John G

No. At least not the way you are probably thinking. Barry Picker previously addressed the question of losses on 12-12-2000 on this message board and gave the following extract: From Publication 590: "Recognizing Losses on IRA Investments If you have a loss on your traditional IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. You claim the loss as a miscellaneous itemized deduction, subject to the 2% limit, on Schedule A, Form 1040." {this should apply to Roth and regular IRAs} Note the key elements: you must withdraw ALL of your IRAs and even then you have the Schedule A restriction. AND you also have that 10% penalty for early withdrawal. You lose the tax shelter, incur a penalty and are limited in that loss you can write off. I just don't think many people will find this second approach attractive. If you think this might make sense, run it by a knowledgeable accountant or tax specialist. You do not state the magnitudes of the losses. Hopefully, you can re-focus on making good investments and move forward from here. We all have paid the real world tuition to learn about investing.

A 1 year old with an income. Bring it on! Etrade in the past has not accepted minor child IRAs. Charles Schwab has accepted using a parent custodial setup. Not sure about others. Suggestion: Any parent that owns a business may want to consider hiring their teenage children to do some modest work to justify a salary which enables them to start an early IRA. Negatives include: potential negative impact on college scholarships, SSN and medicare taxes, kid gets control over funds after they turn 18/21. Positive: great way to get a child interested in investing (McDonalds ussually has a coupon for food in the annual reports! A little easier sell than P/E ratios.) , and lots more years of tax free compounding.

The above answer mostly focused on 2001. As a result of the tax bill signed by Bush in June 2001, the IRA and Roth contribution limits will jump up as follows: $3000 in year 2002, $4000 in year 2004 and $5000 in year 2008. So a person 50+ in this calender year {2002} would have a contribution max of $3500.... $3k base plus $500 for the new "catch up" provisions. Note: a person that has the income qualifications that is age 50+ could start an IRA now at $5,500 to reflect both 2001 and 2002 maximums. A great idea for empty nesters whose incomes may exceed their current years needs. Ditto for the spouse if all the qualifications are met.

You Q and answer were aimed at 2001 limits. As a result of the tax bill signed by Bush in June 2001, the contribution limits will jump up as follows: $3000 in year 2002, $4000 in year 2004 and $5000 in year 2008. Also new: a "catch up" provision for folks 50+ years old that adds an extra $500 in 2002.

I think the above answer should say "with exception of an education IRA". Otherwise the child must have their own earned income to qualify for a IRA/Roth in the childs name. IMO you have a moral obligation to try to pay your creditors. I would work on solving the larger financial imbalance first. Playing shell games with assets does not address the more fundamental problems of having expenses exceed income. Perhaps one of the accountants that post here will add a reference to a reputable non-profit that helps people work their way out of debt.

My uncle in Oregon legally changed his name to "Trust" to help you solve your problems. [just a final 2001 light hearted post]

Good question. I could see some arguement that the wife disclaiming is equivilent to beni being left blank. In which case the default rules would prevail and kids are next in line. Unless someone steps up an objects, I don't see why this path would not be taken. A non-lawyer opinion only.

In an IRA the concepts of short term gain, long term gain, interest or dividend are without any meaning. In a Roth, they are never taxed, even upon withdrawal as long as you comply with all eligibility and distribution rules. In a regular IRA, there is zero impact during the asset accumulation and building period. Taxes on distributed regular IRA assets depends upon the amount of deductable vs after tax contributions. All taxable distributions are treated as ordinary income even if the "income" was produced by long term capital gains. Note: If you expect to have extremely large long term capital gains from assets you expect to hold until retirement (not something I could recommend given the ebb and flow of companies fortunes) you might be better off to hold stocks outside of an IRA in a taxable account and take advantage of long term capital gains treatment.

