John G

You need to understand that "target" funds are basically a marketing gimic aimed at exactly you - - the novice investor who does not feel comfortable making investment decisions. If you think you can buy an investment and then forget about it... well, "...are soon parted" a phrase that comes to mind. Investing requires thinking, monitoring, diligence and patience. There is nothing wrong with a target fund to get started... frankly any general purpose NO LOAD (and low annual expense) mutual fund will do initially. You can search the word "target" and "2020" or similiar dates to see more that I have written on the marketing gimic aspects of these funds. It's your money and if you want good results, you need to educate yourself about investing. I highly recommend that you subscribe to Kiplinger Financial magazine and spend 2 hours a month reading. After two years you will be miles ahead of your fellow workers. You will understand the difference between value and growth investing, and the benefits of index funds and ETFs. Part of this education process is to develop a better prospective on risk. Janet is right that it is a big part of your decision process, but an educated investor age 36 will better understand that you are investing for 3 to 6 decades (you don't spend your retirement money in 1 year, many of us will live to our 90s)! Investors are supposed to be nervous, but you don't want to be nervous because you don't understand concepts and terminology. You don't want to chase last years performance, but educated thinking about trends may help you to bias your investments towards more successful areas. For example, I am not keen on carbon paper manufacturing. But things related to the growing Asian economies have been performing well for a few years. As your nest egg grows, you will eventually look to add other mutual funds. Some day you may decide that a part of your portfolio may be in individual stocks. But, remember, its your money and YOU have the greatest and direct interest in seeing it grow. Don't look to target funds as an easy way out - that's dangerous.

MJB has posted good questions. I have one more: 1. Who are you talking with at Fidelity - the first person who answers the phone or the back office specialists for Roth/IRAs? The general staff probably do not have the tools to correct this problem. The special Roth/IRA dpt. may. While you throw the problem at Fidelity, you contributed to this mess. First, you apparently waited to the last minute to make the contribution. Second, you apparently never tracked the execution/posting in your statements. If you had attempted to correct the problem sooner, you might have had more success. Third, you should have specified the contribution year on your check - which would have strengthened your case as to your intentions. ALERT - This post will be read by many readers, and there are some good lessons. Don't wait to the crush of April or year end to do transactions. Check your statement. Make sure you designate the account # and contribution year on your check.

If you can document that the custodian had ample time to post the transaction (such as by your letter to them, or better still a letter from them indicating their mistake), you may be able to write to the IRS and ask for them to accept the transaction as if it occured in 2005. The IRS just collected a year in advance for a conversion - so they are BETTER off. Keep the documentation from the IRS response as you are very likley to get questions from the IRS on your 2006 return. Again.... this is another reason to look at your statements. On a Roth conversion, I would actually call 2 weeks after the request to get a confirmation that it was done. You are partially at fault here because you relied upon your custodian and did not monitor this transaction. TO EVERYONE ! Monitor those monthly statements. The details are important. Don't assume that some clerk is going to get it right. And, don't wait till November and get lost in the year end crush of transactions.

declined to contribute to a 401K - whooaaaa If there was a matching amount from your employer, this was a mistake. Take the 50% or 100% immediate gain (if you had a 2:1 or 1:1 match) every year you can. An investment takes many years to achieve the same results. If you can do both - you are twice blessed.

I am travelling and have limited time to answer your question, so I suggest you do a search on this message board under keywords like: beginner, mutual, index, start... etc. You are making two initial choices: a custodian and then an initial investment. Custodian: bank, mutual fund, or brokerage are the most common choices. If you are comfortable with internet use, you might want to chose either a discount brokerage or mutual fund family based upon looking at a few websites. Annual account fees, investment options, tools for beginners... some of the factors to consider. Investment choice: no you don't want safe insured CDs unless you are easily scared by media stories of doom and gloom! You also don't want to consider individual stocks, options, commodities or anything else that requires a high level of knowledge and experience. That leaves mutal funds... and you should ignor loaded funds (front/back or any commission type fund, typically with a salesperson) but go straight to NO LOAD funds (there are thousands). Any broadly based mutual fund that has a reasonable track record is acceptable. You might want to choose an index fund that offers very low expense. Why a mut? Because they give you instant diversification - - they hold portfolios of dozens to hundreds to thousands of stocks. I highly recommend that you subscribe to Kiplinger's Personal Finance (about $16 per year), a monthly magazine that fits your age and will give you a wide range of personal finance advice including Roth/IRAs. Don't forget that company 401K, 403B or any employer sponsored plan that offers a match. Congratulations on getting started. Post again if you have investment questions.

