John G

Since you are talking about the tax on $5,000 an not some mega conversion, and since you appear able to pay the tax, I think the simplest situation is to make an appointment for after April 16 with the IRS and present the problem. Since 1/4 of 5,000 could get easily lost on a tax return and since the 1099R was attached you may want to ask the IRS to waive the penalties and just pay the tax and interest. Read that tax return carefully this year!

You are going to do all this paperwork and tracking to save the taxes on $1000 (perhaps 1/2 of the 2k in year 2000) which may amount to $280? You also want to ask a discount brokerage with which you no longer have an account to go back over their records to determine the values? Etrade is not exactly noted for "extended" service. Vanguard has nothing to do with your prior IRA activities. If you use an accountant, you will probably pay more for tracking and reporting the changes then you will save on taxes. You will be chasing your tail on this one. My advice, forget about your proposal. I wonder when custodians are going to start charging for this kind of research and transactions.

You may have a much bigger problem then you think. First question is did the sloppy first tax preparer file the conversion attachments to the first tax return. If this was a large conversion, then you have major problems. If you are talking about a six figure conversion, your excuse you did not know will not hold water. I think your current tax preparer is way off target. If you knowingly evade paying taxes that are due, you may be criminally prosecuted. If you find and correct a problem before the IRS discovers it you have a much better chance of an equitable result. Where do you find these "advisors" anyway? You will find better opinions at this site then you appear to be getting locally. Wait for some additional comments to get logged in on your options and possible tactics. Your first tax preparer may have some legal liability for penalties (you owe the taxes and interest) if she/he was fully informed on the facts and did not complete an accurate return.

This topic has been covered from a number of different angles. See the below reference: http://benefitslink.com/boards/index.php?showtopic=9429 Just a presumption on my part, but I doubt that the IRS will be paying much attention to a child's IRA. If the work is real rather than contrived, go ahead and do all the paperwork for employment. Keep records, pay taxes, file returns, etc. You may want to consider the educational IRA as an alternative at $500/year.

A few custodians may still be working on the '98 plan, or atleast the front desk folks may say you can not contribute. If you have a problem, contact the back office IRA dpt which is much more likely to informed/trained. There is no IRS rule or reason why you can not contribute to a conversion account.

Note, you do NOT normally control the timing of either end of the transaction. Custodians put your letter of instructions into a que and process them. Your transaction can occur two weeks later. If you are a big cheese with your custodian and make a lot of noise, you may be able to get more timely action. For the next three weeks, most IRA back offices are swamped... so expect delays. It is probably not worth considering unless your stock portfolio decline is more than 20% in my opinion.

Too soon to know what will result from the various proposals. Tax issues are in a high state of flux and you should expect a lot of compromises. Hopefully Congress will not slap together a bad package in their rush to get something passed. What appears to be inevitable is that IRA limits will eventually move beyond 2k. This adjustment has been talked about for a few years and been either in bills or amendments. Eventually it will pass, if not this year, soon. You might want to write your Congressional reps and let them know of your interest.

The normal process is to roll IRA assets into a Roth. Anything that can first be rolled into an IRA can subsequently be rolled into a Roth. Be aware that you rarely can control the timing of the actual conversion as custodians typically stick requests into a que and proceed FIFO. This means you never know until the day action is taken the value of the assets you have shifted. Lots of odd things have been reported on this message board of transactions that got screwed up. It is important for you to track and confirm all the steps taken in the transaction. I hope you are aware that you are limited to $3000 in terms of writing off losses greater than gains in any one year. You are still likely to have SSN, pension, dividends and interest. I highly recommend that you get professional assistance before you act. Let the accountant or tax pro play devils advocate. Also, a partial conversion often gives you much of the benefit while reducing your immediate cost. Ask your advisor too run some scenarios for you. You may want to convert part now, part next year if you think your income will remain low. Especially if the conversion creates tax bracket creep.

Yes Barry, I agree with your point. I was commenting from the recharacterize - second conversion perspective. The 30 day rule plus the lack of control of custodian timing ("Its in the que") means that you can not predict the actual values ahead of time for either end. The $1k gap could easily double or be erased.

Looks like this question is going to come up a lot with the bear size bites taken out of stocks this month. See below reference to the comments from B Picker that addressed this issue. Unless a very substantial amount of money is involved, it just isn't even worth considering... and even then the answer may be no. http://benefitslink.com/boards/index.php?showtopic=9442

The math is complicated and based upon a large number of assumptions about your current tax rate, future tax rate, eligibility now and later, income qualifications now and later, future government tax policies and likely investment returns inside the shelter and out. No one can tell you for sure what the correct answer is. Use your tax adviser to run some scenarios, maybe set up a simple spreadsheet for yourself. Generally, conversion is a good idea if you are young (because you have a long compounding period), expect to have a higher effective tax rate later (because you are low now or because you expect future growth in assets will push you to higher brackets, and/or if you desire the no mandatory withdrawals or inheritance options (hard to see this as a big issue for you right now). Conversion at this time when the market is depressed could be attractive if you think the downside has run its course since you tax obligation would be smaller. Conversion is a very bad idea if you plan to use some of the IRA assets to pay the taxes. If you are thinking this, DON'T CONVERT! I like Roths, but you can often out smart yourself when rearranging your life to avoid taxes.

