John G

Barry, the "hardship" reference might have originated in language on qualified distributions in IRS Pub 590 on page 43 that mentions "disability" allowing a qualified distribution. There are also an exception to the 10% additional tax penalty related to "significant unreimbursed medical expenses" or for "paying medical insurance premiums after losing your job".

That's a lot of questions! You may want to consider reading some of the material at http://www.ROTHIRA.COM which has a combination of stories on applicability, tax payer options, regulations calculators references, etc. Another source of information is IRS Publication 590 "Individual Retirement Arrangements" which covers regular, educational and Roth IRAs. Which is "best" is a function of your age, marital status, annual income, current and future tax brackets, other investment options, retirement goals, financial knowledge, etc. Two of the key benefits of Roth IRAs are: no taxes on standard withdrawals and no mandatory withdrawal schedule. Some of the limitations include: maximum of $2,000 per year contribution, income ceilings, restrictive treatment for married filing separately, and possibility of future changes in rules. You are eligible for a Roth if your modified AGI (adjusted gross income) is less than $110,000 (single) or $160,000 (married filing jointly). Roth IRAs contributions are not tax deductable.... in some cases regular IRA contributions are deductable. Yes, you can contribute to a Roth regardless of what you are doing with your 401K.

You will find that the counter folks of Schwab or any large brokerage often are limited in their knowledge of these kind of details. Between the modest pay and turnover of staff, all firms struggle to deploy knowledgeable staff. You will find that the Schwab IRA specialty area in San Francisco is very aware of the rules, just ask to be connected to them. I would recommend to anyone dealing with technical issues to bypass the counter and talk to the tech specialists... at Schwab or any brokerage.

Be aware that you "request" a recharacterization (or conversion) and then the custodian takes anywhere from a day to a few weeks to act. You have little or no control over the actual date actions are taken. Therefore, normal market swings between your date of request and date of posting may erode OR exagerate the impact of what you seek to accomplish. During peak weeks (late December, April) the backlog of IRA activity makes the timing even more unpredictable.

If you can not pay the taxes on a Roth conversion out of non-retirement assets, then you should probably not do the conversion. Using the IRA to pay taxes reduces the size of your conversion and triggers penalties. This substantially reduces and probably eliminates the benefit of a Roth. The 60 day rollover rule was originally intended for people requesting a check to give them enough time to redeposit the funds (originally an IRA to IRA issue of switching custodians). This 60 limit has tripped up a lot of folks who get the dates wrong, get distracted, spend the money, or forget to complete the transaction and that means taxes and penalties. Do not needlessly expose yourself to the risks of the 60 day rule. When you ask for a check, tax witholding is mandatory. If you are moving your IRA assets to another custodian at the same time you convert, I recommend that you use a direct custodian to custodian transaction. You fill out papers with the new custodian and they "fetch" the funds from the prior custodian. No witholding. No 60 day issue. This is a much cleaner way to get the job done. When you do a significant conversion, your tax liability will often trigger a need to file estimated taxes. Since estimated taxes are quarterly, you often get a few months of "float" before you need to make an IRS deposit. Sometimes you can avoid the estimated taxes by arranging additional witholding from paychecks.... and since this can sometimes be done towards year end, you can buy some additional time. You may also want to delay the date of your conversion if you expect some additional funds from a tax return or bonus. You may also want to consider a partial conversion over a few years to reduce the tax burden and avoid tax bracket creep.

I am surprised that a custodian ever allowed any of these transactions to occur. Custodians are supposed to establish the value of IRA assets at the end of every year. If this stock never traded, there is no mechanism to establish "value". For stocks, value is determined by trading activity with multiple buyers and sellers. A stock can have a trading record even though it is not listed. Ask your broker to a list of all trades in this stock for 30 days before and after the date of conversion. If your broker does not have this data, ask what firm was the primary on the private placement and querie that firm. This is your slim chance for demonstrating eronious data. This sounds like another one of those dot.com "success" stories. Anytime you have a 97% decline in value it raises real questions about if you were investing or betting on a dark horse. Ouch. Your facts and circumstances (investment suitability, recommendation, stock pricing, etc.) may suggest a potential action against your broker. You may want to consider consulting an attorney. You did not indicate if you would be considered a "sophisticated investor" who was supposed to be able to evaluate unussual deals. Perhaps some of the accountants who comment here can evaluate if you have any mechanism for erasing the tax liability. That is beyond my scope.

No. Roths must be funded with cash. If the stocks or bonds are in an existing IRA, then these assets can be converted to a Roth. You don't have to sell either the stocks or bonds if you have cash to fund an Roth. Short on cash? Then consider a monthly auto deposit program to fund the Roth over the year.

Your question is best answered by calling Vanguard and asking them about their minimum requirements for additional mutual funds. Ussually you can add anything from $100 (if a fund has a minimum additional contribution) to $2000 ($4000 if simulataneously doing last year and this one) to an existing mutual fund. Then most fund families will allow you to transfer some amount from the existing fund to a new one. Ask Vanguard. (you are dealing with custodian rules not IRS regulations) Note, you may start incurring additional annual fees as your start new funds. Some fund families charge one overall fee, while others charge a fee for each mutual fund.

