John G

Verba... you hit the nail on the head. Amen!

You can move a Roth from custodian to custodian at any time. There is no 5 year rule on contributions to a Roth. The custodians should maintain the correct contribution year status. The BEST way to make such a change is to fill out the paperwork (about 3 pages) at the new custodian, then let them handle it. You will never touch a check. There will be no 60 day limit on getting the process done. Note, the old custodian may charge you a fee for closing the account. Some receiving custodians will pay you the fee, although they often don't want to deposit it into your Roth as that would be considered a contribution. You need to ask. You do not need to change custodians just because you might be moving. This is a small account... I hope you will find a way to build it up in the future.

You have just entered the "danger zone". All of the above cautions apply, and more. What may be allowed, specificly prohibited, or questionably legal when it comes to ANY non-traditional investment in an IRA or Roth are complicated questions. This is not a do-it-yourself area. You can run into legal barriers and practical business problems. As mentioned above, you need to consult with an accountant and tax lawyer. You can find out more about these issues by doing a search on "real estate" on this message board, but again, do not rely upon what your understanding of what you read here. On a practical level, you need mega bucks in a IRA/Roth to even consider non-traditional investments. You will also need to find a custodian who will support the investment... custodians will veteo things that they think are illegal or not prudent (such as concentrated investments) or that they can no conveniently track/manage. Expect to pay higher annual fees for any non-traditional investment. Expect consulting expenses on tax advice. You lose the ability to take any write-offs on losses. You are likely to have greater difficulty obtaining financing. It is generally not a good idea to restructure your affairs for tax reasons, especially when you are talking about avoiding long term capital gains which are taxed at the lowest levels.

Yes, you can. But.... money has been "on sale" for many years. You have margin borrowing on equities, signature lines of credit, home equity loans, home refinancing, and even those teasing zero rate credit cards. These are all sources of short term money. Another is an internal family loan ~ say borrowing from you parents or siblings at a rate a couple of points above what they are getting on a bank CD. There is usually a source of funds if you look around. You were wise to open a Roth and fund it each year. It's your personal tax shelter. So, consider putting down that wood stake and let that Roth grow.

I don't understand why you post questions here, you don't seem very receptive to advice. If you read some of my historic posts, I often have suggested that folks need to educate themselves about investing and risks. Its your money, and you have the single strongest interest in making it grow. These posts were about making asset allocation decisions, choosing funds, choosing stocks, and thinking long term about your investments. But, I draw the line on complex issues of accounting and law where misunderstanding the issues can be extremely expensive. This is why I have suggested that you take your ideas to a local tax accountant or tax lawyer. Lots of folks can scratch the soil and plant a garden or an orchard. Few understand the nuances of the tax code. Self-help gardening is common. Why not, as the worse case maybe just nothing grows. Self-help on IRA conversions, setting up LLCs, doing real estate transactions..... that's something completely different.

I have completed about two dozen "outside" IPOs from both a Roth and IRA accounts from three different brokerages. The process is straightforward: produce the prospectus, which demonstrates that the shares will trade on a stock exchange, and request the custodian to send a check FEDEX. Two brokerages (regional boutique operations in the niche of the IPOs) do not charge for this service. Schwab did not originally charge, but now collects a fee (I think it is $175) for processing the request. This process can take as little as 5 days, but the brokerages ask for earlier action if possible. I doubt there would be much of an issue with an ETF. This would be especially true if your custodian had business ties to the firm, such as ETF creators Barclay's, Vanguard and State Street. One of the issues with unusual investment products is being able to determine the value at year end. That problem goes away with valuations set by market/trading. I don't see why you would want to consider an LLC format if buying ETFs when initially offered was the primary issue. MJB's comments about Roth conversion are very appropriate. Conclusions about conversion benefits are driven by assumptions about current and future tax rates. It is extremely difficult to predict federal/state tax policies. For some folks, it is also difficult to predict future wealth/income. We have seen in posts on this message board that many folks have problems comprehending the opportunity costs issues and correctly framing the mathematics.

