Roth Iras

Frequently Asked Questions

1. QUESTION:
   Roth IRAs?
   Ok, im unemployed, but receive tax exempt money (not disability or unemployment money). my question is, can i still open a Roth IRA?
   thanks for not flinging insults guys. (sarcasm, incase you 2 missed it.)
   right now, I am disabled and fighting for my life. i was asking because im getting married soon and wanted to take care of my future wife. im looking for all possible ideas, but a job is not an option at this moment.
   Dont tell me i gotta pick best answer from these 2?

   • ANSWER:
     Wow, those answers are pretty insulting, aren’t they?? Don’t pay any attention—-tax season is stressful and they probably didn’t mean to be nasty.

     Sorry for your disability. I’ve been there, trust me.

     Unfortunately, the tax laws don’t give a break to folks who want to save for retirement but aren’t currently employed. You’ll be best off just investing what you can in a plain vanilla brokerage account or money market. Obviously you’ll be taxed currently on any earnings, whether it be interest, dividends or capital gains, but at least you’ll be saving and growing your nest egg.

     One thing—once you get married and file jointly, if your wife has earned income and you two are under the AGI limit, you can both contribute to a ROTH then.

     Best of luck to you.

2. QUESTION:
   Is there a state tax in Puerto Rico for Roth IRAs?
   I know Roth IRAs are tax free when you take the funds out at age 60, but I read that a state tax may be applicable to IRAs ( I understand that the tax exemption is at the federal level). Is there a state tax in Puerto Rico that one would have to pay for the earnings put into a Roth IRA?

   • ANSWER:

3. QUESTION:
   What are practical differences between traditional IRAs & Roth IRAs?
   Hi. I’ve read a number of bank sights about their retirement packages. However, are there any unbiased resources out there that explain what a traditional IRA offers and what a Roth IRA offers? Any websites out there? Any pointers?

   • ANSWER:
     how the money has been treated for tax purposes

     ira pre tax

     roth after tax!!!

4. QUESTION:
   Is it worth contributing to our Roth IRAs year?
   We are married filing jointly and I expect out AGI to be around 0K. 30 years old. Are there advantages to contributing to our Roth IRA this year? AGI is too high to contribute to a traditional and our tax rate will likely be lower at retirement than it is today.

   • ANSWER:
     It is always worth it. Roth IRAs grow tax-deferred and when you reach age 59 1/2, all your withdrawals are free of taxes. Contributions to a Roth IRA are not tax deductible. If you are married filing jointly and the AGI is below 7k, you can make a full contribution of 00/year to your Roth IRA and to your spouse IRA (a total of k/year). If the AGI is between 7k to 6,999, then the amount you can contribute is reduced. If the AGI is above 7k, you can’t contribute to a Roth IRA, but you can contribute to a Traditional IRA.

     By the way, AGI only matters to how much of your contributions to a Traditional IRA is tax-deductible. This part is confusing on whether any of your contributions are tax deductible or not. Not only is it dependent on filing status and the AGI, it also dependent on whether either one of you have a retirement plan at work.

     Please note that all information I wrote is base for the 2011 tax year. AGI and contribution limit may change in the future.

5. QUESTION:
   Will the government ever try to tax Roth IRAs?
   I’m thinking 30 years down the road. Will they eventually try to tax these things because they’re too stupid to spend wisely? It’s political suicide now but I feel eventually it will become acceptable, especially since a lot of voters don’t have Roth IRAs (or pay any taxes at all) so they don’t care.

   • ANSWER:
     The government could increase taxes for taxpayers who have Roth distributions, while at the same time not taxing the Roth distribution itself. Given other similar changes to tax law, this is not unlikely.

     For example, the government could add the Roth distribution (or more likely distribution of earnings) to the rest of the AGI and tax the regular AGI at the higher incremental rate. This is analogous to the change in the foreign earned income exemption that occurred recently.