YES and YES You have researched this issue well. However, I think you can do a little better than just using CDs, even for this short time. Your wife will contribute over 11-13 years, which at the max will add between 44,000 and 52,000. Perhaps you expect to withdraw all of this between age 57 and 62? I would look to a bond or dividend/income fund and perhaps even have 1/3 in a general common stock fund. Perhaps a target return in the 7-8% would match your risk and timeframe profile which would have you approaching 100,000 in this account. (no calculator handy to do a better estimate) Also, you have the option of early "substantial equal payments" option with IRAs where there is no penalty. I believe they would apply to this account, allowing you to take 100% out over a defined period of time.

Earl - you really need to consult with a local accountant or tax advisor because none of us can be absolutely sure you are using the correct terms for the accounts and the procedures. That is especially true if you are moving a substantial amount of money. Buy a few hours of expert time - its your protection against making a major mistake. Generally speaking, in many circumstances you can't cherry pick what you will move, but move some fraction of the blended average. That's the pro-rata issue. There are exceptions to this when the funds are in different classes of accounts. You should get the advice of someone who can look at your documents and knows your income and filing status. Be wary of drawing conclusions based upon a simple reading of Publication 590, because the average lay person can easily fail to understand all the details of qualifying... or simply misunderstand the terms used. That old saying "the devil lies in the details" applies here.

No. Conversion math is separate from contribution math. A conversion does not count against you annual max contribution. But, note that these actions have separate qualifications/eligibility. Pick up a copy of IRS Publication 590 and keep it on hand. Captain hero? Great moniker.

Earl, you need to understand that what you learn today is likely to change in future years. Right now there is a 2010 window for conversions, inheritances, etc. Both of these are oddities that are not easily associated with a general public policy. If anything, they are weird lapses probably related to hasty legislation. There will be an election in 2008, and a lot of stuff could be changed - - in many unpredictable directions. If the government needs a quick infusion of taxes, they may allow the conversion gap to stand. Other programs may be proposed. Income thresholds or other eligibility requirements may be imposed. So, while it is useful to know how the rules vary in different years, I would not, at this point, rely on all of these rules staying constant.

I had a problem with something very similiar to this. Back in the 1980s, my wife worked as a graphic designer in a small studio (about a dozen artists) associated with a very large union print shop (hundreds of employees). She was never given any material that indicated she was a participant in a pension fund, however her W2s for two years were marked as if she was. She never got any information about contributions made in her name, or a vesting schedule. We opened and funded IRA accounts for two years. Many years later, the IRS wrote us an said she was not eligible to participate. We disputed that because we thought she was not a member of any plan. The IRS required us to get a letter from the company, but they refused to reply. After another round with the IRS, we sent a second letter to the company including a sentence the IRS suggested we add about ERISA compliance. Bingo. That got a letter from the company with the following carefully chosen words. "XXX is not eligible to any funds related to the pension plan at company ZZZ." While they did not exactly answer the question of "participant", the IRS decided in our favor and let the IRAs stand. We subsequently heard that management had a meeting with all employees of the graphics department and announced that they were now participants in the pension plan! The designer's received statements with contributions and were told they were getting credit for vesting. We suspect that the pension plan was driven by the union side of the business, and the impact on the much smaller non-union graphic design office had been overlooked. Our letter (with the key IRS suggested language) was very beneficial to a dozen designers! And, after a year of getting that mess cleaned up... we got the exact same audit issue for the next two tax years. We were able to "ditto" on the phone with the IRS. Note, the real issue of "participation" in those three years was never actually resolved! Just not eligible to any funds.

I hope I did not mislead you about the "do it yourself" part, which I only meant to refer to making simple calculations of gains on the account. It sounds like you may need to completely unwind the decisions if you were not eligible. You should not file you tax return for 2006 until you get this straightened out - - which means you have to October 15. Given what you have said about the two custodians and your intentions, you will need to work with Etrade to correct the problem. Thanks for posting the clarifications.