"I think you should check you figures or their source concerning hedge fund expenses. It is my understanding that 20% performance fees are rather the norm in the field, with these fees reaching as high as 50%. On top of these “off the top” charges, there are additional management fees, typically, around 2%. Again, it is not difficult to check these numbers on the web." Your comments suggest that you do not understand how hedge funds work. If you rely upon the "web" for you information, then you need to understand the meaning of what you read. Performance fees are not "off the top", they are based upon performance. I have run a hedge fund and have two associates that own other hedge funds. These three funds were set up with 1.2 to 1.5% annual expense. Each had a 20% performance rate which only kicked in if the fund exceeds a "high water mark", which were set at 10, 10 and 12%. In most hedge funds, the performance fee generally applies to the gains beyond the benchmark. Example: if the first fund achieved a 20% raw return in a year, the fund kept 1.2 plus 2.0% (twenty percent of the amount over the benchmark) or a total of 3.2%, so the net return for the customer was 16.8%. The performance rewards only kick in if you have a good year. If the fund in the first year had a raw return of just 8%, then there was zero performance fee. The rules governing most hedge funds raise the benchmark higher in the following year, in this example, the 8% would push up the high water mark above 12% in the following year. I remember seeing a 50% performance fee - it was from some hot hedge fund that got lots of publicity but was basically shutting the window on an existing fund. After operating for a few years, the fund jacked up the rate for newcomers, while simulatenously opening a new fund. P T Barnum would have blushed at how many news outlets like CNBC gave the fund free publicity. {General readers: Hedge funds are restricted to "sophisticated investors" and "qualified investors". These terms are narrowly defined by the SEC based upon income and assets and only a small percent of the households in the US will qualify. The regulatory presumption is that these households or individuals have accountants and investment advisors and do not need the protection of the general investor. Minimum investments at some hedge funds can start at $500,000.} "Paying a mutual fund management from 0.2% to 6% annually to let an investment sit and grow is not my idea of prudent fiduciary principles. In addition, most IRA Custodians charge annual maintenance fees, and on and on." The above stats are misleading. First, the low end of the range is now below 0.2% if you consider funds that solicit large block commitments, restricted trade/exit, or the most efficient index mutual funds. Some ETFs are also below 0.2%. Six percent is not the high end of annual expenses. Funds that have loads greater than 1.7% typically are old school outfits relying upon their reputation, narrowly cast sector (specific industry) funds, international or country specific funds. There are not many mutual funds that charge more than 2%. When you throw in a "load" of 3% or more, you are now mixing apples and oranges. "Loads" are a one time charge not an annual fee. The "load" side of the business is shrinking as the major fund families respond to market forces and increase the number of no-load funds, that have no up front or back end commission. There are thousands of no-load funds. With more than 10,000 mutual funds, there are many choices that have reasonable annual expenses. You also throw in annual maintenance fees. Any customer with a IRA/Roth in excess of $10,000 can find plenty of custodians that will waive their annual fees. Others waive the fees if you elect electronic delivery of statements, or have other accounts with the custodian. On and on? I have no idea what this refers to. In football this might be called pilling on.

"All your marbles" refered to your entire IRA/Roth account balanace. There are circumstances which will invalidate your tax shelter status which could trigger penalty and taxes. While rare, it can happen. Swanson can be very narrowly construed by subsequent courts, and you bring up a classic example... would any court case extend to Roths. I have taken enough law classes to know that legal precedent is not absolute, but subject to interpretation and refinement... and you have that issue of getting overturned as well. If part of your rationale is based upon reducing your costs, I believe you are mistaken. Custodians charge more for unusual structures. You may have to pay for an annual appraisal. You will have accounting and legal fees. {There are mutual funds and ETFs with annual expenses below 0.2%, and I don't know of any mutual fund that charges 6% annually... thats about 2x many hedge funds} I will stand by my earlier advice. Go and find a local accountant and tax lawyer who will sign off on the details of your plan. What you will probably find is that they will either not want to be involved, or ask you to absolve them of any legal liability for their assistance because they do not want to be on the hook if your plan is disallowed. This is a simple test. Give it a try.