It looks like your "savings" would be the tax on the difference between 8k and 7k... perhaps $280 at 28%. I am not sure I would go through the effort for that amount. Remember, the timing of these events is often beyond your control so you never know the actual numbers until the custodian tells you when and at what price it was done.

Nothing wrong about choosing a fairly broad based stock mutual fund for getting started. Large cap (cap=total market capitalization aka totalshares*shareprice) would mean holdings like IBM, Microsoft, General Electric, JP Morgan, Dupont, Exxon or the well known names in business. Small cap companies are less well known and can be regional firms. The general theory in favor of small caps is that these firms are growing, in contrast to the "giant sloth" view of big firms. Growth vs value further divides potential investments into above average expansion vs priced below comparables. You reduced your diversification when you narrow the field to some combination such as small cap value. But the mutual fund will typically have between 30 to 500 stocks in its portfolio. Go ahead and make your pick. Perhaps even put additional contributions into that fund the next few years. Maybe after 3-4 years you may want to pick a second fund. I highly recommend that you select a mutual fund from the universe of NO LOADs with expense ratios below 1.5% (below 1% would be better!). Keep pushing your plan and maybe you will find your magic number is less than 35.

Ah, perhaps an assumption on my part! Mutual funds can have front or backloads (and rarely both) at varying levels. A common backload set up is to start at say 6% initially and decrease the load 1% each year until in year seven there is no load. However, you can also find funds with perpetual back end loads. You need to read your prospectus or call the custodian to find out what you have.

Another short citation on children and Roths http://detnews.com/2000/business/0007/04/b10-85589.htm Thanks for shortcuts to prior references added by Pax.

I can't answer your specific question about current mobile home owners. But, I want to post a caution that most folks should not fall for gimick withdrawals of Roths, allowed by IRS code or not. Tax shelters are best used when you keep the money in them... preferably a very long time.

Yes you can open an IRA at a different location or at the bank with a different investment. You can have lots of IRAs but your income defines your eligibility and maximum contribution. There are lots of valid investment options that have low or zero extra fees. You may want to consider NO LOAD mutual funds with expense levels below 1%... including various index funds. Generally lower expense/fee investments do very well, but there are also higher cost options that beat the average. Should you move the old IRA? Hard to say. If that fund is performing similiar to others (and very few funds are performing well in the past few months) then why not keep it until you no longer have a back end load. You may find they also charge a fee to close out your account. Clearly, you need to pay more attention to your decisions so you are not surprised. Ask lots of questions on fees and read all the materials.

Look at the answers to child IRAs earlier on this site. If a child is copying, cleaning, filing, etc. you can clearly pay for these services and that is earned income. Paying also means paying all of the appropriate employment taxes for the child. Clearly when a child is 12 or older a stronger case can be made, but an infant that "earns" modeling fees would also be qualified. But, if the work is purely contrived and the payments purely to enable a Roth IRA you have a higher chance of IRS questions. Note, you can do an educational IRA for any child but it is currently limited to $500/yr.

I don't know if fees should be the primary factor is deciding upon a custodian... customer service, investment options, web presence, analysis, commission schedule are all important. On fees: Zero is a common number these days because (1) many brokerages like Etrade and Datek dropped fees to attract accounts, (2) some brokerages drop fees if IRA {or other} assets exceed 5 or 10 K (example NDB@10k, Schwab@10k-all accts), and (3) a few brokerages will drop fees if you just ask or have other lines of business with them. Use the WWW as a fast source of data on fees.

The bump up to 5k was proposed in the last Congress but the bill was never signed into law. Since the 2,000 max has been around since the 1970s, it is commonly viewed that an increase is in order and 5k is often proposed. This issue is part of the general negotiations over the Bush tax cut, and may surface either in the initial bill or in amendments. You may want to email your Congressional representatives of your interest in the higher amount. At one time the increased max was going to be reserved for mid-life workers (I don't recall the details but maybe age 50+) who needed to boost their retirement savings.

