John G

Roth conversion creates a tax liability, but it is unrelated to long/short capital gains. Your net capital gains can only offset some of the conversion tax liability to the extent that you have investment losses greater than gains and this is capped at $3,000. You do not treat Roth conversion as a capital gain that can be offset directly by any capital losses. Capital losses in excess of capital gains + 3,000 are rolled into the future. Then the same rules of offsetting apply in each subsequent year until you exhaust the losses. Therefore if you have 60,000 in losses in this year and no capital gains in subsequent years, it will take you 20 years to work off the year 2000 loses. I would hope that one of the sharp accountants on this site would add to my comments. I don't think you have any creative options but I am not 100% positive. One final piece of advice. Do not undertake significant restructuring of your assets like the Roth conversion without getting informed professional help in your community. Conversions is not a good area for "do-it-yourself" effort. There are two many ways to make mistakes, miss deadlines or make wrong assumptions. Let your tax advisor play devils advocate and crunch the numbers.

Your question has some confusing assertions which makes me believe you do not understand the mechanics. First, you can write off investment losses against investment gains, but, if losses exceed gains you can reduce other income by a maximum of $3,000 per year. The remaining losses (if any) must be carried forward to future years. Second, you can not cross cancel gains/losses inside an IRA with those outside the IRA. Gains and losses inside the IRA have no meaningful tax ramifications until you start taking funds out with a traditional IRA... or never if you have a ROTH since distributions are not taxed with Roths. Third, you may qualify for a Roth conversion if you qualify on the basis of earned income and not exceeding the income caps. The income ceiling is based upon AGI with some adjustments. The conversion itself is not part of your income for purposes of determining if you qualify for a conversion. Finally, you are not likely to have income below zero because the limitation on investment losses is $3,000 and you would still have your earned income, interest, dividends, etc. This is the first really horrible investment year in a long time. It hurts. The lessons are both painful and often expensive. Sometimes you can even get back to back bad years, but eventually the growth of the economy and the success of capitalism makes investing in the future both attractive and worthwile. The positive thing is that you live in a great country and the crappy periods tend to be short lived.

One of the problems with these strange regulations is that it is hard to know in advance if you qualify. I would have never put any income constraints on Roths since they are mostly a nuiscance and affect a very small percent of all households. But that is another story.... You can contribute each year assuming that you qualify. Then if you don't qualify you can give your custodian a letter before you file in the following year to correct the problem. Note, you may have some options in shifting income (like year end bonuses moved to January), reducing first page items (like offsetting some capital gains), or if you own a business by using Section 179 ($20k in 2000) to reduce income. Deductions however are page 2 items and do not affect AGI for calculating Roth eligibility.

1998 conversions are history now. You can not change the 1998 situation. I am not sure why you would even want to change it back. You have a 20K now in your Roth if 16K was supplemented by 2k and 2k for the last two years, even if your investments have been flat. At 10% a year, that nestegg will grow to about $384K when you are 62 and will eventually come out tax free. That's a pretty good shelter. You may want to look into other possible tax shelters beyond the Roth. For example, your employer may give you ESOP, 401k, 403b, etc. A 60k salary at age 31 would indicate some kind of professional career. Investing at an early age is very smart and gives you more years of compounding. Time is indeed an investors #1 friend. Stay the course, keep the Roth. Good luck.

Income qualification is strictly an issue of can you contribute. There are no taxes under current rules for a Roth distribution in retirement after 5 years. The income qualifications were set two years ago and may change, but they will not make a difference on distributions. If Congress keeps its word, Roth distributions are tax free forever. More than likely, any changes would grandfather existing Roth account holders.

q1: I don't see a way to shelter the money, but your daughters tax rate should be low. Absolutely seek a tax advisor about your options and read all of the company pension plan documents carefully. q2, q3: On where to put the money... given the short time before you will be spending it, I would recommend that you consider either CDs or a bond mutual fund which a short maturity period. You should be more concerned with preserving capital than chasing higher yields. I would not consider investing any of this in common stocks unless you know part of these funds can be left untouched for 5 years, which based upon the info you presented looks unlikely.