So.... you want to bet all your marbles that the IRS/courts will not find some minor difference between what you plan to do and the prior case law? The law is full of nuances, and finding one precedent in your favor is not enough. Are you a professional tax court researcher? Are you planning to be your own lawyer here? Isn't there some saying about that? I highly recommend that your find both a tax lawyer and accountant that not only completely agree with your conclusion, but will put their professional reputations (and liability insurance) on the line for your proposal. If you can find them, then by all means proceed. But, then, if you are so completely sure of yourself on this proposal, what exactly was the purpose of posting here? I can't give you a green or red light. But, I have seen enough crying towel stories to raise some cautionary flags. Its is absolutely not enough for you to believe in the interpretation of the tax law, you need more than a few lawyers, accountants and perhaps a judge to agree. Also.... your plan seems to hinge on the 2010 relaxed rules of Roth conversion. That is almost eons away. We will have elected a new President and new Congress. There are all sorts of quirky tax rules that elapse, reset or go into limbo in the next few years. From my point of view, there is not a clear public purpose for these whiplash changes (such as the inheritance tax flip flops). I would expect many of these rules to be changed.

Why? Why do admin work for no benefit? I can just imagine the explaination to an IRS auditor.... well, we just wanted to tidy up around here, you see the customer did not really benefit from the transaction. I have 200 shares of a dot.com in a Roth that supposedly has a value of $0.01 and it can stay there forever. Its not bothering me and I wouldn't take 20 minutes to compose a letter. It reminds me of a dumb decision I made in 2001 and I value the reminder.

If you don't have the outside funds to pay the taxes, then perhaps you should not convert, or perhaps do a partial conversion. The advantage of a conversion degrades when you are taking out funds out of the IRA (shrinking the asset base), paying a 10% penalty and paying taxes. That seems like 3 strikes against it, does it not?

Yes, you can convert assets in-kind. No, there are not capital gains taxes, no long/short term holding periods inside either IRAs or Roths. You don't need to sell anything to convert. You may or may not want to sell depending upon how you think your holdings will perform. Treat the selling part as a separate decision. Also, you don't have to convert the entire account. Sometimes a partial conversion makes sense, especially if you are trying to manage the tax impact. Generally, you want to be able to pay the taxes with money outside of the IRA/Roth. This maximizes the account and keeps you from paying taxes on a distribution. If a large amount of money is involved, you definitely want to get a profesional (tax advisor or accountant) to make sure you are doing this correctly and your strategy makes sense. Finally, you have about 4 weeks left to get the conversion done. Custodians get backed up at year end. Get moving pronto if you are doing it this year. Then, monitor your accounts to make sure it gets done before the end of 2007. If you expect to have low income in 07 and 08, you may want to split the conversion into two parts to minimize your tax impact. Good luck.

You also have a month left in this tax year. If you are close to the limit, perhaps you can defer a bonus to next year - you might want to wait until you are absolutely sure you are over the limit before acting. Custodians typically need a simple letter of instruction - it take 30 minutes to draft one that includes the account numbers and an explaination. Note, that it may take them a while to actually execute the transaction, and YOU must actively watch your monthly statements to make sure it was done correctly. Don't assume they will get it correct. Don't talk with a clerk at the front desk. Get directed to the IRA/Roth back office dpt. and get instructions from them. This happens a lot, they know the drill. They might even have a standard form! You might just buzz you Congressman and ask him to support increasing the income tax threshold for Roths. A lot has changed in 8+ years.

You have to get the funds done by year end if you expect to utilize the lower tax rate of this year. Not every 401K plan is going to act on this request fast enough for your plan to work. You should call your 401k plan adminstrator and talk about timing. You don't have to convert 100%. You could do a partial conversion to better control the tax problem.