     The government could add the Roth earnings distribution to the rest of the AGI, and figure tax on Social Security benefits at the higher incremental rate. This is analogous to the addition of tax-exempt interest to AGI for purposes of computing tax on SS benefits.

     When the Social Security Act of 1934 was enacted, SS benefits were not subject to income tax. Fifty years later, benefits began to be taxed. So there is a precedent.

6. QUESTION:
   Can my husband and I both have separate Roth IRAs?
   I have had a Roth IRA since I was 18 that I have been maxing out. My husband and I are both 21 right now, and we have not put his name on it because we would like to open up one for him in order to maximize future tax-free withdrawals.

   Would we have to file separate tax returns for this to be legal? Is a person allowed to have more than one Roth IRA?

   Thanks.

   • ANSWER:
     You know unless someone deletes a current question, this is my 5,000th and prob last answer on Y!A.

     What is troublesome is that I still find most (amateur) investors, etc have no clue what they are talking about.

     I have tried to help as many people as I could over the last almost 3 years come January 2010. Unfortunately, I can no longer do this work pro bono (for the public good) here unless Yahoo wants me to be a permanent part of this forum if you will in another capacity.

     http://en.wikipedia.org/wiki/Pro_bono_publico

     With that said,

     The answer to this question is:

     1. You do not have to file separately. See a CPA as to which filing status makes sense for you in your state. Ignore anyone who tells you what status to file without knowing anything about your situation.

     2. You can have all the Roth IRAs you want. And so can him. It really would not make sense to, but you would be subject to the ROTH contribution limits. See a CPA.

     3. If you both have no kids now or from previous situations, then you could name each other as beneficiaries of the IRAs. Name someone, and name contingent beneficiaries.

     4. Retirement accounts are plated in ONE person’s name ONLY. There is no such “joint retirement account” of any kind.

     Disclaimer:
     As with ALL my answers: I am not a tax or legal advisor. This is not to be deemed as tax, financial or legal advice. Always consult with a qualified tax or legal advisor before engaging in tax or legal related issues. See profile for full disclaimers.

     http://profiles.yahoo.com/u/CUXTCCBSBYDZODXWGYK2IZDOOI

     CLOSING MESSAGE:
     *************************** ************************ *******************

     THANKS TO EVERYONE WHO HAS BEEN SUPPORTIVE AND I APPRECIATE ALL THE POSITIVE FEEDBACK OVER THE LAST ~3 YEARS HERE.

     I’ll be writing business, economic, consumer, political and other articles for a media organization. I have other projects to work on now. To find me, you can prob just Google my Trade Mark name “Net Advisor.”

     Thanks to Google for making me #1 in their search engine (under net advisor) out of some 28-30 million searches.

     http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla:en-US:official&hs=z04&ei=eKXUSryVA4rWtgOd1uDRCg&sa=X&oi=spell&resnum=0&ct=result&cd=1&ved=0CAgQBSgA&q=net+advisor&spell=1

     Thanks to Yahoo in creating this form to be able to help others. I would recommend having people post their bios and state what credibility they bring to the table.

     There are some good answers here in the investment sections. There are too many who are lacking expertise and giving incorrect ideas to those who are seeking help. This is what troubles me the most.

     Closing Message:

     http://profiles.yahoo.com/blog/CUXTCCBSBYDZODXWGYK2IZDOOI?eid=HrLQZdszznsGAc0zKGGf.1M8aCKWmD9UkBGmynnCkz46qU2NcQ

     GOOD LUCK EVERYONE!

     *************************** ************************ *******************

     10.13.2009

     edited:
     closing message link added 10.16.2009

7. QUESTION:
   Are there any Roth IRAs that allow me to have total freedom?
   Okay, I love the tax advantages of a Roth Individual Retirement Account, but I hate being told what I can and can’t invest MY money in. I could put it in a freakin’ triangular hole in the ground, if I felt like it. But anyway, I’m looking for a Roth IRA that will allow me to invest in:
   1. Lending to people via Prosper.com
   2. The deeds to rental properties that pay for themselves and pay into the account
   3. Tax liens and/or tax lien certificates
   4. Stocks

   I want to invest in _all_ of those things. I DO NOT want to invest in annuities, cds, or mutual funds. Those pathetic investments are dead to me.