Do you mean that you contributed to a Roth for your mother? If so, then her income determines eligibility. If she contributed for a Roth for you (a very nice mom indeed) than your income determines ability to contribute in any given year. Once legally created (meeting earned income and max income regs) the Roth can continue. You have many investment choices: bonds, mutual funds, CDs, stocks, etc. If you mom has earned income, perhaps you should help fund a Roth for her. In an odd way, this could be a end-run around the limitations imposed upon you due to income. For example, if you mother works part time you could fund a Roth for her and somewhere down the road might then inherit it from her. Also, you can still make a 2000 tax year contribution if you were eligible in 2000.

You can buy-sell or trade all you want within a Roth and have no tax (this year or ever) and no reporting consequences. In a regular IRA, there is no required reporting of trades but eventually you will pay income tax on the earnings. Stocks, bonds, mutual funds.... it does not matter. Tracking of investments in either an IRA or Roth is purely what you need to monitor your decisions and progress against goals.

Try a home equity loan for debt consolidation. You may also be able to get a very low loan rate if you roll debt to a new credit card.... for a few months... then roll again. You may also be able to margin some stocks in an existing brokerage account... but understand the limitations of this approach before jumping in! Interest rates appear to be falling again, so you may have more options to atleast reduce the interest charged on this debt in future months.

Yes, if you meet the conversion income threshold. But, if the IRA is of significant size, you may want to do partial conversions over a couple of years to avoid tax bracket creep. You also need to handle the timing of the current year dispursements, if any. If you don't need IRA funds for living expenses, you will be able to skip any withdrawals from the Roth and extend the tax shelter. In most circumstances you want to burn off all other funds before taping into a Roth. There are also some favorable treatments of Roths that are inherited. I would recommend you speak with a tax advisor before you act. Mistakes on details and timing can cause a lot more pain that paying for tax advice.

Congratulations on getting started at a young age. Time is the number one friend of all investors. A Roth is a great tax shelter. The amount you put in each year is up to you. The max is $2,000 but you could add $300 or $1000 or nothing in any given year.... assuming there are no issues with the earned income qualifications. All investments include some level of risk. CDs are "insured" against bank failure, but over the long haul may not sufficiently exceed the rate of inflation to meet your goals. Bond values go up and down (in the opposite direction of interest rates) and are only as reliable as the underlying authority (the nuclear power plant WOPPS bonds in the northwest defaulted!). Bonds are basically IOUs. Equities (stocks) or equity based mutual funds rise and fall with the stock market... but good years outnumber bad years by anywhere from 5:1 to 8:1 and the good years are ussually much better than the bad years. If you believe that the future is going to be better and that economic growth is inevitable, then you want to be in stocks which is buying into the nations/worlds future. You said you chose a mutual fund. That helps you mitigate against the risk of owning just one or two stocks. The term is diversification. Don't worry about the flucuations in value. Over the many decades that you will be investing, you should do just fine. Since 1920 or so, there is not one 20 year span of time when investors in stocks lost money. So, even if you have back to back bad years (I think this has happened 3 times in 80 years) stay with the system. This is why I said time is an investors friend. Investment success is not measured in days, weeks or months but rather in decades. You need to become more educated about your choices and how investing works. Subscribe to Kiplinger Finance or Money magazines and spend 1 hour a month reading articles. Skip the myths and jackpot stories and focus on the long term stategies. Got more questions? Post them here and we will give it our best shot.

Alternatively, you could buy and hold a stock and have no or minimal annual tax issues (typically just dividends) and obtain long term treatment of the capital gains and stepped up basis if passed on as part of an inheritance. Another option would be to buy a tax managed mutual fund (like the Schwab 1000) which would give you diversification, minimal annual tax impacts and could be collateral for a loan. A broad based index fund that is not tax managed would come close to the second choice.

Congratulations on the bonus. You sometimes can negotiate with a company when the bonus is paid out, something to think about for next year.

Limit is $2,000 per year per person as long as they qualify by earned income and maximum allowed income. BUT, you can deposit $2,000 for the year 2000 and make a contribution for the year 2001 as well if you qualify for both years. You don't need to open a new account for each contribution. Funds can be added to the first IRA, just make sure the custodian records the proper tax year.

You have multiple options. First find a new custodian with the right mix of investment options and service fees. I believe that some of the internet based discount brokerages have no IRA fees, like Etrade. Others like Schwab eliminate the fees once your assets exceed something like 10K. Some custodians will waive IRA fees if you just ask, or if you have other business connections with them. Once you select the new custodian, use their forms to request a transfer from the other custodians. Ussually this entails filling out a form, signing it and attaching a copy of a prior monthly account statement from the old IRA. The destination custodian will arrange for the transactions... but keep tabs on the process to make sure it gets done. One IRA can suck up multiple IRA fragments (just those associated with one person, no combining husband and wife accounts). This process will take a few weeks, but when completed you will have one regular IRA and can then decide if you want to do a Roth conversion. You may want to consider a multi-year partial Roth conversion to avoid tax bracket jump.