All of the above advice is on target. If only a modest amount of money is involved, it might not be worth the hassle. I will add that if substantial assets are involved you need to talk to an accountant or tax advisor. You custodian is not responsible for knowing the tax laws and how they apply to you. You should get a copy of IRS Publication 590 and read about the conversion process. Keep in mind that a hybrid or combination of IRA and Roth often gives you some of the distribution flexibility. If after reading 590 and talking to a tax advisor you decide to proceed... you need to move fast because many custodian IRA depts. get congested at year end. You will need to give the custodian a letter of instructions probably no later than Dec 15 (ask you custodian about a deadline) and then monitor to make sure the conversion gets done before year end.

Making contributions to get the full match is almost always a great idea, in your example you are booking an instant 50% gain. As long as you can afford the contributions (unlike brokerage or reserve accounts, employee plans can not be used as "household reserves") and as long as the company plan offeres reasonable investment options (company only stock would raise questions), then I would contribute to caputure the company match. Paying off a car loan? Refinance a car loan? For the general reader...... Car loans are typically different from mortgages or student loans. The interest part of an auto loan is front loaded. This means that the effective interest rate in the later years is much lower than the average interest rate you thought you had. So for most normal car loans (at standard interest rates) it may not make a lot of sense to refinance or pay the loan off early. Performance stats: Because the market flucuates, performance is best measured over a long multi-year period. In 2007, the stock market has swooned three times - Feb., August, and now in November. You could look great Nov 1 and awful two weeks later. If you can consistently post annual returns of 10% you are doing well and have a great chance of building substantial assets. Performance chasing caution: Some folks are so hot on performance that they will move their money around "chasing" performance. Today, the big chase is international investments and particularly China. Its the opposite of investing in banks, mortgage companies and home builders. Yes, it is possible to boost returns if you are very clever about "rotation" by region and industry. But, way too many investors fall into the trap of buying HIGH in euphoria and then SELLING low in panic.

I concur if you can sell something and pay no tax, then go ahead and fund you Roth. Part of the bigger picture is what you think your future tax rate in retirement might be. It sounds like you might expect modest income/taxes in retirement. But, I don't think to addressed that long range issue. We get a wide range of folks posting questions here. Scenarios can vary a lot. A engineer, doctor, entrepeneur or sales person might expect to have high incomes for most of their lives. They might amass a significant fortune and would perhaps be up in 6 figures in retirement. Another person might have a modest pension and because much of their other assets were in a Roth, they might not expect to have a high tax rate. Unfortunately, circumstances vary so much, its very hard to generalize. You mentioned the common advice to max out a retirement account. Lets parse that generalized statement into a few specific examples. If you work and get a nice matching amount from your employer, it is almost always wise to contribute up the the match. Some folks get a 100% match, which is huge! It takes some investors seven years to double their money (at 10% annual compounding). Example 2: a household has very high tax rates now but expects to have much lower tax rates in retirement (perhaps they plan to move to a state with no income tax, perhaps they have only modest SS and pensions). This household might be better off using tax deductible IRAs rather than a Roth. Example 3: a young couple with low tax rates now but expect there incomes to rapidly increase (MD resident married to someone still in law school). They might want to push their Roths now because they may not qualify in the future and expect to have high tax rates later. Good luck with your investing.

