 2 to 7%. Brokerages often push loaded funds because of the fat fees they collect. On the other end of the spectrum are the index funds (like Vanguard) that are not only no load but ultra low annual operating costs. It is pretty common to find a no-load fund to match each type of loaded fund where the performance is very similiar.... so why pay the sales charge? If you do a little bit of reading, most tax payers can make reasonable choices. Performance is often driven more by the type of fund you select (international vs US, large company vs small, growth vs value) then the individual stocks the manager chooses. It is very hard to have a broad perfolio of stocks that diverge in performance from the complete list of stocks because you get so much overlap in holdings.

First, not all brokerages, mutual funds and banks charge annual fees. Some that do charge fees will waive the fee if you just ask, or if you are a significant customer, or if your retirement assets exceed 5k or 10k. I am not saying that zero fees are common, but there are still some places where it is possible. I have seen annual fees range from $10 to $50. Anything above $25 is a huge rip-off and should be avoided. The salesperson will often tell you about the wonderful service that the fee account provides... in my opinion there are very little actual service differences between custodians and the differences that do exist do not seem to have any relation to fees. "Anything to make the sale" seems to be the moto in face to face meetings. Resist the urge to sign up based upon promises. You should avoid fragmenting your initial contribution into multiple mutual funds as this might increase the fees that will be charge. Many custodian will allow you to pay fees with a check so that the tax sheltered funds are not consumed. By the way, first you deposit funds with a custodian, then you make the investment decision. You fund IRAs with cash, not with previously purchased stock.

I overlooked that gambling comment the first time. It troubles me that you mention it again. Investing is different then gambling in many ways. In gambling, the biggest determining factor is luck. It is house vs the player and slowly but surely the house drains off enough money to pay for the bldg, employees, electricity and the shareholders. When I think of investing, I am talking about long term decisions that back businesses that have vitality and are expected to grow. There is a reason why we don't all look like Pilgrims... over time market economies grow because everyone has an incentive to produce. Investments become more valuable over time because the collection of businesses we call our economy has flourished. If you think that investing is hoping in and out of stocks because you want to get a short term jump, you are going to be disappointed. I have been investing for 20+ years. I ran a private investment syndicate. I have talked with hedge fund operators, fund managers, non-profit portfolio analysts, brokers, etc. I have never met anyone who has had a successful record of knowing when a stock or market is at a low or at a high. In making perhaps 20,000 investment decisions over 20 years, I can remember only one time buying a stock at the exact moment of a turnaround - and that was for my mom. And I had no idea in advance that it was actually at a three year low. [sort of like the luck of getting a hole in one in golf, if you hit a few thousand balls at par threes, eventually one might go in] A couple of hundred shares at the exact low price for the year. Part II: There are multiple corporate retirement plans. Some can allow you to fund employees if they have worked at least one year. You can also set up a program that puts money into the corporate fund and employees benefit based upon a multi year "vesting" schedule. Employees who leave would then forfeit unvested amounts back into the system to be re-allocated to remaining employees. This is a complicated issue, so you need to talk with people who have some experience. I am sure there are some good books on the subject and you might see this discussed in some of the business mags for entrepreneurs. I worked for a consulting firm after college where each year I got not just a 15% contribution to the retirement plan but and additional 10% from forfeitures. About 2/3 of the employees left before they were fully vested and therefore funds originally in their name were reallocated. Mgmt of course did very well under this system. The rules governing these kinds of plans are constantly changing - such as the vesting requirements. It is just too big a topic to cover in a message board post. Perhaps you should take your accountant to lunch and talk about your options.

Roth vs Regular IRA I prefer Roth, but that does not mean it is the best for you. Roth has no immediate tax deduction while regular may. However, regular gets taxedas ordinary income when money comes out. Roth has tax free dispursements in retirement. I assume that even if the Roth program were to end by act of Congress that all current participants would be grandfathered. It is not possible to accurately tell you which is best for you because we would have to have perfect knowledge of future events: future income, future tax rates, etc. If you think that you could amass large assets and that your income in the future might be higher then it is now, or that tax rates may be higher in the future, then the Roth may work better. One of the administrative positives of a Roth is that there are no fixed schedules for withdrawing assets in retirement. You can choose regular this year and Roth next year, as long as you qualify. The max contribution this year for you is $3,000 if you have at least that much in compensation.