Putnam Asset Allocation - aka PABAX This is a hohum actively managed mutual fund. There is a 5.25% front end load, and each year they take 1% for expenses. The fund is supposed to be a blend of growth and value styles, mostly large cap (capitalization) firms. But recently, the fund has been 10% in cash and 21% in bonds. The cash and bond components will moderate returns compared to a more heavily loaded stock fund, which means you will over the long haul average a lower return than just stocks. The top holdings are FNMA, Exxon, Citi, Phillip Morris (Altria), IBM, Microsoft, Cisco.... and strangely a iShares Russell 1000 growth ETF (which seems outside of their stated investment objectives). The long term average annual return has been in the 6.35 to 6.94 for 10 and 5 years - which is not exactly stellar results. Conclusion: your advisor probably got a nice commission with this pick, but what did you get? It looks to me like you got stuck in a mediocre fund. Frankly you could have done better by picking ANY general market no load index fund because you would not have given up the 5.25% on the front end, and your annual expenses would be closer to 0.2% (1/5 the expenses of this fund). If you had made any noload choice, you could change to another no load fund without penalty. Who told you this was an aggressive growth fund? Microsoft and Cisco have not been really growth stocks for the past 8 years. Mostly this fund holds stocks in very large companies and the bonds are all nice AAA types. Maybe you should ask your advisor what they mean by the term aggressive... I don't see anything "aggressive" about this fund? You can do basic fund research by visiting your local library and reading Morningstar reports, reading free summaries of funds in Yahoo finance website, on the website of the company that created the mutual fund, or in the online resources that almost all brokerages offer.... and then there is Google searching which will often pick up articles where the fund is mentioned. And, there is always the actual prospectus that you should have received. Here is what anyone who is researching a fund should look for: 1. Commission type vs no load 2. Fund investment objective 3. Fund focus (market cap, style, niche, etc.) 4. Allocation of current assets (cash drag, bond component) 5. Who is the manager and how long has he run this fund? 6. How has this fund performed over many years, good times and bad? What benchmarks are used for comparison? 7. Annual operating expenses 8. Top holdings 9. Morningstar rating (a crude indicator only) 10. Percent of holdings in non-US markets 11. Turnover of portfolio (high turnover can trigger capital gains in non IRA accounts) 12. Style drift (does the fund shift around or stay true to the state investment objectives)

No on margin account with an IRA or Roth. You can not use an IRA or Roth to support a loan of any kind. Margin is a type on loan - ergo, no margin account. No custodian will allow an IRA/Roth to be set up as a margin account. If you are a beginner, you should not be thinking about margin investing. Just let time be you friend an let your account organicly grow via compound growth. Especially if these assets are the major components of your assets. Now, if you are a very experienced investor (like 10+ years) and these assets are just a modest part of your current assets... there is an alternative. You could look at ETFs -- exchange traded funds. A few of these are set up to be leveraged investments, including a few that are set up as 200% up or down on different indicies. Since you purchase ETFs as a stock, and you are not directly using leverage (your maximum at risk is the $ paid for the ETF shares), some custodians may allow these in an IRA/Roth. Just a suggestion, not a recommendation. Frankly, I don't know if custodians would allow these newer "leveraged" (either long or short) investments. If you don't understand what I mean by long/short, index, leverage, margin, or ETF - - then you clearly should not even be thinking about this approach. Let me say this another way, about 98% of all IRA/Roth holders should not be thinking about leveraged ETFs.

It is not clear if you have excess contributions or did a Roth conversion when you were not eligible, or both. You may find that dealing with a discount broker on a special situation like this will try your patience. First, start by talking with the branch manager at your local Etrade office. A few years ago Etrade staff were reluctant to give you the phone number or refer you to the backoffice IRA dept, so start with the senior person at your Etrade office. Then see if they will refer you to the specialists in the main office - I think that is St Louis. Once connected to the right person, they should be able to handle your problem. These problems happen a lot. Basically, they need to look at the contribution and the conversion and allocate the gain or loss between the two. Its messy but not impossible. Frankly, if you were not striving for perfection, you could probably do the math on one sheet of paper. Etrade can either return excess contributions, or recharacterize your Roth or both, depending upon your circumstances.

