John G

Yes she can. Last year all sorts of options and flexible deadlines were allowed because the Roth was new. This year it should revert to a once a year option to back out. Leave plenty of time for custodial actions, especially around tax deadlines. But make sure you client understands that she will be taxed each time $$ come out of the standard IRA. If it is a modest IRA, it might be worth avoiding the annual nuiscance of the disbursements.

And don't forget, you can also fund your 2000 contribution at the same time. Just make sure the custodian understands which year. They often get it messed up during the early calender year overlap period.

BPicker, I thought of a scenario where it gets hard to pass out all the $$. If the funds were in growth stocks or even a blue chip mix, the annual growth could conceivably keep pace or exceed the pass out. For example, say the custodian was supposed to pass out 15% each of the last five years. If the investments were in an S&P500 index fund, the growth would have exceeded the pass out each year I believe. Mostly in the 20% plus range. Not a common or even likely scenario for a senior citizen. I am assuming that the custodian would keep adjusting the payout eah year but until a much higher annual % was used, the assets would grow, would they not? I am assuming that you are always using a non-zero probability of death so there is alway a following year payout. Or, is there some terminal year when the entire IRA (regular of course) must be ultimately distributed?

Been there, done that. The answer is of course you can buy and IPO. However, not every custodian supports the IPO option. Some do not offer IPOs, some like Wit Capital and Etrade directly connect you to IPOs. Charles Schwab has IPOs for their big customers (looks like the asset cutoff is moving higher in March). Other online brokerages are starting to add IPOs. Do not expect to get into every IPO or even get many shares. The trend is that brokers spread around the shares, so don't get your hopes up for getting anything more than 100 shares (in some cases 50 shares) of any "hot" offerings. And, you only will get an allocation perhaps one time for each five requests. Of course, you often can get lots of shares of a lousey IPO.... but who wants to lose money. I know that Schwab will allow you to get a check issued for an IPO that is outside their system, such as a mutual savings and loan or mutual insurance firm going public. These are IPOs where you have some option to directly participate, not IPOs from another broker. They need the prospectus and be comfortable that the stock will be listed on a major exchange, etc. IPOs can be interesting... introduces you to a new firm. But like any investment, you need to evaluate them. Lots go down. Some go up spectacularly. Good hunting. [This message has been edited by John G (edited 02-03-2000).]

Cindy, normally you want to start a new question then tack a Q on another thread.... but the simple answer to your question is YES. A year back this was an area of confusion due to how the rules were written, but that has been cleaned up. Most custodians now recognize you don't need separate accounts. If yours does not, go up the chain of command or take your funds to another custodian who is more on the ball.

Yes and No. If you owe and when you owe depends upon the amount of the shortfall, if you are currently paying estimated taxes, the date the conversion occured, etc. Basically, the same rules apply as if you won the lottery or got a bonus. If the shortfall is significant and the conversion was in 4th quarter, you just barely missed the Jan 15 date for estimated. If you now send in a late estimate payment, you can stop the interest clock.

Simple answer: sure you can, just find a broker that supports IRAs (virtually all), has low fees (Brown, Ameritrade, Etrade, etc) and good executions (in my experience not many excel here). You will need a datafeed for continous real time quotes such as $200+ per month for NASDAQ level II. Real time snap quotes are not adequate. Paperwork requirements when day trading an IRA are substantially less than in a taxable account because loss/gain is not tracked for Sched D. Better answer: Somewhere between 80 to 90% of all daytraders lose money. A successful day trader spends the entire day watching markets (it becomes your entire life). Casual day traders have a tendancy to deceive themselves into thinking they are doing better than they are (with your psych background, you probably see a parallel with gambling behavior). You can not short a stock in an IRA, nor can you margin your holdings. These are two important strategies for day traders. I would NOT recommend day trading with an IRA.

Alert! Do not trust your custodian to get the job done correctly or to make the proper notations for year or even valuation. This site has seen many problems and complaints related to custodian errors, delays and failure to complete. Each IRA owner needs to be proactive about rollovers and contributions. In the case of rollovers, give your custodian a clear letter of instruction. Get a receipt. Check your statement. Also... avoid the rush at year end and around tax season. Temp help is often brought in to handle the extra burdens and this may increase the number of errors.

