John G

First you must find a custodian for your Roth or regular IRA. Choices include banks, brokerages, and mutual funds. You have a wide arrange of investment choices. The most common include: CDs, money market accounts, bonds, mutual funds, stocks and some types of stock options. I have listed these in assending order of both risk and return (except stock options where "return" is hard to define). The most conservative investments are the IOU types, such as CDs, money markets and bonds. Of these, only the first can ever be "insured" against loss of principal (such as with a Bank CD). Anything that is "insured" is by definition less risky and therefore gives a very low return. IRA investments are typically very long term investments. Therefore I highly recommended a heavily percent of equities (stocks). One good way to get started is with a broad based mutual fund. Here you are looking for NO LOAD versions, which means no front end or back end commissions. You may want to read the prior March issues of Consumer Reports for a good intro and a very short list of some mutual funds. Why funds? Because you get a lot of diversity which is hard to achieve when you are just getting started and have a limited pool of assets. Who should be your custodian? Well if you are ultra conservative your local bank. But if you understand the general concept of investment risk, try either a brokerage or a mutual fund family. There are many choices that have good web sites. You can change custodians as your knowledge and investment strategy changes or if you do not like the service you are getting. Good luck.

Response: you assume small balances created these policies, I think it more likely that custodians just did not think it though. They could make a small balance rule. But there is no point in damaging the options of a benefiting party. Firms that take this kind of cavalier attitude will be punished by bad PR, money walking away, loss of new accounts, etc. Too often custodians act like it is their convenience that is the driving force. Second point: The benefiting party is not normally consulted and often not even aware of a custodian's policy. The original owner does not have "standing" in a legal sense on the issues of benefitiaries rights. But the benefiting party sure has legal standing and rights. I can't imagine a court upholding a policy that a custodian can negatively impact a benefitiary and prohibit any transfer of the assets to a custodian that is more flexible, especially when there are variations in the marketplace and the IRS does not mandate the treatment.

The two year old class action lawsuit against Nasdaq marketmakers/brokers has apparently been settled and checks were delivered this past week. Nice year ending surprise for those that signed and returned the forms. Apparently just a couple of trades got you a check for $25 and active traders could get $4,000+. Question 1: Assume the check you receive is large and based upon trading activity in an IRA. The check indicates it was related to an IRA. Can these funds be deposited into the IRA as a kind of rollover? It would seem that the settlement represents a court view of your additional profit from the alleged pricing abuses. Therefore if the "abuse" had not occured, theoretically the IRA assets would be greater. I can remember a custodian accepting a misdirected dividend check (sent to residence and not the custodian... too long a story to explain) to be re-deposited to the IRA. Question 2: What is the likely tax status of settlement checks? Many of the checks will be based upon standard brokerage accounts. The letter cites IRS Code 468B "whether a distribution to a claimant is included in the claimant's gross income is generally determined by reference to the claim in respect of which the distibution is made..." Wow, that must be clear to everyone! Knowledge is great, but conjecture and analogies are also welcome.

And... in the next month you can not only fund the 2000 Roth but also double up and add funds for 2001! Early Roth contributions means the shelter is just a little longer. Max 2k each for this year and next, so 2 * 2 * 2 = 8K Good luck.

Above response is correct. IRA holder (Roth or otherwise) must have taxable income... with just one exception I know of that involves a non-working spouse. I don't think your circumstances falls into that catagory. However, all kinds of income can help like babysitting, newspaper routes, etc. Some small businesses employ their kids to get them the income to fund their Roths each year. As soon as your sister has earned income (or even at the begining of a year when you think she will have earned income) you can fund her Roth. Since it falls way short of the "gift" threshold of 10k, you will have no problem.

I am going to take a wild guess on this question and suggest that a court might rule that since the Roth IRA was never valid (although this invalidation was discovered late) then the bene designation of the Roth can never be valid and all the funds go back to a prior legal state which was the IRA. This is especially likely to be true if the IRA continued after the Roth creation and the bene designation was never changed in this older account. Just a guess on my part. In other, non-related cases, I have never seen the court system hold as valid something that was never legal at any point in time.

No problem having and existing IRA funded in prior years and then opening a Roth now. Within any given year you have a max of $2,000 per individual if you meet the earned income requirements and in the Roth case do not have too much {?} income so you qualify. But the $2,000 is for all combined IRAs for a single person.... so pick regular or Roth. I guess it is possible to have a reg/Roth split but I don't see how that makes much sense from an administrative strandpoint. It is not uncommon for folks to have a combination of Roth and regular IRAs and that some of those may be split between different brokerages or custodians. If you have all your IRAs at one institution, you have a better chance of getting a waver of all annual fees due to the total assets. Sadly, some custodians still like to nickle and dime customers.