The 100k is only for married tax payers filing joint returns. If you are married filing separate the income threshold drops down to 10k I believe. Strange rule, it knocks out virtually all married filing separately and hurts anyone going through a divorce or separation.

Watch for possible changes in the income thresholds and maximum contributions allowed, I suspect you will see some legislative changes in the next couple of years. While Senator Roth lost his election in Delaware, the IRA issue is likely to keep coming up. The $2000 contribution ceiling has been around since you could buy a coke for a dime. An adjustment seems long overdue. One previous proposal would be to increase the ceiling after age 50 or 55. Assuming you actually can determine in light of the recent vote who are your reps in Congress, you may want to send them a short note expressing an interest in relaxing some of the IRA rules. The folks in Florida might get a speedy response, since every vote in the Sunshine state seems important!

Custodian rules will determine this issue. Most will not accept a non-trading stock since they have an annual obligation to set the value which would present a problem. Same goes for transfering the stock into a Roth as part of a conversion since the value must be set at the time of the conversion.

You will also be limited by what the custodian will accept. For example, some brokerages will not accept Roth accounts for minor children, some do. It is not an IRS issue, it is a custodian issue.

Is the issue if the person started to take the distribution or if they should have started to take the distributions? I don't know the answer, but it is the kind of techinical issue that would suggest that you get professional assistance and not treat this as a do-it-yourself issue.

You may want to consider another option with regard to your children. If they have earned income but are not funding an IRA, you can establish Roth IRAs for them. For example, a teenager with part-time income often will clear the 2,000 mark. That money may be going towards college expenses. You can fund their Roth. If you wish to shelter more than 2k x number of kids, then the Roth conversion may work if you qualify.

"Plus you must be trading your whole portfolio not just portion. The IRS is going to argue that you are just playing with your fun money. A day trader turns over the whole portfolio." I believe the above statement is not true. For example, previously dedicated retirement assets would not have to be traded. It is my understanding that the test would look at if significant activity and income were derived from short term trades. For example, if 70% of you annual income were derived from trades with holding periods of hours/days/weeks, you would stand apart from the general population. A trader does not have to be a professional working on the floor of an exchange. However, the nature of a traders activities significantly diverge from a common investor in terms of frequency, turnover, duration or trade, and the amount of effort involved. Casual trading of a modest assets while maintaining a full time career elsewhere would not qualify. Clearly, professional opinion in this are varies. If you wish to pursue this idea further you need to talk with a couple of accountants or tax specialists.

Responding to "with me": IRA's are individual accounts. So if you have enough earned income to qualify your wife, she can have her own ROTH or regular IRA. Her investment would be separate from yours, not co-mingled funds or jointly held. If she has her own earned income such as from part-time work, she can qualify by herself. If "with me" just means sharing research and discussing your investments, that is a good idea. One of the sad problems with many couples is that sometimes just one spouse makes all the decisions. I am a great believer in two heads are better than one.

Weddel is correct that you can craft a scenario where there is no difference between 401k and Roth IRA. And I agree getting professional advice is useful, but one of the big problems here is our limitations in predicting future events, not just 5 years out but 30+ years into the future. Think about what you expected for the year 2000 from five years ago and ten years back. Any surprises? Like Roths didn't exist 5 years ago. Tax rates changed. Promoted? Switched jobs? Change in marrital status? Did you move? It can be pretty embarassing just how far off the mark our own personal predictions can fall. With regard to Roth/401k comparison, the longer the time period (30+ yrs) and the higher avg annual rate of return the more likely that the Roth option is superior. Why? Because as retirement assets grow it is more likely for tax rates to bump up higher and the withdrawal timing flexibility becomes more valuable.

You can do both ! If your available cash to invest is limited, the choice is harder to make. Both systems have various advantages and disadvantages in terms of distributions and taxation. A Roth is under your control and you have a near unlimited number of investment options, while some employer plans are more restricted. However, the employer match substantially boosts the first year return. For example, many employers match 50% of your contribution which is what you might make in a Roth after four years of compounding. So, you may want to take advantage of the maximum amount of match, but if you have additional cash to invest put the extra in to a Roth. One reason to consider adding the Roth option would be to solve any diversification problems you see in the company program.