Lots of folks post Qs on this site that are new to investing. You may want to scan the questions and answers at this site. Congratulations on starting early. Great idea. First, you may be able to leave the 401K money with the prior employer... ask the benefits or HR dept about your options. Ask them about the annual costs, since former employees often must pick up the costs that the employer used to cover. You can also roll those funds over into another custodial account. The problem with the $150-200 fee is that this amounts to more than 10% of your 401k, which makes it very hard to get those funds to grow. Ussually fees like this are associated with accounts where someone is providing advice. Sounds like you friend is trying to sign up new customers. A true friend would understand if you say that it is not cost effective for him/her to handle your account. You have the option to "self direct" your financial affairs. This means you do some research on your own and also make some phone calls to find both a custodian and an investment vehicle. A good place to start is to read the March 1999 Consumers Report which gives an overview of retirement plan rollovers and a boiled down list of respectable mutual funds (there are 8000+, initially you only need one). I would also suggest subscribing to Kiplinger mag or read it at the library... it covers investing and a range of topics useful early in your career. Concerning mutual funds. This is probably where you want to get started. MFs are often clustered in "families" such as Vanguard, American Century, Janus, etc. You can find the 800 phone numbers in CR or K mentioned above. Call a few, tell them you are getting started and explain your situation. They often have PR material targeted toward both getting started and rollovers. Most custodians charge some type of annual fee, you might find that these range between $10 to $50/year. Shop around. After you assets grow beyond $10K or so these fees are often waived. At the outset of your career, a good broad based MF may meet your needs for many years. For example, a Vanguard 500 index fund has very low annual expense (this is different from custodial fees) and includes the stocks of 500 large USA corporations. In addition to the existing 401K funds, you may want to start a systematic investment plan using a Roth IRA. The MFs can send you info on that as well. I made my first investment when I was 28, so you have me beat by atleast 5 years. Good luck. Feel free to email questions. John [This message has been edited by John G (edited 01-12-2000).]

Congratulations for thinking about the future at such a young age. Smart. OK, you got the Roth basics, if you have any further questions try www.rothira.com or this site. Mutual funds are a very reasonable choice, and you have about 8,000 options. The two major catagories loaded and no-load. Loaded charge a fee (often in the 3-7% range) either up front or upon withdrawal. Loaded funds are often sold by a broker who is supposed to provide advice. However, all mutual funds (loaded or no-load) have a variety of imbedded expenses and a fee structure for IRA accounts. I would recommend staying with no loads since you apparently are willing to do some work to understand your choice. Who is your custodian? Even going the fund direction, you still have a custodian choice. You can pick one of the mutual fund families (Janus, American Century, Invesco, Vanguard, etc.) or you can choose a brokerage that has connections to mutual funds (Schwab, Etrade, etc.). The MF option is direct, but you will be limited to choices that firm offers. The brokerage option will allow you to pick funds from different companies. This is not a big issue initially since you only have 2K in each of the next couple of years. How to discover the MF that is right for you? Well there are hundreds that are suitable. Initially I would suggest a broadly based stock fund. You could choose an index fund such as the Vanguard 500 which owns all of the S&P 500 stocks... the main features of index funds are ultra low expenses and diversification. Another choice would be a growth orientated stock fund such as Marsico Focus or Janus Mercury. You need to read the investment objectives of a range of MFs, examine their performance, stock holdings and expenses. You will find lengthy lists of MFs in the Wall Street Journal. But you may want to look at the more digestable listings in Money, Worth, Kiplinger, or even Consumer Reports (March 99) magazines. At your age, I would highly recommend subscribing to Kiplinger... good coverage for 20 somethings. Also, major mutual fund families all have web sites. All fund families have 800 numbers. I recommend that you chooose atleast 3 different MF families and call them. Tell them you are just getting started and request their "beginner" package. Most fund families have excellant materials. Don't worry about the week to week flucuations in your investment. You are starting a multiple decade effort. You are on the first inch of you learning curve. It may take about 5 years before you master some of the basics. Do you need multiple mutual funds? Not if you choose a broad based stock fund. You can keep plugging in 2K each year for the next decade. But you may want to eventually own a few different funds: US blue chip, growth, international, technology, etc. Your choice. Just don't over do it and end up with excessive statements and fees. Likely results: if you get a 10% annual return, your assets will double every 7 years. For example, 2K growing at 10% to about $128,000 when you are age 64. Plug in 2K each year, and you are on the way to being a millionaire. Nice goal. Good luck.