Ann, Please read back through this site to posts that are about "just getting started". You will see a lot covered by me. Your first step is to make the commitment to set aside dollars. The next step is to select a custodian: choices include banks, mutual funds or fund families, on line brokerages, local brokerages, etc. Each will offer multiple types of investements and have different cost/fee structures, and levels of service. If you decide on a mutual fund go with a NO LOAD version with annual expenses below 1%. LOADED funds charge either immediate or termination fees that erode your return. You can change your decision after you build a base of experience. Try reading the March issue of Consumer Reports which covers the basics of mutual fund investing for retirement... and they narrow the choices to about 100 good funds. I recommended a broad based stock mutual fund as they represent a portfolio of many stocks. Of these, index funds have the lowest costs. Most funds will allow you to start with a $1000 deposit, or even less if you commit to a fixed monthly contribution schedule (which is a dollar cost averaging approach). You want to put your money to work immediately. If you are upset about making choices when you are not informed, then put the initial funds in a money market type account and start your education. Then a year from now you will certainly be a better position to make choices. Just don't go the money market or CD route with all your funds FOREVER as you will barely stay ahead of the underlying rate of inflation. The key is to get started, pick something relatively conventional (only you can decide on your risk tolerance) and start spending 1 hour or more each month reading to learn about investing. I do not recommend that you let someone else be in charge of your investments as it is your money and you should know what you are doing with it. No one will ever have as much at stake as you will! You might also want to consider joining an investment club. These range from awful to very positive learning experiences. Ask your friends if they know of any they would recommend.

And, no reporting of capital gains. The concept of long term vs short term capital gains has no meaning within a Roth since there are no tax consequences. Keep records for your own purposes since buy/sell transactions are not reported on your tax return.

By the information you have provided, both you and your husband should be eligible for a Roth IRA. If you each open a Roth account and put 2,000 per year for the next 12 years you will have invested 48,000 (2k x 12 x 2 people). If you invest these funds a general stock fund or stock market index fund and you get a little over 10% you will accumulate $100,000 by the time you retire. It is possible that you could draw $8,000 per year to supplement social security. In your example, 4k set aside today gives you 8K in each retirement year. If you use the Roth, you will not have to pay any taxes on the IRA dispursements. You and your husband should go to a social security office and request a benefit statement. It takes a few weeks and is a free service. You will then be able to evaluate the annual income you might have in retirement. Ussually, your expenses drop off after age 50 because you may burn the mortage, kids leave home, few needs for furniture, etc. It is pretty common for couples to try to sock away a good amount in the last decade before retirement to provide some "padding". Remember, if you own a home you are building equity as you pay off the mortgage... this is one potential asset you did not mention. Good luck.

Barry, This is just another example of why people should seek professional support before converting, recharacterizing and rolling over. Some of the examples we have seen reported here involve "house size" assets. Just as you should not buy or sell a home without legal advice (to sing a Bruce Williams song) absolutely no one should undertake major actions involving IRAs, pension funds, Keoghs, etc. without discussing it with an accountant, tax advisor or financial planner. In this example, the negative impact was huge compared to perhaps two hours of professional help. Arguably a 100:1 ration of impact to pro fees. I am talking not just about major misunderstanding about tax withholding but also subtle issues of strategy and timing. Let the professional play the role of devils advocate and show you the non-rosey scenarios. Get professional assistance! {I am not in the accounting/tax service business and my viewpoint is purely based upon experience with ideas that turned sour when folks did not understand the rule.}

First, congratulations of thinking about investing at the age of 25! Starting early gives you a longer period of compounding and a happier retirement. Given your age and occupation you should meet the income requirements for opening a Roth IRA and should be able to set aside UP TO $2,000 a year... and you still have time to start with tax year 2000. If you can't do 2k then start with a smaller amount. For example, you might want to consider a systematic approach of putting $100 dollars each month into an IRA. You need to think about two things on the front end: who is your custodian, and what type of investments am you likely to make. Custodians can include banks, brokerages, mutual fund families, etc. Many of the brokerages such as Ameritrade, Fidelity and Etrade give a chance to buy stocks, bonds and mutual funds. You can find out more about most firms on the internet. But you can find custodians in home town banks too. When talking to a couple of potential custodians, ask them for their "beginner" literature. Banks used to have fairly conservative choices (CDs) but are starting to offer more options and you may value face-to-face service. You may want to read the March issue of Consumer Reports or subscribe to Kiplinger Personal Finance mag. Both a good sources for a young worker. Ask about fees. There are many firms that do NOT charge annual fees for IRA accounts. Others charge $10-20 per fund or per account. Some eliminate the charges if you just ask, or when your assets grow. My suggestion for beginners: invest in a growing future by putting your IRA funds into a general stock mutual fund and a very good version of these is a broad based index fund like on that mirrors the S&P500. Why? Easy to track, easy recordkeeping, market performance, diversification and low cost/expense. After 4-5 years of contributing and letting this account grow you may want to split your assets between a couple of funds. When you pass the 100k mark and know more about investing you may want to own 8 to 12 individual stocks. Equities (aka stocks) are an investment in growth. Sure, stock markets go up and down. But good years out number bad years by anywhere from 5:1 to 8:1 and over many decades equity investments will do a better job (much better than CDs) of growing above the general rate of inflation. The general rule is that reward (returns) is correlated with risk. Supposed risk free investments (they are not truely risk free because they may not keep ahead of inflation) like CDs generally offer the lowest annual returns. Unlike stocks, there is not really a growth component to the investment, they are just IOUs, often insured against loss of principal. Good luck with your career in law enforcement.