If all of these amounts were "contributions" and not related any IRA conversions, then you can take out ALL of the contributions without penalty. BUT... why? Money is cheap right now. You can get low HELOCs (Home equity loans), signature lines of credit (if you have a good job, almost every bank will loan you 10,000 on your signature), buy now pay next year for cars/appliances, 0% fiancing from home repair companies, and sometimes 0% credit card teasers. You might also be able to do an internal family loan by offering an uncle or grandparent a return better than the local CD. The value of a Roth is that you are getting a long term tax shelter. Think twice before withdrawing funds - even if you can do so without penalty.

The rules governing conversions are relatively complicated and often misunderstood. Anyone contemplating a large conversion should first run it by their accountant or tax preparer. Spent a modest amount of money for good advice and make sure you execute the transaction correctly. Your advisor can also discuss with you some scenarios where the conversion is not advantageous. If you search back in this message board files, you will find a significant number of threads devoted to misunderstandings and mistakes. Most could have been prevented by a little amount of front end advice. Some of these transactions involved very large sums of money - - and the tax/accounting advice cost would pale in comparison. Especially in comparison to making a bad decision, 10% penalties, expense/time of correcting a mistake, or the ultimate penalty of losing your tax shelter status. PS: I am neither an accountant or tax advisor. Although I have experience with conversions dating back to 1998, I worked with my accountant extensively on planning a conversion in the initial year they were allowed.

I agree with what Janet has said. But, I think most folks are better served with the NO LOAD version of mutual funds. When you are just getting started, you often don't know how to select a mutual fund. The loaded versions are sold by sales people and you might get pushed into a poor performer. Great for the sales person ~ kaching ~ they get their commision. But, no so good for you if you decide to switch funds after a year or two. I suspect that the person who steered you toward Washington Mutual didn't mention the term "no load". Can a loaded (back or front) fund perform well? Sure. Can a no load perform poorly? Yep. Loads are only one factor effecting your net performance. All funds have annual expenses which drain away performance. Vanguard index funds and Fidelity Spartan funds in some cases have annual expenses less than 0.2 %. [The annual expenses of a few ETFs are even a slice lower.] The average annual expense of an actively managed fund is about 1.5%, but some exotic funds (sector, international come to mind) may have annual expenses much higher. In theory, expenses and loads are like running a 10K with lead weights around you neck and waste. They slow down performance. The third major component that effects your annual net appreciation is the underlying stock choices and asset allocation mix deployed by the fund. In theory, an actively managed fund with an outstanding manager will perform above average. But, index funds (a fund essentially run by a computer off a list of stocks like the S&P500) beat a lot of actively managed funds because of ultra low annual expenses. Index funds annual expenses are often more than 1% lower than the average actively managed fund. Annual fees are generally not a huge factor in your net, but they may look that way the first few years. Some custodians (like full service brokers) might charge an absurd $60, while some internet based discount houses will waive annual fees if you elect to do monthly contributions or use email for statements. Here's my question to you: "Are you in a mutual fund at Washingon Mutual the bank (in which case which mutual fund) or are you in a fund with the name Washington Mutual?" Please post again.

You have made a strong positive statement about your future financial success. Good for you. I can't emphasize enough that YOU play an important role in making smart financial decisions. It's your money and you should be motivated to invested it. You may need the expert advice of others, but don't abdicate your responsibilities. Dedicate a modest amount of time each month to educating yourself about investment options. You may discover you like investing in directly in stocks picking, real estate (directly or via LLPs), mutual funds or some combination. There is no easy route ~ a set it and forget it approach to money management. Good luck. Post again.

A contrary view on putting a massive percent of your assets into a Roth, at some point you could be worse off! Yep, there I said it. Worse off. It may be a stretch of math, but worse off is possible. Consider the taxes owed if in retirement your income stream is 40k taxable and 200k Roth. Would you really be interested in Roth conversions in 2010 (assuming those rules don't change) that would jack to to higher tax brackets now? A hybrid or mixed approach may garner significant benefits. I am doing some scenarios for a guy that has about 4M in a Roth (due to a conversion and some successful investing) but is never likely to have over 50k in taxable retirement income, mostly SSN and a partial pension. He has little incentive to do any more converting. Future investments will probably be in the form of long term stock holdings that will probably never be sold in his lifetime and pass to his heirs.