You have asked a big question. Your best answer can come from reading the articles at www.rothira.com

1. You have a beef with your custodian. Bring this sloppy neglect to their attention. 2. It is too late to correct it as the year has ended. 3. Technically you need to refill your 1998 tax return since that is when the conversion occurred. I suggest that you attach all prior letters of instruction and tell them why you are refilling. If this costs you accounting fees, I suggest that you bill your custodian for those costs, plus any charges or penalties. Your cover letter may ask them to wave any penalties because of the custodian screw-up. 4. Given the small amount, you might be tempted to just tag it on the 99 return with an explaination, but I don't think the IRS would accept this. You have some responsibility because you are supposed to read your statements. Refile your 1998 return. 5. Don't wait for the IRS to contact you, show your good faith by acting ASAP. You will probably find some leniency in the "mass Roth confusion years". 6. Talk with your tax preparer.

This is a common problem. Call your broker and make sure their records reflect the correct years. Your situation should be obvious because of the max contribution in 1998, but make sure their records reflect the proper years. If this happened this year, you could clearly get a corrected form filed with the IRS. Unclear if that is possible for a prior year. Talk with your custodian. In the future, be sure to note the contribution year on your check. Make sure it is also written on the deposit form. Then review the next monthly statement to insure it was posted correctly. If the IRS questions this, a letter of explaination and copies of the checks and deposits should be sufficient.

Max total amount is $2000 independently for each person. Generally I would suggest taking the Roth route for a couple of reasons: (1) get in now while they still exist, who knows if you will qualify or if the rules will change in the future, (2) no required Roth distributions, and (3) tax free withdrawals to you or your heirs. But review your own circumstances... your current tax rate, likely future tax rates, how long you are likely to keep the funds sheltered, etc. You can NOT do $2000 in a regular and $2000 in a Roth.

You do not have to pay a penalty. You can undo the conversion before you file your 1999 taxes later this year. Talk to your S-corp folks and make sure you get timely info from them.

Art, you are the 2nd person to comment on this site that has used the roar software. (unless you are the same person using an alias) The last fellow used the roar support email address as his own. He also kept coming up with odd results. At that time, I examined four scenarios he generated with their model. I also visited their web site, read the FAQ and the model features. This model has 150 input parameters. I am not impressed. Their marketing material claims "ease of use" and "understandable output". I agree with the prior comments from Olsen and Mueller that the output, labeling and documentation are unclear and confusing. The web site also makes a silly statement that one of the primary benefits of this software is that it "doesn't require users to guess at one future tax rates". That is because the model "guesses" for you. They built the current tax code into the model. Ho hum. The documentation warns that the roar model does not apparently have checks for out of range data (they use the example mistaking 4.5% vs .045), a huge deficiency. No evidence that the model has been tested. Skimpy documentation. No information on the experience of the company who created the model, they just say they are better. No phone number to ask questions... unless you sign up and pay the higher professional fee. Am I too harsh? Readers can check for themselves. Go to the roarsoftware site and pull up the sample input/output page. Do they really need 18 parameters on house purchases and sales? Looks like a NASA approach to modeling, throw in everything. My first impression when looking at their sample page was "Oh no, another Club of Rome study". Do you remember them? They were the elete team that published "Limits to Growth" around the 1960s. Wonderfully complex charts, massive computer model. Just one problem, they were totally wrong. The built in model biases always gave a chicken little answer. I think you have fallen in love with the tool. It comes out in your comments on how all sorts of extraneous details are essential to study Roth conversions and how you don't see how this can be done with a calculator. Well, lots of folks can use a calculator or one-page spreadsheet (lets not forget the abacus) and get a decent answer. When you boil down the big IRA asset scenario we have been talking about the key parameters are initial IRA assets, conversion amount, period, investment yield, income tax rate and inheritance tax rate. In this high wealth scenario, about 1/2 of the conversion tax cost is offset by reduced inheritance taxes. This a fundamental element of the scenario. For the Roth to be a bad idea, the IRA withdrawal tax rate in the no conversion case must be less than 1/2 the tax rate applicable for conversion taxes. You implied that you only recently found one case where a Roth conversion was better. That seems pretty strange to me. You have never explained how the conceptual structure or theory I outlined above would not apply to this large asset scenario. Why should anyone believe your black box output from a third party model that was based upon odd and inconsistent assumptions? [This message has been edited by John G (edited 12-29-1999).]