1. You can not fund a Roth with mutual fund or stock shares. Contributions are made in cash. 2. You left out key information that would help folks give you advice. This includes your current marginal tax rate, your current ages, if you have significant other retirement assets, would the asset sales be at the lower long term capital gains rate, and if you expect to be in a much higher tax bracket in future/retirement years. Some folks can make a strong case that their taxes are not likely to go down in during their withdrawal period, which could make the Roth and pay taxes, or continue with taxable accounts more likely a wash. What is missing in your comments is where does the Roth component fit into your long term plan. 3. It sounds like you may be in a low tax bracket right now. It may also be true that you were thinking of selling some assets that might get the lower long term capital gains treatment. This makes the tax hurtle of selling an asset more manageable. You might also be able to sell assets with minimal gains, or perhaps sell some assets that have a loss to offset some with gains. Again, this would reduce the tax burden. For example, if you sell 10K in assets that have a 30% gain, then you would owe taxes on just $3,000 and might be able to fully fund your two Roths (if you paid for the taxes with other funds). 4. While there are facts that you have not presented, I did not see anything in what you wrote that suggests you should take extraordinary measures to move money around the fund your Roths. Yes, it is nice to fund Roths at the beginning of the year, but that generally applies to folks who have cash sitting around and it just makes more sense to move it in January. 5. You should have a cash reserve. I see that you prefer to keep money in investments. Well, the good news is that although you should not want to tap your Roths, they can in a sense serve as a cash reserve. That is because you can always take out contributions without penalty. 6. Remember, you don't have to write one big check. You could decide to fund say 1500 each early in the year and more later on. I understand the tight cash in/out situation. Perhaps one of you can find a second job or other source of income that can be dedicated to fund your long term Roths. Or perhaps you can adjust your expenses (like deferring a car purchase for a year, or taking 1/2 of your holiday presents budget) to allow you to contribute to these Roths.

Reasons for doing it in January Money is sheltered longer. You are not paying tax on the outside earnings throughout the year. There is no other "theory" about buying at the beginning of the year that has any impact here, its all about the shelter. Dollar Cost Averaging Reasons You don't have all the money to fund everything in January. DCA boils down to buying a little more when the market/price is lower, a little less when prices are higher. No one I know can "time" the market successfully over the long haul... because it is hard to see turns and now when up is high and down is low. DCA is a discipline. It commits you to investing on a continous basis. For some people, a monthly campaign of investing reduces anxiety, or fear of making a mistake. Sometimes a monthly program - a check each month - allows you to start a fund with a lower minimum. Conclusion Its not a huge difference either way. If you have extra money at the begining of the year, I would go with January commitment of the max. If you are comfortable with a monthly program, chose DCA. Note, you can still put all the money in an IRA/Roth, then DCA by moving money slowly over from the cash or money market (internal to your IRA/Roth) to an equity fund.

I think you have a lot of good info in this thread. You can't know in advance what is the perfect approach, just pick a scenario that makes sense and each year review what are your options and how you are doing. You might want to search the "Target" funds on this board. I have tried to explain what they are and their limitations. Basically, they are aimed for someone like you who find the 8000+ fund choices confusing. What the fund is selling is their "concept" of how you should invest, replacing your thinking/choices. Do you really want their mix of bonds and stocks? I think many of these are too conservative. Are the overhead fees of this Target fund reasonable? Some are way too high. There is no miracle here, just very good fund marketing. Keep reading Kiplinger. You will accumulate a vast amount of knowledge if you spend two hours a month spent reading financial mags . Right now you are way ahead of most 25 year olds. As I tell my high school students (JA econ business advisor)... "You are in charge". You may not have gotten the IM from GW, but you are in charge. Post again if you have questions about investment choices.

You don't say what the employee matching rules look like. Common ones are 50% match, generous ones are 100% match. To put that in perspective - if you assume that you may make 10% annually with a stock mutual fund (a common assumptions, some do much better many worse) then it would take you about 7 years to double your money. With a 100% match, you double immediately. The corresponding time to equal a 50% match is about 3.5 years. Unless the company forced you to buy their own stock and that seemed extremely risky (not a common practice anymore, but think Enron) then its a very high probability that the matching investment will outperform your other choices. If you have extra funds after using up your match, you may want to: (1) over fund the plan - its simple, maybe you like the investments, (2) send extra to your IRA and possibly take a deduction, (3) push the money into a Roth, or (4) just invest in a taxable account. The last option may be attractive because you can leverage (an advanced investment technique), may have more sophisiticated investment choices (real estate, options, commodities...), and don't object to the long term capital gains treatment for taxes.

