Miscellaneous ROTH questions

[Guest Everett]

I have the following ROTH questions (pardon me if some (or all) of them are pretty basic):

1. First, I want to verify if my wife and I can open a joint ROTH IRA account. It doesn't look like we can but I thought I'd ask anyway.

2. As I understand, I can open different ROTH IRA accounts with different companies (don't know the exact term), e.g. mutual fund families, as long as the total contribution does not exceed whatever limit is applicable to me. Right? If I open an account with one company, am I tied to them forever? Or is there some way I can "roll over" my money into another account that is not with the same company?

3. There is an upper limit to the contribution. Is there a lower limit? Once I open an account, must I contribute to that account yearly? Do I have the freedom to change the percentages of my contributions? e.g. this year, 50% to account A, 50% to account B, and then next year, only 25% for A and 75% for B.

Well, I guess that's about it for now. I hope that someone can take time out to answer my queries.

Thanks in advance.

[Guest Lyric]

Everett,

(1) I have never seen any reference to a "joint" Roth IRA, only "spousal" Roth IRAs. By definition an IRA is an "individual" retirement arrangement. But both you and your spouse can have Roth IRAs if just one of you has earned income. The non-earner's IRA would be the "spousal" IRA, with contributions coming presumably from the spouse with earned income. In practice I don't see that having a joint account (if it were possible) would leave you any better off than having two separate accounts. The amount of the contribution would still be $4,000 a year per couple -- $2,000 for each of you provided you meet the income and eligibility requirements. And if the contributions are invested in the same amount in the same mutual funds, they would have exactly the same returns. The combined rate of growth would be the same whether the money is in one account or split between two accounts.

(2) No, you are not stuck with one trustee or mutual fund family. You can transfer your Roth IRA from one custodian/trustee (brokerage firm or mutual fund family) to another at any time, and can change the investments in the account within the same family too, ie switching from bonds to stocks etc.

Trustee to trustee TRANSFERS are penalty free because you never see the money. A ROLLOVER presupposes that you take the money out, and put it into the new account within 60 days. In theory you could use the money in the interim. A transfer is thus preferable unless you plan to use the money and then replace it immediately.

(3) You can contribute as little as you like in any one year, though when you first open an account you may have to make a minimum contribution. At Vanguard, for instance, you usually need $3,000 to buy into one of their mutual funds, but if it's going to be an IRA account, the minimum is reduced to $1,000. This is a pretty normal figure. But there are mutual funds that will accept a lower initial contribution ($250). Some will allow a very low initial contribution if you arrange for automatic contributions every month, like $50 or $100 a month (which amounts to dollar cost averaging, and is usually a very good idea).

If you're going to make regular monthly contributions, then the most you can put in any one account is $166 a month (x 12). But you can put in the $2,000 in a lump sum if you like, or make quarterly contributions, or put it in randomly. Or you can omit a year altogether -- whatever you like. If you wait till the end of the year, however, you will have lost the value it could have accrued if it had been put in earlier in the year.

In any case the sooner you open the account the better (even with a minimum amount) because the clock starts ticking right away. You can only take out your CONTRIBUTIONS without paying a penalty or taxes during the first five years, with certain exceptions. Any EARNINGS withdrawn will be taxed during those first five years (before the age of 59 1/2).

Remember that if you have a traditional IRA as well, the TOTAL contribution each year is $2,000 -- whether it goes to the traditional IRA or the ROTH IRA, or a combination of the two. But only the Roth provides for a spousal IRA.

Hope this addresses some of your concerns.

[John Olsen]

An IRA, by definition, is an INDIVIDUAL account. It cannot be a Joint Account. Or, for that matter, in your Living Trust.