In IRS publication 590 on page 32 and 33 some of the restrictions and limitations are covered. For example, art, antiques, gems, and most "collectables" can trigger penalties. If you make such an investment, the IRS treats it as a distribution to you with all of the tax and 10% penalties that may apply. The only exception mentioned is investments in gold or silver coins minted by the the US Treasury. Other restrictions include borrowing money from an IRA, selling property to an IRA, using an IRA as collateral for a loan, etc. Perhaps some of the accountants can post other citations on eligible investments. Besides the IRS, you also have custodian rules on allowed investments which are often more restrictive. For example, some will not allow direct IPO participation, pink sheet stocks, low value stocks, or covered calls. Reasons for conservative custodian rules include: risk aversion, a desire to minimize special handling, and the year end valuation rule. Because naked calls expose an account to unlimited liability, they are never allowed. {you can't just add money to an IRA to cover for a bad investment} What is allowed? Well the core options include: stocks, bonds, cds, money markets, and mutual funds. If you are considering more "exotic" options, you should consult a tax professional or accountant and find a custodian that will support your investment (typically they charge higher fees).

Sorry, your concept won't work. First, you don't "convert" winners or losers, you convert dollars without regard to the nature of what is transfered - specific stocks or cash. Capital gains have no meaning in IRA math. When the value of an asset appreciates rapidly, you just have more assets, a higher value to convert and therefore more taxes. By the way, when you shift from a regular IRA to a Roth the term is "conversion". "Recharacterization" is the reverse process where you decide to undo a conversion. The IRS Pub 590 is a good source of information on the various IRA procedures. Before making complex IRA decisions, read that publication carefully and/or consult an accountant or tax specialist. Added comment: I apologise for misunderstanding the question. I thought you were refering to later conversion of an IRA rather than the issue of respecifying the nature of the contribution in a specific year. I defer to the other comments on how that transaction could be handled.

Thanks Pax. The key change in the 2001 language in Pub 590 is that all the standard IRAs are one cluster and all the Roths are a separate cluster. Kind of an odd policy if you ask me. Of course, I believe in tax simplification which is right up there with the tooth fairy.

If you are asking can you sell the asset within the Roth and write off the loss, the answer is no. There is no concept of capital gain/loss or either short/long gain inside either a standard IRA or Roth. Barry Picker previously addressed another option for losses on 12-12-2000 on this message board and gave the following extract: From Publication 590: "Recognizing Losses on IRA Investments If you have a loss on your traditional IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. You claim the loss as a miscellaneous itemized deduction, subject to the 2% limit, on Schedule A, Form 1040." {this should apply to Roth and regular IRAs} Note the key elements: you must withdraw ALL of your IRAs and even then you have the Schedule A restriction. AND you also have that 10% penalty for early withdrawal. You lose the tax shelter, incur a penalty and are limited in that loss you can write off. I just don't think many people will find this second approach attractive. If you think this might make sense, run it by a knowledgeable accountant or tax specialist. It looks like you were making some very risky aggressive investments to turn 8k into 2k. I think you need to put more focus on understanding long term investing so your future investments will be profitable. Most people do not need to chase very high returns to accumulate a great Roth nest egg. You don't need to "beat" the market to be successful. A very broadly based index fund might be a better choice for you.

Identifying someone who lives with you as having your last name is one element of showing a common law marriage. Were the benefitiaries switched or did the account always have the live-in's name as benefitiary from day one. Sounds to me lot sour grapes coming from family members who probably thought the decreased's money was actually theirs. Ok. How many of the readers of this message actually know the benefitiary designation on the various retirement accounts? Is the benefitiary still alive? Did you designate a secondary benefitiary? Is the benefitiary designation compatible with all other arrangements including the will and trusts? The original question invites speculation on the merits of the case and what factors known and unkown might be deciding. Is that the way the readers of this post want their affairs to be resolved? Perhaps, the value of the original question is to alert all IRA/retirement account holders to check their benefitiary designations. Less messy, for sure.

You are mixing up some terminology here. If your IRA is currently a Roth, you are not going to convert it but rather transfer the existing account. Switching the "home" of your IRA does not require any forms from the IRS. The single best way to transfer a Roth is to contact the new custodian and ask them for the paperwork for a direct transfer of an existing account. Then you fill out the forms and return them to the new custodian who then contacts the existing account custodian. A direct transfer is desireable since you do not have taxes taken out and you do not need to worry about the number of days before the funds are redeposited. All custodians know of this process. Use the correct terminology: transfering account. If the account rep does not understand this transaction, you are talking to the wrong person. One word of warning. Do not assume that all this happens on auto pilot. The process takes a few weeks, and you must follow-up to make sure the paperwork is completed.