MJB, I guess we will continue to disagree on this issue. I think that future changes if detrimental, existing accounts are likely to be grandfather. While Congress can act to change anything, a direct reneg of the Roth terms would create a firestorm and righteous claims of something akin to bait and switch. The number of households participating in Roths continues to grow and provides a very large block of voters. If they had ended the program after a few years, then over time the number of effected parties would have declined in significance. The opposite seems to be happening.

All replies above were on target. If you have substantial assets with this custodian (even non-IRA accounts) you can sometimes ask for them to waive the annual fee. Even if you don't, it doesn't hurt to ask. Some folks will waive fees, but you have to ask. Custodians (especially brokerages) don't go out of their way to disclose what they will do on fees, but here is an example. I merged (rolled over) two IRAs into a third account. I was dinged for $50 and $70. But, the recipient IRA custodian (Schwab) reimbursed me for both amounts. They could not add it to the IRA, but they credited a different account we had. This seems to be a fairly common practive, just not advertised. If I had been on my toes, I might have been able to pay the termination fees directly. After almost three decades of building IRAs (and more recently Roths), I am past the annual fee business... but I understand how annoying they can be. Sort of like those parking tickets which I despise. I grew up a Yankees fan. But since I live in Colorado, I will have my fun rooting for the "amazing" guys here. I think they have now won 15 of 16.

> While your IRA can't own your house, you can tap into Roth funds for a first time home purchase. > As said above, you don't transfer stocks into an IRA or ROTH, contributions are made in cash. The only time any transfers of holdings occurs is when you do a conversion or rollover. > Yes, do open a Roth. Who knows what your income will be in future years or what income thresholds will be set by Congress. You qualify each year and once an IRA/Roth is correctly funded, it does not matter if you subsequently do not qualify. Example, my wife started as a school teacher late in life and worked for a few years before going back for he PhD. She funded her 403b (another tax shelter like IRAs and 401Ks) at a modest level. After five years of contributing, then five years of not contributing.... that account is now on the sunny side of 70K, much to our surprise. That will grow to be more than a two full years of retirement income by the time we tap it. To bad it isn't a Roth! > Roth rule changes. There have already been many Roth rule changes and many more to come, especially in terms of income thresholds, max contributions, and conversion rules. However, I doubt that Congress will reneg on the tax status of distributions. There are literally millions and millions of Roth account holders. They would form a very powerful voting block. My accountant has a unique view on this - he thinks that the courts might overrule a Congressional change because of the established basis double taxation. While there are some precendents with regard to social security and the "notch" years for SS, I don't see them as strong precedents for Roths. I also note that the trend since 1998 is to liberalize or relax the constraints on Roths. > Investment advisor? Maybe. I can't give a big positive endorsement to investment advisors for two reasons: (1) there are way too many poorly trained investment advisors or folks that only know one niche like mutual funds or insurance, and (2) too many have their hand out and steer you toward products that give them commissions... a real conflict of interest. You might learn a lot by dedicating 2 hours a month to reading Kiplinger Fiancial, Money or books from your library. Sometimes you can find someone at work that knows this stuff, or some of this stuff and can mentor you... although that doesn't always work out because of limited expertise. I am a big fan of self help programs - in the internet/google era you can learn a huge amount of info in an hour. Just be sure to use multiple sources and consider the biases of the info provider. > The max contribution for an IRA/Roth will be moving up. You need to check each year both about the max amount and your income eligibility. The IRS Publication 590 is a good source along with custodians.

I agree with masteff.... Contributions for any IRA or ROTH are made in cash, not in stock. Just off of memory, I think there are only three ways for a stock/holding can move into an IRA or ROTH: (1) a conversion of IRA to Roth, (2) rollover of some company plan to IRA or (3) moving and IRA to IRA via direct custodial transfer.