This is one of the questions my CPA and I researched earlier this year. At that time the answer was NO. The hurricane might have changed the options available to you. Ask your CPA or the IRS in your area. [This message has been edited by John G (edited 12-28-1999).]

Are you saying you have no earned income in 1998? I don't understand that if that was the case why you even thought you could have an IRA. I am going to assume that you may have had Sched C business losses, because Sched D losses are maxed at $3K. The CPAs may correct this, but I am under the impression you can have an IRA as long as you have earned income equal or greater than the IRA amount and that AGI is not the relavent parameter. You don't normally get negative income from a payroll job. Therefore, I would assume you had some "payroll" type of earned income. Did I understand you problem correctly? Second, if your original instructions to the bank said 1999, I think you can still get it corrected. That is, if their original posting was in error, you can get it fixed. At a minimum it might qualify for errors and ommissions coverage on the part of the bank. My understanding is that the "more friendly IRS" is not out to fry folks over correctable mistakes that involve small amounts. Buy, hey, I believe in the tooth fairy too. [This message has been edited by John G (edited 12-27-1999).]

OK, you made some investment mistakes. We all do, but hopefully we learn from them. You probably paid a lot more for college tuition then your first tuition payment on "Wall St". From my experience, no memory is more vivid than a bad investment idea. Good luck.

You sound like someone very new to investing. A Roth IRA is a custodial type tax shelter that allows thousands of options: brokerage accounts, bank accounts, mutual funds, etc. I am assuming from your question that you may be refering to mutual fund choices... there are over 8,000 in that catagory alone. You can find performance data in the Wall Street Journal, Kiplinger Magazine (a good choice for a novice), Money, Worth, Forbes, and even an occasional issue of Consumer Reports (March?). There are also lots of web sites with mutual fund and investing choices. You may want to subscribe to a general investment newsletter such as Rukeyser's (who has the PBS show "Wall Street Week" and a web site of course). Another choice is to visit your local library or bookstore. However, I do not recommend chasing the best performing fund from last year, investment styles go in and out of favor, so last years great performers can be "dogs" this year. Each mutual fund has a prospectus that tells you the investment "style", largest holdings, recent performance, rules, fees, etc. You don't need spectacular performance in any one year to typically reach your goals. An annual investment return of 10% - 14% is likely if you put your funds in growth orientated stock fund. Investing has no guarentees, reward is ussually coupled with the level of risk you take. For folks just getting started, a basic "blue chip" or index fund can make a good first choice. The large mutual fund families (Janus, T Rowe, Vanguard, Fidelity, etc) have multiple mutual fund choices and pamphlets for beginners. Ask for their starter package. You should also ask questions about minimum opening balance, fund objective, and custodial fees. Initially, all this information may be a little overwhelming, but keep plugging. The Roth can be a very attractive investment choice. [This message has been edited by John G (edited 12-27-1999).]