Wow. Intelligent customer service. Now, if the custodians can actually get the account holders to read the notices.

Is this being proposed as a way to bypass the 2k limit? It would seem to me that you might even find a pension/profit sharing arrangement for owners of small businesses that would potentially allow even greater sheltering of funds, albeit with taxes paid as part of an annual ritual of Roth conversion.

OK, lets name some names. What custodians provide these limits. It does not make a lot of sense to me that the custodians would have an internal requirement that was so negative for the benefitiaries. Also, is there anything that stops the bene from transfering the account to a more reasonable custodian? I would think the threat of a lawsuit and adverse publicity might make a custodian think twice before enforcing the agreement.

Roth minimums? Specs for a Roth are defined at the Federal level, not by States. There are no mimimum specifications in anything I see, the max is set by earned income or 2,000 which ever is higher. For more details try http://www.rothira.com Practical limits come from the custodial arrangements, fund mimimums and annual fees. For example, $250 is about the lowest initial amount for a handful of mutual funds, most seek $1000 min for IRAs. It also would not make a lot of sense to put $250 into an IRA and then see $25 disappear for annual fees either. Mimimums and annual fees vary significantly so you need to make a few phone calls or use the http://www. Three ideas for you: (1) If you make a fixed monthly deposit into an IRA such as $50, some funds will accept a lower initial. and (2) You can gang together this years contribution and next years in January to meet the threshold. For example, you may want to contribute $250 this year but next year expect to contribute $750... which allows you to deposit $1000 in January (but make sure the custodian attributes the funds to the proper years). (3) Don't forget babysitting, lawnmowing and other "cash" (rather than paycheck jobs) qualify if you include this income on you 1040.

While you can not gift an IRA to a child, a child with earned income (paper route, babysitting, fast food worker, etc) can have an IRA and the IRA can be funded by the parents. Also, you can set up an educational IRA for a child and contribute $500 per year. The education IRA has some limitations and drawbacks that you need to review before creating one. Also, the original question seems to suggests that three people might open one IRA account. No, no, no. An IRA account is "Individual" and owned by just one person. So, two adults and a child will never "share" and account.

More info: Senator Roth lost his re-election bid, so it is not clear who might champion changes. Proposal to increase the contribution limits may come up again, but Bush admin has suggested that the inheritance tax and marriage penalties are their first priorities. The 2K limit has not budged for a couple of decades. You may want to consider writing your congressional reps and let them know about your interests. At one time there was a proposal to raise the limit to 5K but only for some age groups, I think it was the almost retired - empty nesters if my memory is correct. I think a good case can be made for raising it to 5K and building in some kind of escalation clause. The problem is that very few people talk about this issue so there is not much political momentum. Bottom line: for this year 2k is the max for each IRA if you meet the other qualifications

Thanks Barry, I conclude that the rules you have specified means that tax loss rightoffs related to IRAs is a fairly remote prospect. No doubt some folks would like to cherry pick a single IRA account or single position (like a dot.com death) but the "all accounts" requirement eliminates that option. So... if you are relatively new to IRAs, bet the farm on some internet miracle stock which is now down 95% you might have a partial deduction. But if you have multiple accounts or multiple holdings over many years... you have perhaps just completed a 3 credit and expensive elective from Nazdaq U.

If you wait until January, you can fund both 2000 and 2001 contributions on the same day. Just make sure you use two checks and note the contribution year and bring it to the attention of the custodian. Then check your statements to make sure they posted it correctly.

Multiple custodians are legal. Reasons against: extra recordkeeping, fractured $$ may make it harder to buy a block of stock, and possible more annual fees. Etrade does not charge an annual fee for IRAs, most banks and brokerages do unless your total assets are significant. If you choose, you can have custodian #2 request all assets to be directly transfered from custodian #1. This is the preferred way to move accounts: direct transfer. No taxes witheld and you preserve you future option to move the account (in the same year) if you have problems with the service.

Barry, are you saying that a Roth could be prematurely eliminated (withdrawn) to allow a tax payer to claim the loss? I would assume that the 10% early withdrawal would still apply, along with the 2% itemized deduction threshold, and the loss of the tax shelter. It seems you would need a pretty exteme case to make that worthwhile.