   Does anyone know where to look for my desired IRA?

   • ANSWER:
     Generally, Roths all play by the same rules, good luck with that portfolio.

8. QUESTION:
   Does the interest rates on Roth IRAs differ based on where you establish them?
   I would like to open a Roth IRA. Do the interest rates or rates of return differ between Vanguard, Fidelity, my personal bank, etc. just as the interest on a savings account a different banks would differ? If so, do these rates fluctuate daily? Does anyone know whose rates are consistently higher? Can I have more than one Roth? Can I have a Roth AND a Traditional IRA?

   • ANSWER:
     Your rate of return will depend more on what funds you decide to invest in rather than what company you decide to invest with. Most mutual funds have different investment objectives to match individual investor’s unique goals. How you allocate your funds between asset classes (stocks, bonds, cash, etc.) will determine your potential return. Also, your investment time horizon (how long before you use the money) will also factor into your potential rate of return.

     You can have as many Roth IRAs as you want but you cannot contribute more than the maximum ,000 a year collectively.

     You can also have a traditional IRA and a Roth but you still are limited to the ,000 maximum combined. For example, you could contribute ,000 to each IRA but not ,000 to each.

9. QUESTION:
   Are Roth IRAs only for people who make over a certain amount of money each year?
   How much should a person make before starting to think about investing in a Roth account?

   • ANSWER:
     Actually Roth IRA’s are only for people making UNDER a certain amount of money each year.

     You never make too little to think about investing in a Roth IRA. If anything, the less that you make the MORE that you should invest…

     Where else can you invest money and have the government NOT tax the income on it?

10. QUESTION:
    How old to begin adding money to ROTH IRAs for my kids?
    How old do my kids have to be?

    What’s the limit?

    What’s the limit on a ROTH contribution for an adult making less than 110k/year? I heard someone say it was going to go up to 00

    • ANSWER:
      It has nothing to do with age. The kids need to have earned income before they (or you) can put money in a Roth. The theory is that you are not putting money into a Roth for your kids. They are earning money and putting it into a Roth. Since money is fungible you can give the kids money to do what they want with. However they can not put more into a Roth IRA than they earn.

11. QUESTION:
    When were Roth IRAs first introduced?
    It’s tax time, and we’re trudging through the filing process. Knowing what year Roth IRAs were introduced would be very helpful. Thank you!

    • ANSWER:
      1998

12. QUESTION:
    Maximum Annual Contribution to Traditional and Roth IRAs?
    I have both a Traditional IRA and a Roth IRA. Each IRA has a maximum annual contribution of 00. Is this maximum for each type or IRA individually, or is it a total for all IRAs?

    If it is per type, then I could contribute 00 to my Roth, and 00 to my Traditional in the same year.

    If it is total, I could contribute 00 split between the two.

    • ANSWER:
      Yes you can split it any way you want to as long as you do not go over 00 in aggregate.

13. QUESTION:
    Does the K maximum IRA contribution apply to Roth IRAs only? Does it also apply to employer-sponsored 401Ks?
    Is there a maximum contribution amount for employer-sponsored 401K plans? Does your total combined IRA contribution for ’08 (that’s Roth IRA plus 401K) have to be ,000 or less?

    • ANSWER:
      It applies only to Roth or Traditional IRAs. A 401k has a maximum of ,500 for 2008. If you have a 401k, you can’t have a Traditional IRA but you can contribute fully to a Roth IRA.

      That means you can contribute ,500 to a 401k and ,000 to a Roth IRA for 2008.

14. QUESTION:
    Do 529 education savings plans have any advantages over Roth IRAs?
    I know that I can take money out of a Roth IRA tax free for education expenses and that the money in a Roth IRA grows tax free, so why would I want a 529 instead?