Regardless of the current tax treatment, no one can guarentee the future tax treatment or the future tax rate. Unfortunately, we have no contract with our own govenments, would that not be nice to know the future ground rules for twenty years! SSN rules have been changed more than 20 times since social security was initiated. Roth rules have already been revised/corrected once.

I think the question you are asking is how can I time the market. The answer is you can't. If you see a bone crushing correction, you clearly may be tempted to convert at the "low price". The problem is that you can never be sure at what point you have the bottom. It is probably wiser to spend time thinking about your actual investments then spending time on evaluating conversions and recharacterizations. I have been investing for 20+ years, my folks for 40+ years. I can think of only one instance when we bought a stock on the very day it turned around and started to move up. We never sold any stock at the peak. Note, recharacterization is not forced to be in the year following a conversion, it can happen in the same year. Since you plan to do conversions in installments, you are sort of echoing the "dollar cost average" concept. Besides the market flucuations, the conversion process it self makes it hard to optimize. Most custodians put a conversion request in the que, the paperwork lag may be anywhere from a day to weeks, so you have little control over the "timing".

There are rules for withdrawing funds from a Roth for special purposes such as a first time home purchase or education.... but these types of withdrawals erode the value of the tax shelter. Just because you technically can do something does not mean it is a wise option. I would suggest that you subscribe to Kiplinger Finance mag (<$10/yr) which will give you a good overview of investing and tax issues. Even if you are building your reserves, you may still want to put some funds into a Roth. The $2000/yr is the current maximum, you can initially fund your Roth at a lower level. Something you may find attractive is to set up a monthly automatic withdrawal from a checking account to "dollar cost avg" into a Roth.

Lump sum court settlements are not earned income. There is no standard legal way to convert a court settlement into earned income. Therefore if that is your only income source, you do NOT qualify for a Roth. If you have earned income outside of any court settlement which is greater than 2,000 then you qualify for the maximum Roth IRA contribution for that year. It does not matter if you use taxable or non-taxable funds (assuming you are qualified otherwise with earned income) as that is a tax return issue not a Roth issue. You fund an IRA with just cash. In other words, there is no linkage between source of funds and Roth contributions. Cash is cash. You can even have a relative fund your Roth, but first you must be eligible and that is an earned income issue.

There are multiple options for pulling money out of a Roth depending upon the timing and on what you will spend the money. But setting that aside, I am concerned by what you imply in your post. Since both of you are working, young and without kids you should be building an emergency fund that is invested in short term paper or money market funds. This should be not used for wish list items like a splurge vacation, but should be your reserves. Do this, and you will not be tempted to tap into your Roth so readily. A Roth is a tax shelter. It works best when you put money into it and have the discipline to keep it there. There are a zillion posts on this site about how can I get at my Roth. That is upsidedown and insideout thinking. You should want to put money in, not be thinking of ways to take it out. The 60 day rule was written to allow folks some time to get funds from one custodian to another. This could operate as a "bridge loan" if you knew the period was short, but failure to replace the funds can be devastating. Also note, you will have to replace the mandatory tax witholding even though you do not have access to those funds. Conclusion: more headache and potential downside, best to ignor this option. "If I stop working" sounds like you may be considering starting a family. If you can live on your spouses income alone, you may find this change a breeze. But if you are spending 90% or more of what you both make, then you will be in for a shock as you will need to radically readjust your budget. Been there 18 years ago... VCR and popcorn starts looking good compared to a night on the town. Good luck.