Into thin air? When you sell your services to a customer, I assume that you are willing to accept US dollars in payment. Why? You can't eat the stuff. When planted in the earth it will not grow. In the winter, burning it will not do much to keep you warm. Isn't the reason you accept money is because you believe in a free market economy and that good behavior and hard work slowly moves us ahead further then theft and crime? You believe that at some future time, you can exchange money for something useful. As an entrepenuer you must believe in taking risks, hard work and creative problem solving. Our economy is full of other businesses run by people like yourself that know they will flourish if they "serve" their customers. Home Depot, Microsoft, Intel, Medtronic... I don't think any of these firms was around 50 years ago. The object of capitalism is moving money from sloppy and stoggy businesses (Montgomery Wards, Kmart, Pan American Airways) to businesses that are growing (Walmart, Target, Southwest Airlines) . The only scenarios that I could imagine would ever topple this system would be global thermonuclear war (not very likely anymore), large meteor impact, or a plague of epic science fiction proportions. I don't worry about these. I suspect that your don't either. You have much more likely negative scenarios. Sounds like most of your assets are in your business and some real estate. On the business side you have a much higher risk of embezzlement, fraud, malfeasance, environment risk, negligence lawsuit, etc. You may have regional economic market risk, low cost competitors, or technological change to deal with. As you may have seen, not all landscape contractors are likely to survive the this drought period in Colorado, where some small towns have run out of water and many cities have mandatory water restrictions. While you can clearly build amazing assets by being successful in real estate and running a business**, you would do well to put a third leg on the stool. (**I am a biz advisor for Junior Achievement and do not just believe this, I teach it) A Roth IRA is just one method and for modest amounts of money, it may be the best for you. However, I would also talk to your accountant about other retirement plans you can do because of your business. For example, you can shelter a lot more money each year with a pension/profit sharing plan. Vanguard because of there extremely low cost structure is a good firm to consider. Grab a copy of the March issue of Consumer Reports which devotes a number of articles to investing, mutual funds, etc. Check out Vanguard's web site. At your age, you should have a significant portion of your assets in stocks which will appreciate more than lower risk CDs or bonds over a very long period. Post again if you have more questions.

STOP! A $50 annual fee for an IRA is way too high. First, you can ask any custodian to waive the fee and some will since IRAs are considered long holding period accounts. Second, if you take the IRA to any firm where you have other business or your own IRAs they will often waive the fee if the combined assets are above 5k or 10k. There are also plenty of custodians that either have no IRA fee or a very low fee like $10 to $15. Try Charles Schwab, Vanguard Funds. Etrade used to have zero fee IRAs but they have been making a lot of fee changes recently so that may not be still true. Shop around. CDs are an ultra conservative option for investments. You are barely going to stay ahead of the long term rate of inflation. I would recommend a balanced stock fund or general index fund with low expenses. Try reading Consumer Reports March issue for some ideas. Even in this market, I recommend for the long haul a significant percent in stocks.

Adding to Barry's coment above: It looks like you may have seen a $2k reduction in valuation in the IRA converted to Roth. The maximum short term tax savings can be readily calculated by multipling that number by your tax rate. Lets assume that you would save about $800 on state a federal. That is not a $800 gift. Subtract any fees that you will be charge by the custodian and your accountant. Then recognize that you may not have the option to convert in future years for a variety of reasons. You are also losing the future tax free status of that approximatley 8k that would be in the Roth. (I would not do anything with the contribution) You are going to need to spend time to write letters of instruction and follow-up to make sure everything is done. Is it worthwhile? If you value your time very much, the answer maybe no. If yes, then you really need to hustle to get all of this done in a timely fashion. These kinds of transactions don't get a lot of priority by custodians and they often are done wrong. You will need to spend some time tracking the activity. Do not assume that this can be completed in two weeks. You conversion timing may have been off, but it is far from a disaster.