I would suggest some long hard thought about your investment strategy. How did you loose 75% of your assets in less than one year? The overall market was up 15%, 20%, or more depending upon what index you use. Sounds more like gambling then investing. If you are new to investing, or have a modest IRA amount, I would like to suggest you consider no load mutual funds. You will get a lot of diversification. You will give up the possibilities of "grand slams", but for most folks "bunting for singles" and "drawing a walk" will score plenty of runs over the long haul. Most of those million dollar IRA examples are based upon contributing every year and averaging about a 10% return. Its not very flashy in an internet crazed market, but it does create significant assets.

BPicker, I think you may have left things a little confused. Here is my shot. The $2000 limit applies to each person for each year, assuming that earned income threshold has been met. You can contribute anytime during the tax year and even in the following year as long as it is before you file your tax return. In your case, your daughter can wait until January (avoid the year end rush and Y2Kers!) and fund a Roth IRA for both 1999 and 2000 by contributing $4000. Make sure that you correctly designate tax year, and check you next monthly statement to make sure it got done correctly. Her husband is constrained by the prior contributions, the combined max is $2000. Early contributions are desireable because you extend the period of the tax shelter. Your daughter is to be congratulated for showing discipline and not spending it now. [This message has been edited by John G (edited 12-24-1999).]

Art E, you misunderstand my point about modeling. Early in my career, I created a number of models with thousands of lines of code in the era before spreadsheets. In the PC era I have created some rather large spreadsheets. A substantial part of my work has involved verifying/refuting the large scale models of others. I kind of like big models. They can answer complex questions. But complicated models have a high probability of error, and it gets harder to detect these errors as model complexity increases. Look at you problem set up. Looks like a lot of clutter to me: rental property growth rates? property tax growth rates? Details on types of bonds and catagory growth rates. My OR friends would call this a false level of precision, details that do not enhance the accuracy of the result. The more clutter you pack into a model, the less likely the results are correct. Data problem 1: One of the most important assumptions you made was a 6.7% growth rate for investments! That is probably the lowest assumption I have ever seen used in a financial plan, even for senior citizens. For comparison, lets look at the average annual return for what I think are the five oldest mutual funds at Fidelity: Fidelity Fund (since 1930) 11.3%, Puritan (1947) 12.4%, Trend (1958) 13.6%, Magellan (1963) 22.2%, and Equity Inc (1966) 14.6%. A variety of stock dominated profiles with between 34 to 70 years history. {Fidelity is a convenient source of benchmarks, which is the sole purpose of using the data here) My grandfather, who is extremely conservative, would fire his investment advisor if 6.7% the long run result. Your assumption could probably be achieved with a 90/10 bond/equity asset mix. Seems unrealistically low to me. Over 20 years the difference between 10% and 6.7% is makes about a 2x difference in assets. Why use such a conservative assumption for assets that will be held for decades? Data problem 2: You are using a long run inflation rate of 3.5% which is not consistent with your bond rate assumptions. The bond rates look a lot more like current yields, which are in a much lower inflation period. Looks like your effective bond yield (bond%-inflation) would be only 2%. On equity investments you imply about a 3.2% net yield which would be historically very low. For example, the oldest two Fidelity money market accounts (1974, 1979) have averaged 7.6% and 7.4% over 20+ years and these invest in short term instruments. Whose model are you using Art? You have been asked multiple times and have yet to disclose the source. My experience with complex models is that the builder rarely checks out each feature for accuracy but rather focuses just on some core equations. Have you been trained to use this model? Do you have documention? What is the "theory" behind any case where to Roth conversion is worse? To make these unussual results believable, you need to explain how it plays out. [This message has been edited by John G (edited 12-23-1999).]

ALERT: If you plan to get this conversion done in 1999, you better hustle. Many custodians establish a cutoff date in December after which they will not do a conversion. Don't wait one second. Call your custodian immediately and find out if you can still get it done. Draft a letter of request tonight and get it submitted ASAP. Then, follow up the request to make sure it gets done. Just because you ask, doesn't mean it gets done. If it is not completed my Dec 31, you have to start over and qualify for the year 2000. You always get one shot to undo, but you only have 7 days to get it done this year. Good luck.

Separate accounts are not needed. Buck your question up atleast one level with your custodian. If they still resist, you can always transfer your assets to another firm. You might want to remind your current custodian of that option.