Supplementing the above response: Your income level in the year you convert effects your eligibility to convert to a Roth, and there is an interaction with filing status. Married filing separate returns for example is extremely restricted. You may want to do a partial rollover, converting a part of your IRA to a Roth each year. This might keep you from tax bracket creep, but you would need to be eligible each year rather than just the first. You should read Publication 590 from the IRS before you take any action. Also note the related site: www.rothira.com

I agree with QDR. While the specific facts are still a little murky, I think the problems with the proposal are clear. These kinds of transactions can create artificial "returns" that can boost the assets of the tax shelter, which presents a huge problem for the IRS. I am not saying that is the intent in this case, but self dealing arrangements open the door to that issue. This is one of the reason why custodians are reluctant to support non-traditional investments where the marketplace sets the price or valuation. When you get away from open trading and third party transactions, you have a problem establishing value. This is also a problem with any infrequently traded asset.

The prior advice was good - pub 590. If you have the earned income and otherwise qualify, then you will need to find a "custodian" for your Roth contributions. Custodians can include banks, brokerages and mutual funds. See some of the older comments on related to "just getting started". Custodians vary in terms of the investment options they offer and the fees (if any) they charge. If you want additional advice, you need to provide some other info such as marital status, approximate income, age and investment experience.

The key to your answer is how much time before you will use the funds. If you children are very young (under 10) then you should probably have the funds in a broad based no load mutual fund that emphasizes stocks. If you expect to withdraw the funds for education in a few years, then you want interest bearing bonds or notes. In between, a mix makes the sense. Generally, in all investing, you want to bias towards stocks as your holding period gets longer. The reason is that over the long haul the equity (aka stock) markets perform better. However, in any given year the stock market can be up or down. Back to back down years, while rare, have occured a few times in the past 50 years.

Contributions to a Roth IRA come out of your personal funds and are therefore after-tax. You need to have "earned" income to qualify. Once the money is inside the Roth, it will hopefully grow over time and later (simplifying) you normally can take tax free withdrawals. You must select a custodian for your Roth IRA. The major three options are: banks, mutual funds and brokerages. Each custodian will have different investment options. Some, but not all, custodians charge an annual fee for IRA accounts. It sounds like you are new to investing. I am therefore going to recommend that you start your IRA with either a brokerage or mutual fund. Then place you initial contribution into a broadly based index fund. Some examples: Schwab 1000, Vanguard S&P 500. These hold stocks (aka equities) in major companies across different sectors. Since you are 25, you want to think where will you money work the best for you over 4+ decades. I would not recommend using CDs or any fixed interest investment. Please get a copy of the March issue of Consumer Reports and read about retirement planning. This annual issue always covers in basic English the key issues. Kiplinger and Money magazines are also good sources of info. In addition, most custodians have "introduction to investing" kits along with packages for new IRA accounts. You might also want to look back to previous comments at this site. Good luck.

"no spousal survival rights to and IRA" ? This directly contradicts what you said before that the application had a contingency that if no designation, then spouse is default. By signing this form, the account holder agreed to the provisions. But he married later... well you could effectively argue that he took no action because he remembered the default was "spouse". I concur with Pax. The will (if any) might contradict these intentions, but designation of beneficary would normally be expected to be primary. In this case the designation is not explicit but implied by inaction. If someone was to contest the beneficiary, then the will might become a factor if it was written after marriage and had explicit instructions that the wife was not to get the assets. Clearly, you can take this question to a lawyer in the applicable state. revised 10-3-01

I ask permission of the speaker to revise and extend my remarks: Revisions, see above. Additions, see below. You mention three mutual funds related to growth, small cap and innovations. Concerning the choice of specific funds I would make these points. First, a very good choice for someone getting start is a very broad based index fund because expenses are low (typically less than 0.5%) and you get reasonable diversification. Normally, you would prefer funds with lower expenses all other things being equal. Under 1% per year is good for a stock picking fund, but high for an index fund where the computer works off a list. Some funds, like international stock funds, have much higher expenses, like 1.5% to 2.5% per year. Second, you should know if these funds are loaded or not loaded. Loaded means sold with a commission either on the front end or back. I prefer NO LOAD funds. As AmEx about what you have. Third, you may have a lot of overlap with these three funds. If you said energy, telecom and retail funds you would expect little overlap. As AmEx if you fronts have much overlap. Fourth, often you want to know who makes the stock picks, their tenure with the fund and track record in good and bad years. I am not a bid fan of funds that have existed only a few years, and I watch closely who steers the ship. My final issue, funds with very large assets (like Magellan) have trouble making changes in their portfolios and size of fund may start to dictate what they can buy. You may want to read the March issue of Consumer Reports which always has a retirement investment article and some recommendations of strong performing funds.