Maximum contribution is set per person not per account. $3,000 for most adults, $3,500 if you are over 50 this year. You may want to get Publication 590 from the IRS which explains IRAs. You are allowed to transfer money from one IRA account to another. Often this is a switch within a mutual fund family. If not, then you should look to do a direct custodian to custodian transfer. You may be charge some fees for moving your funds or closing an account. I would not recommend moving your money this year because your big cap stock fund is down. Most funds are down. We have just had two back to back negative stock market years which is rare. Moving assets to chase results is like driving by looking in your rear mirror only. Not a good idea. This dreary period will pass and stocks will eventually start moving up. Don't sweat the month to month results. Focus on the long term and stick with your plan. In most decades you usually get one or two bad years. We went though a very long string of great years in the 1990s. But, over the past 100 years, good years vastly out number bad years and the movement up is on average stronger than the typical negative year. Why is a complicated answer, but in my opinion is linked to capitalism and free markets providing more hope to a better future. Investing is best evaluated on a very long run perspective of 10, 20... 40 years. PS: After sitting on some cash for three months, I am again buying quality stocks and mutual funds.

I like the above note. That a teenage has earned income is not very hard to believe given all the options for neighborhood jobs. I just don't think the IRS will ask any questions or documentation if all of the paperwork is done correctly. There is just not enough money at stake and the probability tilts in favor of the teenager having income. However, if the child is under age 10 you might have a much harder time proving earned income and documentation would be much more important. You just don't want to try and tell a judge or auditor that your 8 year old was "clerking". They know better. Remember that you can still do the educational IRA for a young child.

A Roth is a type of Individual Retirement Account (IRA) that is a method Congress has created for saving/investing for retirement. Two big advantages are that the amount you set contribute grows without any taxation... and with a Roth you eventually withdraw the funds in retirement without any taxation. (highly simplified summary) To qualify, you need to have "earned income", which in most cases is paychecks from an employer. If you make atleast $3,000 per year you can contribute $3,000 to a Roth. The previous $2,000 limit was just increased this year. A Roth requires a custodial account. That means some financial institution holds the funds in your name. Typical custodians includes banks, mutual funds and stock brokerages. A good custodian to consider is Vanguard which is based in Valley Forge area of PA. They offer a variety of mutual funds like the S&P500 index fund that are good starter investments. You comment about interest suggests that you need to learn more about the general concepts of investing. I would recommend that you read the March issue of Consumer Reports on various retirement investing. Also ask a couple of potential custodians (a bank, a broker, perhaps Vanguad) to give you some information for adults just getting started on investing for retirement. There is a blizzard of info available, be sure to tell them you are just getting started so that what they send will be more likely to help you. Interest: Sure, anytime you "loan" someone your "capital" or "assets" you should expect some kind of return. For example, give your money to a bank and you expect interest. What type, kind and level of return depends upon the type of investment you make. When you have money sheltered for a very long time, like 30+ years, you want to make sure those funds give you a return better than the rate of interest. It is generally accepted in the investment community that very long term investments should include a substantial component in stocks. An investment in stocks ussually provides some return in "dividends" (very similiar to interest) and "appreciation" or "capitial gains" which is a fancy way of saying the stock moved up in price. Whooaa. Stock moved up in price? In this market? Well, actually some stocks have indeed moved up in value this last year. However, most have moved lower so the headline reads "Stock Market Declines". Scary events make for great headlines. A knowledgeable investor knows that markets move up and down, but good years out number bad years by anywhere from 4:1 to 7:1 depending upon how you measure. We have just had two bad years, which is very rare. How big a nest egg can you build? You mentioned 50... I will also give you to age 65. Lets assume that means 30 and 45 years. Contributing $1,000 each year for 30 years will grow to $113k if you invesments average 8% per year, and $164k if your investments return 10% per year. Leave the nest egg grow to age 65 and the results are $386k and $718k for the two interest rates. If you contribute $2,000 each year just double the results, and triple the above numbers if you max out at $3,000. As you can see, starting early and setting aside as much as you can afford might get you past the $1 million mark. Great system eh? You caught a wiff of the benefits of Roth IRAs. I hope this motivates you to spend a little time on understanding how IRAs work and getting started, even if you contribute less than your max. As a young guy, let me also suggest two other paths toward a rewarding future: running your own business and education can be extremely rewarding if you have the patience and discipline. Good luck. Post again if you have more questions. John G - - PSU class of '74

