John G

Worth repeating: I highly recommend that you review your situation with a tax specialist to make sure you understand your options, the deadlines and tax implications

Annual fees: not everone charges them. You can also ask for it to be waived, some custodians will do that if asked. If you have other business with the firm, they may waive IRA fees. If your IRA assets grow to 5k or 10k, you often qualify for the fees to be waived. All that said, $12 is a pretty low number (some go as high as $45) and I would place more value of the service, convenience and investment options that any custodian offered. FDIC insured? Don't bet on it. The only investments that are FDIC insured are savings accounts and CDs and there are limits to the maximum that can be covered (when your account grows you can exceed these limits). If your bank told you that mutual funds or stocks are insured they are lying. The govenment doesn't insure investment performance but rather "safety" from bank closure or fraud. Electing FDIC insured investments means that you are being extremely conservative and may not achieve the long term results that you want. Also be wary of promises that banks make that involve "teaser" rates, like CDs that yield a lot for three months and then reprice. I would be interested in what types of investments your bank recommended. Please post if you can, and give some indication of your current age. I will try to give you some specific comments. I could understand doing something very conservative until you understand more about investing. You should be able to teach yourself the basics in a few months by reading Money, Worth, Kiplinger magazines or some general investment guides you would find at the library.

I am wondering what problem you had with a broker? Brokers come in more flavors than BaskinRobbins, everything from internet version to local discount to full service. And the employees that are the "face" of brokerages vary from simple clerks to knowledgeable analysts to pushy sales people. I have had plenty of experiences with poorly trained, unorganized and pushy brokers. I just don't give them my business. You might want to try a different broker as I would suspect there are plenty of folks in that industry that you would find pleasant and helpful. You did not indicate your age. If you are between 20 and 40 years old, you probably need to emphasize equities (stocks). I would suggest that banks often have rather limited choices for IRAs and often are too conservative (CDs, bonds and "blue chips" emphasized) for long term investing. For example, CDs right now are at best about 1% above the rate of inflation. You just will not get much mileage out of your retirement funds if you are that conservative. You might want to ask your bank about their options, but I wouldn't use a bank for an IRA account. Aren't stocks risky? Well, yes and no. Any given day month or year stocks can be up or down. However, over the long haul 20+ year, stocks perform very well. It is probably related to how the economy grows and that capitalizm is a vigorous economic system. Up years out number down years by anywhere from 6 to 1 to 3:1 depending upon what time period and data you use. If you are educated about investing, you can become comfortable with the risk/rewards of equities. A mutual fund, because of its wide diversification, moderates the shocks of a specific stock. The above recommendation about Vanguard funds is a good place to start. Vanguard has many index funds which are broadly based. They are no load, meaning they do not charge commissions up front or on the back end. And, the imbedded expenses of an index fund are very low. The March issue of Consumer Reports each year does a great job of reviewing retirement planning and investment options. You might want to review this issue for some guidelines.

Jan 1 2003 is the first time you can contribute for 2003.

If you were married at the end of 2001, then the maximum combined contributions can not exceed the comined "earned" income. Dividends and interest do not count. If $3011 was the total earned income for both spouses then $3011 can be put into Roth or regular IRAs. If you are talking about 2001, then the maximum in any one persons IRA would be $2000 and $1011 could be put into the other. A relative can make the contribution... mom, dad, grandmother, etc. You could not put 2000 in two different IRAs if the maximum combined earned income was $3011. Note in 2002, the maximum contribution for a persons IRAs jumps up to $3,000 or $3,500 if they are over age 50. Same rules apply for earned income. I have assumed that you are not talking about one spouse making $3011 and the other 160,000. In that case, the total income would exceed $160,000 and NEITHER spouse would be able to contribute to a Roth.

The inheritance Roth has no direct impact on your right to fund a Roth for either you or your wife. If a distribution comes to you, treat it as cash that you can direct as you wish. Whether you and your wife qualify for contributing to a Roth for either year is a function of your adjusted gross income, filing status and "earned" income. For example, if either of you have a total of $6,000 in earned income (like paychecks that generate w2s) then you meet the earned income test for 2002 for the maximum Roth contribution. The max income test is a function of AGI and filing status. For example, if your income is below 150,000 and you file a joint return you can contribute the full amount. Between 150k and 160k the contribution limit phases out to zero. The accountants who post messages can better answer the transfer/combine vs separate issues. I highly recommend that you review your situation with a tax specialist to make sure you understand your options, the deadlines and tax implications.