    • ANSWER:
      The money you withdraw from your Roth counts as income on the FAFSA and counts more heavily against possible financial aid than if it was in a 529. You can only put k a year into a Roth and once you withdraw it, it can’t go back in, so you are eating into your retirement. Many states offer income tax deductions for contributions to a 529.

      It won’t be “wasted” if your kid doesn’t use it all as the poster below indicates, but you will have to pay taxes and a penalty.

15. QUESTION:
    Can I make max contributions to 2 seperate Roth IRAs?
    I have an IRA at 2 different brokerage firms. Can I contribute the max 2010 amount (00) to both of these accounts or would I have to divide the k between them?

    • ANSWER:
      it’s a 00 annual contribution.
      The brokerage houses don’t know about each other so they will both accept 00 total but when it gets reported to the IRS, you will be required to transfer funds out of one of them.

16. QUESTION:
    Can I open a non-deductible as well as a deductible IRA and convert them both to Roth IRAs next year?
    I currently have a deductible IRA.

    • ANSWER:
      In theory yes.

      For 2009, your limit for all types is 00.
      If you are single, covered by a plan at work and have income between ,000 and ,000, you will be limited on how much you can deduct–so some would be deductible and some wouldn’t. (You don’t need two IRAs, this is just record keeping.)

      Then in 2010, you could roll all of the money to a Roth and only pay taxes on the portion that you got a deduction for in 2009. This would only be beneficial, taxwise, if you are in a LOWER tax bracket in 2010, say from losing your job or retiring.

17. QUESTION:
    What is the difference between traditional and Roth IRAs?

    • ANSWER:
      Traditional IRA: The deposits are deducted from your taxes, so you get the tax advantage when you put money into the IRA. You pay taxes when you take the money out. If you withdraw money before age 59 and a half there is a 10% penalty.

      ROTH IRA: You do not get any tax savings when you make deposits. But when you withdraw the funds at retirement they are tax free. You can withdraw your deposit (not earnings) without penalty at any time.

      As mentioned, IRS publication 590, will give you a full description of regulations relating to each.

18. QUESTION:
    We’re 26 and reasonably practical with our money. Should my hubby and I get Roth IRAs or Traditional IRAs?
    I don’t think we’ll be able to put the maximum yearly contribution in them or anything like that, but I’m really leaning towards opening Roth IRAs for my husband and I at our local credit union. Is there anything you wish you had considered before opening a retirement account? Would you go with Roth or Traditional?

    • ANSWER:
      The decision to choose Roth vs. Traditional often comes down to a question of income. The main difference between the two is that contributions to a Roth IRA are not tax deductible, but the money grows interest free, and you are not taxed at removal upon retirement. WIth a traditional IRA, tax deductions are available to a certain extent; the money grows interest free, but you will have to pay tax when you withdraw it in retirement. (but the theory is that when you’re retired, your tax bracket will be lower, so it’s not so bad. Problem: who knows what the tax rates will be 40 years from now!)

      The caveat with a Roth is that you cannot contribute to a it if your income exceeds a certain amount per year. ( I think the current income cap is 0k- so if you make less than that, you’re fine).

      The Traditional’s caveat is the taxation upon withdrawal later, and the amount that is deductible each year on your income tax return phases out if you are a high income earner. ( you can still contribute, but you can’t take the deduction).

      GIven that you are relatively young, and assuming you earn less than 0k per year, I’d recommend the Roth IRA. If you ever get to the point where youre’ earning over 150, then you just stop contributing to the Roth, and open a traditional, or whatever is available at that time. Just because you hit the 150k mark, and cant’ contribute anymore does not mean you will lose what you’ve already got.

      Kudos to you and your husband for taking such a intelligent, reasonable, and important step towards future financial security!

      Good Luck!

19. QUESTION:
    How many Roth IRAs can I have annually, each one maxing out at 00?

    • ANSWER:
      1.

      you can only put 5000 dollars away a year. How many separate accounts is up to you. But, ,000 cumulative among them.