If I understand the question correctly, you are describing a situation where the value drop was in the second year after a conversion. I have seen no information that would suggest that a Roth IRA can be reverted (recharacterized) after the first year (tax filing date) has expired. Recharacterization was originally designed to solve the problem of a late determination that a tax payer did not meet the income qualification for a conversion. Although this procedure allows some gaming of asset valuation flucuations, those actions must be related to the conversion year, and are now limited in frequency. It sounds like your two cases involve non-diversified investments... perhaps some tech and dot.coms. There are lots of folks who chased those great returns and are now realize it was a speculative bubble.

100k allows you to qualify for a Roth contributory account if you have "earned income" (payroll). You would be disqualified for a Roth Conversion unless your married filing joint income is below 100k. You seem to highly value the initial tax deductability of traditional IRAs. That is a nice front end benefit, but often it is overwhelmed by the long term value of having your investments in a tax shelter. One tax issue to consider is that disbursements by non-Roth IRAs are taxed as ordinary income while non-sheltered long term investments are taxed at a lower capital gain rate. Disbursements from a Roth are not taxed. Lots of choices involved and some guessing about your future income and the possible future tax structure.

If your income figure of 1M is correct (income not assets?) then you don't qualify for a Roth. However, if you own a business you have lots of retirement/shelter options and should talk to your tax advisor. Age is not your problem. One of the benefit of funding a Roth is that you have no mandatory dispursements which gives you flexibility and potentially some attractive inheritance options.

I was not aware of the interaction between Hope credit and education IRA. One way to minimize this is to try and take all of the withdrawals in one year. Also worth noting on a related issue, some parents do not qualify for a hope (such as those working off 4 years of a large Roth conversion) but if their child is earning income and paying for the education... the child might qualify.

Lots of issues, I will try and give you some feedback on a few areas. 1. Kid - college: You may want to consider an education IRA that allows you to put $500 per year into a dedicated account for your kid. That is not enough to cover college costs (you can make perhaps 12 contributions or $6000 which would probably grow to about $12k at about 10%/yr), but it gets you started. Earnings are not taxed year to year, and dispursements come out tax free if used for college. There are also state investment plans and private plans (such as Fidelity or Etrade) that allow you to set aside more. These vary from good to crappy, problems include conservative investment constraints, weak returns and restrictions on how the funds can be used. Note, all options that put money in your childs name has a slight negative on qualifying for need based scholarships. 2. You - 401k: You need to fully understand your employers 401k or related investment options (ESOP, 403B, thrift plan, or whatever they might be called) because these plans often have a match component. As long as you have a reasonable set of investment options (hopefully something besides just company stock) this option might be your very first investment. You must do some research on your options... talk to the HR/personnel office. 3. Roth IRA: Assuming that you have the earned income (but not "too much" income to disqualify) the Roth is an excellant investment option. Current limit is $2,000 for you and your spouse each year. A solid tax shelter. And, no forced dispursement schedule. If you can set aside $4k in each of the next 34 years and have these investments grow at 10%, you will top the $1 million market in retirement. That means 136k in contributions grows to 1.08 million. It's not the same as 1M today, but that is still a nice nest egg. It helps to start early, so your timing is good. Note, 2K is the max annual amount, you can start out a lower levels. The clock is ticking on making contributions for 2000 tax year, and you want to use 2000 and leave 2001 open for next year. You may very well have additional questions, post again. I also try to respond to emails. Good luck.

Do not assume that any third party calculation is correct. I have had experience with a brokerage that inserted the year end price for a transaction done in October. Also be aware that there is often a lag between a request and when the custodian actually completes the transaction. And for anyone contemplating a transaction this year, get busy because the clock is ticking. Some custodians may not act on requests at the end of December until next year. I am not sure if that is legal, but a few custodians set a cutoff date in advance of mid to late December.

You can "recharacterize" any Roth conversion made during the calender year 2000. Since tax filings are finished for 1999 (now in Dec 2000), you can do nothing with the prior years. The mechanics of recharacterization are relatively complex and if you think you want to do something for any conversion in this year you must act quickly. Your clock is ticking. Also, if you think you wish to recharacterize and then convert to a Roth again.... be aware that the custodian controls the timing not the account holder. You may ask for an action and see it posted and priced two weeks later and the same again when you recreate your Roth. Stock markets go up and down. Unless you qualify for this year and have a very large drop in value, recharacterizations may not be worth the hassle. You may also not qualify in subsequent periods for Roth conversion. Talk to your tax preparer.

Losses from this year that role forward will "cross cancel" a like amount of gain next year. But if next years gains fall are less than your rollover losses, then you can take a 3k loss and roll the remaining losses into 2002.