A good question. Your greater risk is of making poor investment choices. Stocks are inherently more risky than mutual funds because of the diversification issue. If you own 10% of ENE (Enron) then 10% of your assets are erased. It would be unlikely that any mutual fund ever held that high a percent of ENE, not even Janus funds which owned a bunch. But, every year a small fraction of publicly traded investments go bankrupt or default on payments. You said that you were considering E-trade and might hold mutual funds. Well, the fund assests are the fund rather than at Etrade. What would typically happen if a brokerage ran into trouble is that they would either be bought out by another firm or the government would step in to reassign the assets and accounts. This happens fairly rarely. The risk is more related to the time period when things are in transition rather than outright loss. For example, you might not be able to trade for weeks or get access to your funds. All in all, this is an area of low risk. Fraud is another very slight area of risk. You should always check your statements to make sure transactions have been posted. If anything looks odd, like the print job, envelop, method or mailing, you should use a phone number from an outside source like WSJ or magazine to call and confirm the status of your account. Insurance held by the broker will cover fraud as long as you can demonstrate that the person you did business with was an employee. If you are concerned about Etrade, spend some time reviewing what analysts are saying about the stock. Check earnings. Look at recent news releases. You can never be 100% certain about every detail, but I think you can get reasonable assurance that the firm is functioning. On Sept 11, some brokerages suffered tremendous losses of personel and computer facilities. Sandler O'Neil was one of these firms. There were many others. Wall Street reacted in a heroic way. Many firms gave phones, computers and office space to companies that were hard hit. They often loaned personel and in some cases helped them complete deals that were in the works at the time the planes hit. It is not business as ussual, but I think this recent tragedy shows how Wall Street can solve nasty situations. There were accountants, programmers and sales staff on Wall Street that worked as hard as the WTC rescue workers to put things back together is a very short time. A friend of mine who is mgmt consultant to the finance industry told me that all computer records must be maintained at an operable duplicate facility over 300 miles from Wall Street. I believe this is an SEC rule designed to allow recovery from a nuclear attack.

Perhaps the infant should get married to someone with an income to qualify as a spouse! And there is always that recently enhanced education IRA.

I continue to be amazed at the number of people who are new to Roth IRAs that jump from "just getting started" to "how can I get my money out". OK, you and others may just want to understand the rules.... But, it seems to me that a lot of folks just don't get the basic point. A Roth is a tax shelter, and you get value from this tax shelter by keeping your money inside the shelter. Borrowing for a home or education may sound great but it kills off the benefit of starting early with a Roth. If a tax payer can't keep their hands off a Roth, perhaps they have insufficient cash reserves or are not planning their financial path very well. Just some generalizations... but if you contribute to a Roth or do a conversion and want the big benefits.... leave the money grow a long long long time.

Marisa, I sincerely doubt that you can predict the direction that your life, career and financial status will flow over the next 25 years. Most adults have trouble being 50% right about stuff that will happen in the next five years. {if you doubt this, ask some adults to "reset the clock 5 and 10 years" and ask them what changes in their lives came as a surprise..... like car accidents, inheritances, promotions, job transfers, babies, illness, death of a parent, etc.} I would say that you have virtually no chance of getting a 25 year snapshot correct. You probably didn't want to hear this, but it is very true. Now on with the Q. If you invest 3,000 each year for the next 25 years and achieve an average annual gain of 10% (a reasonable assumption) then at age 46 you will have: $295k in Roth assets , of which $75k were contributions. Using the "Rule of 72", 10% annual rate means assets double about every seven years. Note, the results are future dollars, and do not include the impact of inflation. You could take out your contributions at any time, but the earnings would be taxed if withdrawn and you would also have a 10% premature withdrawal penalty. Should you start a Roth? The two great long term tax shelters for the average citizen are home ownership and Roth IRAs. If you have funds that you do not need in the next few years and have some cash reserves (in case you lose your job, 6 months spending money of at least 35% of your annual gross income would suffice), then a Roth might be the next step. I would look to a custodian that can offer you a no-load broad based stock mutual fund or index fund to get started. When you have less than 20,000 to invest a broad based mutual fund gets you diversification and you do not need to spend a lot of time watching it. No load means no front or back end commissions are taken out of the investment. Index funds are broad based and because they are set up by mathematical rules have typically much lower annual expenses. There are a lot of assumptions built into the above recommendation. If you want a more specific answer, you need to tell us more about yourself. Such as: your profession, education status or completion date, marital status, approximate annual income or marginal tax rate, knowledge about investing, risk tolerance, number of hours each year your are willing to research/review your investments, or other special circumstances like health. The earlier you start a systematic investment program, the better chance you have for long term success. That 295k at age 45 can further grow to $2.1 million by age 65. During your career you will also have other investment opportunities like 401k, 403b, profit/pension, thrift plan, and ESOPs which have various tax shelter benefits associated with them. I am glad you are thinking about this topic at age 21. It is a lot harder to find great options for adults who wait until they are 45 and are wondering if they somehow "missed the boat". Sadly, they did. Post again if you have additional concerns.