WARNING - - I am highly suspicious that you are being steered into a plan that you do not need and will give you meager returns. You got it right when you said you don't need insurance. Single! That's the key point. No kids, no wife - no insurance. Some of these insurance products give you very meager annual returns. Do not be lured by the "free" in retirement statement. Free can be very expensive if your money does not grow over the next 40+ years. Same goes with annuities. When you have little experience in money matters you are more open to bad suggestions from folks who may have a financial conflict with their advice. A commissioned mutual fund, various insurance products and annuities all fall into this catagory of products that may have hidden costs. I would fully fund a Roth when ever you can. There are gaps in the rules in 2010, but that may all change. New programs may be created, old limits may be changed. You just have to monitor the news stories. [i highly recommend that you suscribe to Kiplinger Financial magazine which is a good fit to folks early in the careers as it covers investing, credit, buying homes, etc. And at around $15 a year is a bargain] You should fully fund your company plan - not just for the match, but because beyond that it is your second best tax shelter after the Roth. Don't buy anything from anyone that you don't understand. I would rather you build up a cash reserve (emergency fund, home down payment fund) for a couple of years than see you plung into something you don't understand and can't get out of. Where does that cash eventually go? You should make a commitment to yourself to learn more about basic investing choices. A good place to start is with no load mutual funds. You can get more info at your local library or book store. Magazines like Kiplinger, Money and Worth are reasonable sources. You can also look at comments here by using the search engine for key words like: index, mutual, beginner or novice. If you commit to spending 2 hours a month reading about various investment options, you soon be more comfortable making a choice. You will pay "tuition" along the way, making good/bad choices. We all do. [my first investment was in a company that sold toilet paper... which we all need, but it was not a good investment] Besides your accountant...you need to strike up some conversations with the engineers who are about 10 years older than you a have gone down your path. Your situation is pretty common. Keep posting as many will learn from what you are looking at and how you are making a decision.

Above post is accurate. Contributions must be in cash. Rollovers and conversions can be cash or in-kind, but that does not sound like the DRIP program you mentioned.

VUL ? You are right to be suspicious of insurance products being hawked as "investments". If you don't need insurance (no wife? no kids? you didn't say why) then the only reason to buy insurance of any kind right now would be to lock in a policy at your current health status. Is your financial advisor going to get a commission on selling you this product? If so, dump you advisor and start fresh. Avoid advisors who get any fees based upon their recommendations. That taints their judgement. Alternatives: You may have many. Are you self employed? Do you own a business? Do you have a company plan? You gave us little info on which to understand your current choices. If any of these apply to you, its time to talk with your accountant about your options. Most accountants are aware of a variety of plans used by their customers. At a minimum, you have the option of long term investing with your eventual taxes at the long term cap gain rate. For example, you could build a large nest egg with either an portfolio of stocks, an index fund, Exchange Traded Fund (a stock traded version of an index fund), or a tax managed fund. You would have minimal tax exposure until you sold the position. Most of your gains would be at more favorable LTCG.

No. The combined contributions to both Roths is constrained to the combined earned income of husband and wife. So, if the total is under 8K, then your max contribution is equal to your total earned income. If EI is above 8K, then you total contributions can not exceed 4K + 4K. Any mix of dollars is allowed between the two Roths as long as you don't exceed the individual maximum. I have assumed that you are filing "married, joint".

Banks, brokerages and mutual funds don't want to act as if they are offering legal advice. You asked a simple question, they could have answered, but perhaps someone was taking their internal guidance a little to seriously. (They also have brochures that layout the basics of Roths and IRA... but, hey, that's apparently not legal advice.) Do pick up a copy of IRS Publication 590. Good luck with your investments.

The prior posts had less than precise language. The quote does not apply to Roth IRAs. Let me remove your headache: Current rules say no taxes on removing Roth contributions, and no taxes on "gains" (interest, capital gains, dividends, etc.) under the current Roth rules if taken after the retirement age. Further, there are no mandated distribution schedules on a Roth. Taxation on conversions are similar, but have a few special rules. Conversion regs do not appear to apply to the problem you have stated. PS: To all. Please read your posts carefully before making that final click. Look to see if someone might misunderstand the application. Avoid vague pronouns. Precise terminology avoids confusing folks. There are differences between contributory, rollover and conversions. Ditto Roth vs IRA. And "earned income" vs any income. IRS Publication 590 is not a lot of fun to read in part because the IRS (not they, but the IRS) tries very hard to include all of the conditions/caveats/exceptions.