If the opening balance is an issue, you could consider waiting to Jan-April next year when you would be able to have a 2002 and 2003 contribution. You can contribute to a Roth before the actual earned income occurs. Just as you can ask a custodian to waive the annual fees, you can also ask them to waive the minimum to start if they understand your plan. IRA money stays put for a long time and custodians very much are eager for this business. The verrrrry lonnnng term compounding is a huge plus. I know a few grandparents that are using this option to slowly shift assets over likely heirs under favorable conditions. If you own your own business, you can hire your children for filing, copying, cleaning the office, making deliveries, etc. to boost their income. This is what I have been doing for 4 years, and both kids got some exposure to the business world.

Children having Roths is allowed by IRS rules. They need to have earned income. Lawn mowing, babysitting, newspaper routes all would clearly be earned income. I would assume that if the income was modest, they might not need to file a tax return but still would qualify for a Roth.... however, the accountants that comment here should weigh in on that point. At a minimum, you need to do some documentation for your files on the earned income basis and keep that file for many years. Yes, you can fund their Roth as there is nothing that says that the funding must come from the child. You may find that not every custodian is willing to have an account for a child. For example, last time I checked Etrade will only open an account for someone over 18 years old. Their rules not the IRS rules. Charles Schwab does allow accounts, but a parent will be the "custodian". You may want to check around to find out your choices and what fees, if any apply. Start with your brokerage firm and mutual fund families as they may be willing to do something for an existing customer that they would not do for just a child. Also, you can ask for any fees to be waived... doesn't hurt and some custodians will say yes. I suggest that you use the IRA activity as an introduction to your child for the world of investing. Give them a huge leg up by letting them learn a little about investing. I find that in my Junior Achievment high school classes that ussually 2-3 kids in each class have parents or grandparents that have gotten them started on the Roth. Final note: you should also look into the revised Education IRA to see how it fits with the wage earner and the younger children. Post again if you have additional questions about investment choices. [i am back from 4 weeks in Europe. Will be posting again]

Thanks for posting a likely conclusion. I felt you had a decent case but just taking it to trial would have cost both money and time. I think a compromise was reasonable. Thanks for giving me something to think about. I am in Arcos de Fronteria, a pueblo blanco in Spain and missing the "action".

I agree with much of the above comments. You fund is down because the tide has gone out and all ships now are lower in the water. Fidelity is doing a fair job. Over a very long haul you should do fine with this fund. Perhaps when you put in the next lump you may want to try something a little different. Recently Value funds have done well, but it is a classic investor trap to belatedly switch to the winner only to watch it do nothing or go down. Talk to your Fidelity rep and look at the wide range of funds they have. You will see that the last three years have been just awful almost across the board. No one can tell you what fund will outperform in the coming year. It takes lots of patience to sit out a bad market swing, but I think that is your wisest tactic. When this market starts moving back up I suspect you will see very strong upward movement. (My personal guess is that this will start either in late summer... or more likely when we get past Sept 11 2002 - - but that is just one guys thoughts and I am as likely to be wrong as right - - and getting used to that keeps you from going stir crazy)

Another article on ETFs: http://biz.yahoo.com/smart/020403/20020403...03fundfaqs.html

Trustee to trustee is ussually the way to go. You do not have to worry about a 60 day window to get it done, your future option or change custodians is preserved, and a lower probability that something will go wrong like a check lost in the mail.