Reasons to combine: 1. Possibly reduce or eliminate annual IRA fees. 2. Easier to track on monthly statement 3. Investment decisions may be made with one internet location or phone call rather than multiple calls. 4. Easier to reallocate blocks and make trades from one asset total. 5. Dividends more easily swept to one location for eventual reallocation rather than being piece meal. Reasons besides above for not moving: 1. Mutual funds not easily transfered - brokerages do not list or have access to all mutual funds. 2. Some CDs should only be moved at maturity. Hope this helps. Investment choices are ussually more important issue than the custodian number. No reason to rush the decision.

This is reason #134 why you never ever take a check from a custodian but instead to a direct rollover from custodian to custodian. If the check was never in your hands, then you don't have the 60 day clock. Anytime you walk into a bank with a check, you can have problems with how it gets processed. The tax payer shares in the responsibility for this fiasco. Always check monthly statements for accuracy. And, make sure transactions actually do get posted. Unless the taxpayer can prove by a letter of instructions or an application that the transaction should have been an IRA and was posted in error, the bank is unlikely to take any action. I would go back to Bank #2 and go up the chain of command. If you are a significant customer, you may at least get the attention of a senior person.

Market conditions for the past two years have been very difficult. In the past 70 years or so, we have had back to back bad years about 4 times. Good years outnumber bad years by 3:1 to 6:1 and the best years are huge relative to the worse years. Don't get too worried about day to day snapshots, think long term because ":time" is an investors friend. Multiple accounts plus: may be more diversified if the first fund is a narrowly cast portfolio like a sector fund Negatives: may lead to more fees, more the track, more paperwork, and if you get a general fund in two locations you have a lot of overlap of holdings not more diversification. Learn more about your investments and be patient. This is not sitcom where everything happens in 30 minutes.

I agree with Barry, the financial planner is clueless. How can you do business with someone so adament about a policy and clearly is dead wrong. This is Roth 101 stuff, very basic issues about recharacterization. I guess the guy never bothered to read IRS Pub 590. Time to find a new advisor. The clock is ticking on your recharacterization. This is the busy season for IRA desks. You need to talk with your custodian, prepare a letter of instructions. THEN, follow-up to make sure the custodian gets the job done. We have had lots of people post on this message board about missing letters of instruction, delays in getting action and eroneous custodian statements to IRS. Don't deal with a general clerk. Talk with someone in the IRA area who will be familiar with the details. I hope you have a more knowledgable tax preparer!

Be sure that both conversions were completed (not requested) in the same year before you treat them as one lump. Your original querie indicated that you had some problem understanding some of the Roth rules. I would highly recommend that even if you do not use a tax preparer that you do so this year. Be sure they have some experience with Roths and conversions and make sure they understand there were multiple transactions.

If the conversion was completed in 2001, then you include it on your 2001 tax return. Just clarifying the "this year" part of your comment.

Since when is the custodian in charge of deciding the applicability of tax laws and if something may be "acceptable"? That burden falls on the tax payer. Even if it was permissable, why would you want to rely on the advice or interpretation of a custodian. They make lots of errors and have wonderful clauses in their custodian agreements that say they must be held harmless. Don't expect a custodians errors and omissions coverage to solve a tax law interpretation issue.

mbozek - I don't think your proposal is legal. I suggest that this person get some professional assistance now. The facts and circumstances may not have been accurately stated. And I agree that this should have been done months ago.

My first question, if it is your brother's account why should you be trying to track it down? You will run into privacy concerns with banks/brokers/funds who probably will not even talk to you. All that said... you can track down an account if you know the institution where the account was opened. The records go back a long way. If the account is stale, such as a simple bank account, the money may revert to the state in which it resides. Those funds are not lost, they are just not earning anything. To restore an inactive account you may need to send a letter to the state. Many have web sites where you can look for "lost" money using a name and SSN.

To start a new topic, click the "new tread" button in the upper right of the main listing page. You can contribute to either account. You can also combine both into one account by using a custodian to custodian transfer. Combining them may make it easier to monitor and get investment decisions implemented. You might also eliminate an annual fee, although there are plenty of places that charge no fees for IRAs. When Roths were first developed there was about a 1 year period where custodians felt conversions had to be kept separate. Technical corrections eliminated that issue. If your custodian says otherwise, go up the chain to someone in the IRA back office who is likely to be better informed. However, I would not do anything at all with the conversion account until you absolutely know for sure that you meet the qualifications and will not have to revert those funds back to an IRA. Less heartburn for you and the custodian to be cautious.