For shorter time gaps, you may want to consider a "bridge" loan. Then you can tap the funds after the 5 yr period.

Day 1 IPOs, merger/stock conversions, symbol/exchange changes, etc. often cause problems for systems. Many brokerages will flag these in a notice box or pop up on the day of the event with the note for account holders to call an office to get a transaction completed. Second point, you should always examine an account later in the day after submitting an order. The earlier you catch a problem, the easier it is to get it corrected. Don't think telephone-to-broker transactions can't go wrong. In Dec, I submitted on a couple of day orders for a specific block of a thinly traded Nasdaq stock and ask the broker to call me if the order was filled. Each time I called, I got a new person and got no info that any orders were filled. Surprise suprise! I had three blocks of stock. This story has a good ending as the broker congratulated me on my "timing" when the stock moved up $6/sh at year end. The communications problem was exagerated by erratic holiday schedules of the brokerage staff.

Contributions to Roths are funded with after tax dollars. There are no deductions for contributions. Roth conversions are a taxable event. Funds in a Roth grow without taxation and all normal retirement withdrawals are tax free.

Have you considered rolling all the debt into a home equity loan or jumping to another card with a front end "grace period" from interest rates. Another option might be to get a second job for 6 months or get your spouse back in the workforce. Ask for a raise? Change jobs for higher pay? Some of these suggestions might work for you. Credit card debt is a real stone around a families neck, no doubt about it. But you will face income taxes and penalties to access your Roth. I would look elsewhere first to reduce the interest rate you pay, then accelerate the debt retirement. Look for a credit card counseling service in your community... but be careful not to fall for a false pitch. They can help in many ways including getting your debt restructured and perhaps lowering your interest rate. I would also like to suggest that you cut up every credit card you own but one. The last one gets tossed into your safe deposit box for 6-12 months, not to be used. In 95% of the credit card debt cases I have seen, spending too much is the primary problem. Often folks can't even discribe what exactly they bought to create the debt, which always sounds to me like they didn't need it. The other 5% seem to be the hard luck problem of medical bills, natural disaster, or some other financial blight to which they did not contribute. Good luck.

BPicker is a very solid accountant and longtime commentor on this site. I am more a generalist. My mistake was totally missing the key word of EARNINGS. Earnings are the gains on either the original contributions or on the Roth conversion amounts. Earnings are taxed if withdrawn prematurely or removed when no exception is applicable. You should check out the rothira.com web site. You will find some articles there on the full range of subjects. There are lots of technical issues about qualifications and custodial proceedures. It is pretty common for magazine and newspaper articles to still get some details wrong or to give a 1/2 answer that leaves out important caveats. PS: Your five years are not up... the rules can change in the future about this or other issues. And, the big picture is don't withdraw unless absolute last resort of funds and dire circumstances.

What is the key date? Date of receipt by the custodian or date of mailing? I have always assume date of receipt. Is that correct or can you postmark a letter on April 16 to a custodian and still get prior tax year treatment? Does tax filing extension affect the dates?

{Oops! I have corrected my original erroneous post. Read original post too fast Barry... earnings not contributions was the issue! I stand well corrected. Following comment by BPicker is correct.} But.... why is it that folks are interested in taking money out of the best tax shelter the average citizen can own? The whole purpose of a Roth is a longterm tax shelter for assets, the longer the better. Taking money out of a Roth should probably be the last thing anyone should do. Most people have multiple alternatives to taping a Roth: family funds, home equity loans, abstainance (aka "don't buy it"), other financing, etc. Recognize that once you take it out is not so easy to get money back into the Roth. Reason 1: 2K annual limit per person. Reason 2: you may not qualify for a Roth in future years. Reason 3: no guarentees that Congress might not change the rules or eliminate the Roth in some future year. Early withdrawals may be allowed by various rules and home ownership exceptions, etc. , but don't confused allowed with smart.

See many of the other replies at this site as "getting started" has been a common topic. You need to think about two things on the front end: who is my custodian, and what type of investments am I likely to make. Custodians can include banks, brokerages, mutual fund families, etc. Many of the brokerages such as Schwab and Etrade give you both options to buy stocks and mutual funds. You can move a Roth account, so initial choices do not bind you forever. Lots of folks have no problem dealing with out of town firms, especially now that they almost all have outstanding web sites. Banks used to have fairly conservative choices but are starting to offer more options. Banks are ussually local and you may value face-to-face service. But don't expect to call someone on an 800 number at 11pm, and many have poor internet options. You may want to read the March issue of Consumer Reports (any prior year) or subscribe to Kiplinger Personal Finance mag. Both a good sources for beginners. Ask about fees. There are many firms that do not charge any fees at all for IRA accounts. Others charge $10-20 per fund or account. The brokerage commission fees range from ultra low to high. Got more questions? Post 'em here. We aim to please and be informative.