Stock markets go up and down. So, in any given short period of time (and 3 yrs is a short period) you can have a negative result. But over decades, the number of good years outnumber the number of bad years by anywhere from 5:1 to 10:1 and the best years are much better than the worse years are bad (in percent terms). And, a "professional" can not guarentee all good years or even that they will beat the average. It sounds from your post that you are new to investing and have passed the responsibility to another... the "pro". That was a common mistake. Only you can truely be responsible for your investments, it is your money and the results are your results. Even if you have someone helping you, you MUST know about what choices are made, the reasons for those choices, and the risk exposure. You should have a series of monthly or quarterly statements that you should examine. What do you own? Mutual funds? Tech stocks? You should know the names and their area of business. Next, set up an appointment with your advisor and review the current holdings and activity. Your advisor should have a chance to explain what they did. If your money was with this person for three years, I would normally expect a modest gain from the first two years and some hemoraging this year. The net might be a slight positive, but that would highly depend upon what they purchased. There are plenty of big "safe" stocks like Dupont, Lucent and ATT that have dropped more than 50% in the last year. If you see a lot of buying and selling in your account, then your "pro" might be churning your account to generate commissions... but at 6K in assets, that does not seem likely. Generally an account this size is more likely to be overlooked or ignored rather than actively managed. If you reach the conclusion you wish to move your IRA account, the procedure is relatively straight forward. Find the next home (brokerage, mutual fund, bank, etc.) and ask for an IRA transfer application. Their customer service staff can help you with the details. Then, the new custodian will send the paperwork to your existing custodian requesting the account be released. Often this takes less than 3 weeks, but you must monitor the transaction to insure the paperwork doesn't get "lost". You may want to consider parking the assets in a broad based index fund such as the Vanguard S&P 500 which holds 500 very large firms and has very low annual costs. With this you would virtually guarentee that you would get performance essentially identical to the S&P500 index... in other words you would neither beat nor lose to the overall market but be the average. This kind of investment is the opposite of individual stock picking, instead you are broadly picking a wide range of big firms. I will give you an opinion on your holdings if you email me the dates, holdings and rough percents/amounts.

You need to get a SSN because you will need that for your tax returns in the coming years, and the process may often start right at the hospital if they provide the forms. With regards to a Roth, an infant is very unlikely to have "earned income" for a Roth IRA. However, you can start an educational IRA for the child with a max annual contribution of $500. What might qualify as "earned income" for a infant? The only thing that comes to mind is modeling income ala Gerber ads... and that is a stretch. As the child gets older, you might see income related to babysitting, newspaper delivery, lawn mowing, etc. that might support a Roth IRA.

OK, keep it small, thing long term.... But, understand there is a huge difference between what you might like as a business and what makes a great stock. Think Snapple for a minute. Great product. But as a stand alone business they were limited. Then Quaker Oats bought them... and never achieved their objectives. Then Snapple division was sold off as a loss. Second example, I love Celestial Seasons teas, visited their "plant" 90 miles from here in Boulder Colorado, talked with management. Great product, nice people. But never a great stock. I agree that renewables, or what I would call an environmentally sustainable economy, is critical for long run survival. Someday, we may rediscover the concept of walking. But I try not to confuse my big agenda with what I must do for investing. Good luck with your decisions.

A child can have a Roth IRA if the child has earned income, just like everyone else. So, if the child has a part time job, babysits, or mows lawns they may potentially qualify. The Roth can be opened by a parent or relative with the funds as a gift. Some adult will have to be a guardian for a minor child. Note, some custodians don't like opening IRAs for kids but if you make enough phone calls you can find a brokerage or mutual fund family that will say yes. There is also an educational IRA that is a totally different savings vehicle. The max amount here is $500 in any one year per child (not per donor) and it is designed to be an investment vehicle for college. Unfortunately, our Congress did not think through the math as 18 years times $500 may even fall short of one year of college expenses. Also, there are a number of state programs for saving for college expenses. Many of these allow for larger contributions. Some are very flexible in terms of college choice. Many of these are relatively poor investment vehicles with constraints you may not like. To many options and details to say anything more than you may want to investigate this option. Dividends due not count as earned income. Finally, if you own a business you may have an option to hire your child or relative if you can make a reasonable case that they are doing something (copying, cleaning the office...) for their pay. I sometimes wonder if all those kids that show up in local TV ads are "working" to get an IRA.