Maybe. A windfall is nice, but you need "earned income" from your wife or yourself to qualify for a Roth. Earned income in its most common form is payroll that generates a W2 and it shows up on your 1040. Dividends, interest and capital gains to not count. Also remember that even if you qualify (which is not clear from your facts), the maximum contribution for 2001 is two thousand dollars, and for 2002 is three thousand (+500 if you are over 50). Remember that there are also income ceilings for a Roth, so if you windfall translates into a lot of taxable income (shutout above $160k, and a phase out above $150k) then you may be precluded from having a Roth even if you would otherwise qualify. Perhaps you should buy some time from an accountant, tax professional or even a broker and discuss your options. Depending upon your expected income levels, tax free bonds may be an attractive alternative.

Get a final tax return as your numbers may move around a little. Then contact your custodian and explain the overage if any. With a letter of instructions, they can return the excess to you. Perhaps you should write to your Congressman and ask why they put an income limit on Roth's. It catches lots of two wage earner families and about 1/2 of the folks in California and NYC where incomes are on the high end of the range. Seems to me that if a Roth is good for a couple earning $149k then it should be equally good for a couple earning $161k.

A teenager must have "earned income" to qualify, and this generally means payroll earnings that generate a W-2. In some cases, income from newspaper routes or babysitting can be claimed on the 1040 and could qualify. The max amount you can contribute in 2002 is $3,000 while you still can contribute up to $2,000 for last year. Yes, it is dollar for dollar with the ceiling or earned income, which ever is lower controlling. A married teenager (probably does not apply here) could qualify based upon spouses income just like other adults. Gifts, dividends and capital gains are not "earned income". Not ever custodian will allow someone under 18 to have an IRA, but many will set up an account typically with the parent as custodian. Note: as long as the child is qualified, the amount used to fund the ROTH could be gifted to the child.

Education IRA - this used to be a joke because the contribution limits were $500/yr and even if you started at birth you could only amass funds to pay for about 1 year of education. Now with the $2,000 limit you have a better vehicle, at least in terms of the assets that you can build if you start early. Downsides: higher impact on child's financial need calculation, kid can access the funds upon becoming an adult. State 529: there are many state plans and they vary from awful to decent, recent performance may just be a reflection of market conditions. Large amounts can be set aside. Some tax benefits. In some cases you can lock in cost. Downsides: they are complicated, you generally do not control the investments and often not even the asset allocation mix. Financial aide: go to the Princeton web site and try their calculator for financial aide which takes about 5 minutes to fill out (no charge) and may give you a surprising result... before you make assumptions about your children's eligibility. Princeton is very expensive, but also has a huge endowment they use to support aide. My experience is that the more expensive the school, the more likely there are sources of financial aide. Second point, there are lots of small and modest scholarships from Target, Coke, various "lodges", local media, successful local citizens, etc. that do not have an income component. Try FastWeb and do a quick screening and you will often find 100 plus matches based upon interests (school newspaper, band, science), ethnic background, parents career area, etc. Even state universities are offering modest scholarships to kids with great grades to give them an incentive to bolster the student body. For some parents, maintaining control over assets is a big issue. High income families can often produce a generation that is vague about motivation, easily distracted by drugs/alcohol, or living the "good life". I see it in our town and wonder what causes the moral compass of some kids to be so confused. Some savings plans basically turn control over to the kids when they turn either 18 or 21. Viper vs tuition is a tough choice for some. So... if you have any doubts about this, you may want to select a plan where the funds remain under your control. Good luck. PS: One girl in her second year, one filling out forms as a HS senior. I have served on a few scholarship committees and a thoughtful, cleanly prepared application with a well written essay will ussually make the first cut. That first pass often eliminates 90% of the applications due to incomplete materials (10-15%), no signature, boring essay, messy submissions, etc.

Equity based IRA: I was refering to any mutual fund that holds equities (stocks), and was directing you more toward investments in stocks rather than interest bearing CDs, money market accounts or bonds. The reason for this bias is that over very long holding periods you expect equities (stocks) to out perform the IOU type investments because of the growth component. IOU = loans/borrowing and ussually have fixed rates of return but lower risk Yes, with an IRA you have a very large role in choosing your investments. At Ameritrade, the focus is on internet style service rather than face to face meetings and they do not give a lot of advice. I do have an account at Ameritrade from when they bought another firm... but since it has just a one penny balance (for two years now) I don't use their web site for investments! I am sure that they have a list of mutual funds.... look for a broad based No Load (fund with no front or back end commission) or an index fund (such as a S&P 500 index that owns 500 stocks) which often has lower annual expenses than actively managed funds. General info on IRAs can be found in IRS Pub 590 and at the www.rothira.com web site which has lots of articles. Info on investing can be found in Worth, Kiplinger, Money and Consumer Reports (mostly just the March issue). There are hundreds of web sites for brokerages and mutual funds that have some info as well.