You question can have thousands of answers. Basically you started your Roth on a down year and that got trumped by the WTC terrorism. Most mutual funds are down this year. The exceptions might be some gold and petroleum funds. Even the "value" funds which were doing so well got nailed in the last month. Tech funds are tech wrecks. Telecom are teledisaster. There are over 8,000+ mutual funds and I expect fewer than 500 will be positive at year end. Advice: live your life and stop worrying about this year. We had a great run of outstanding growth and now everyone is getting whacked. Next year is likely to be much better and the following year positive as well. Good years out number bad years by anywhere from 5:1 to 8:1 Osama bin Laden has no positive contributions for mankind from my viewpoint, although he clearly has made a hash of this month. Capitalism, freedom of religion, freedom of expression, access to education {especially for women who are denied by the Taliban} , open political debate, individual based career choice, private property, elective government, and business enterprise are the underpinnings of our society (I am sure you could add to the list). I vote for our economic system and our values. Since you are just getting started, just sit tight. Learn some lessons about risk/reward. Build up your knowledge. And... put another chunk of cash into the Roths at the next chance. I just love the media hysteria of "everyone is selling". Selling to whom? For each seller there is someone else who is a buyer. People who overreact of panic tend to jump out of the market too late and wait to long to buy in. So overall, I would say stick with broad based mutual funds and wait out this storm. Like the weather, economic storms also eventually pass.

The answer is yes, it could be 4,000 or even more.... and here is the way B Picker described eligibility at the www.Rothira.com site: "In order to qualify, a taxpayer must have earned income, at least in the amount of the Roth IRA contribution. For married couples, either spouse can have the earned income, so that a spouse with no earned income could still make a Roth IRA contribution, as long as the other spouse has earned income. There is also a maximum income cap for taxpayers to be eligible to make a Roth IRA contribution. For married taxpayers filing a joint return, the ability to fund the Roth IRA starts to phase out at $150K of modified adjusted gross income (MAGI), and disappears completely at $160K. For single taxpayers, the ability to fund the Roth IRA starts to phase out at $95K of MAGI and disappears completely at $110K. For married taxpayers filing separately, the phase out starts at $0 and ends at $10K." The earned income must be equal or exceed the IRA contribution. The current max contribution for each spouse is $2,000 , but that ceiling will move up .... another quote from the rothira.com site: "President Bush signed into law on 6/7/01 the tax bill that Congress passed on 5/26/01. The new law includes major pension changes. Provisions include phased-in contribution limits for IRAs and Roth IRAs: $3,000 in 2002, $4,000 in 2005, $5,000 in 2008 with limits indexed in future years. IRA catch-up provisions will increase those limits for those 50 and older by $500 in 2002 and by $1,000 starting in 2006. " Hope this helps. Note age 50+ catchup provisions!

I think you are asking is a pension check considered earned income. Answer is no. However, if you pick up a part time job which gives you a paycheck you become eligible.

Transactions within Roths and regular IRAs: Regular and Roths: no tax on transactions, no specific reporting requirements, keep the records you need to know how you are doing (very important!), no restriction on number of trades or transactions or length of hold (long term vs short term is meaningless concept Roths only: normally no federal income tax liability with eventual distributions unless Congress changes the rules (IRA, alt min tax, etc.) IRA only: taxed as ordinary income when distributed later in life {note: you can not get favorable long term capital gains treatment} The above generalizations do not address premature withdrawals or state/local taxation. I would discourage very active trading in a Roth or regular IRA. Very few folks are successful at this, perhaps less than 20%. You don't need to be swinging for home runs to get an IRA account to grow to a substantial size. If you choose to actively trade, you may want to consider an internet based discount brokerage to reduce your transaction costs.