20. QUESTION:
    Can I contribute k each to Traditional & Roth IRAs in same year?
    I have already contributed ,000 to my Roth IRA at Vanguard for 2006. I was on the site to make a ,000 contribution to my Traditional IRA, and the site said I’ve already made my maximum allowed contributions. I haven’t contributed anything to my Traditional Roth this year.

    I was under the impression I could contribute k each to a Roth and a Traditional IRA each year. Am I wrong?

    A second question. I still have a 401K with a former employer. Can I contribute money into that still?

    • ANSWER:
      Sorry…..you cannot contribute to both the Traditional and the Roth at the 4K level each. You can only contribute a total of k to all IRA’s this year. This limit is going up in future years, but you are topped out at 4K this year.

      As for your 401K….you cannot contribute to the 401K after you have separated from the company, but you can roll it over into a traditional IRA without tax consequence or penalties for early distribution. If I were you I would crunch some numbers to see if it would be to your advantage to pay the taxes due if you were to roll the money into a Traditional IRA and then out to a ROTH IRA (Fyi…..you cannot roll the 401K money directly into a ROTH IRA).

      The reason it is important to crunch these numbers is because you need to find out if you have enough time before you need the money to make up the tax cost today with the benefit of tax free accumulation in the ROTH.

21. QUESTION:
    Does IRA basis include Roth-IRA and non-deductible Traditonal IRAs?
    Over the years I have contributed to traditional non-deductible IRAs as well as ROTH-IRAs. When reporting the IRA basis, do I include contributions for both or only the traditional IRA?

    • ANSWER:
      Contributions/rollovers to a Roth are already after tax. You just need a total of the money put in. (You only need this if when you take your last dime of distribution you get back less than what you put in.)

      For the non-deductible portion of a TIRA, you need the records from your last 8606.

22. QUESTION:
    How do Roth IRAs work? Do they really double everything every year?

    • ANSWER:
      No, they don’t guarantee to double your money every year.

      A Roth IRA is a tax advantaged retirement investment account. You contribute your after-tax dollars to the account and invest the money. You can choose to invest in stocks, mutual funds, bonds, cds, etc. Good investments will increase in value over time. When you retire, you can withdraw the money from the account tax free (because you already paid taxes on your contributions.)

      There are limits to how much money you can invest in an IRA. If you meet certain income requirements, you can contribute up to ,000 in 2007 and that increases to ,000 for 2008. If you exceed the income requirements, you can contribute less than that, or possibly none at all. But if you don’t qualify for a Roth IRA, you can contribute to a Traditional IRA instead.

      For more information, check out the link below.

23. QUESTION:
    How do dividens in roth IRAs work? Do they enable you to put more than 00 in? Is it taxed?

    • ANSWER:
      The most you can currently put into a Roth IRA for 2006 or 2007 if you are under 50 is ,000. However, the dividends earned in a Roth IRA are tax-deferred so you don’t have to pay tax on them each year. The other nice feature of the Roth IRA is that the growth and earnings are all tax-free at 59 1/2.

24. QUESTION:
    My husband and I have roth IRAs that orginally combined was 22,000 dollars but it has gone done to 18,000?
    so now my husband would like to withdraw all the funds, we will have our first child due in November and he said it would help with expenses and he thinks the IRA value will go down even more, we are 28 and 34 years old. What are the consequences of withdrawing the funds early. I know there be will be taxes, but how much should we expect to take home. 20,000 is the total original amount we put in.

    • ANSWER:
      You can take out whatever money you have put into a Roth IRA at any time without any tax penalty. You have already paid taxes on the money. The only part you cannot take out without paying taxes is any capital appreciation or dividends that you have earned.

      So for example if the total amount you contributed adds up to ,000 and now it is worth ,000 because of interest and capital appreciation, then you can still take out the original ,000 without penalty, but you would have to leave in the remaining ,000 in. If you wanted that last ,000 as well, then you would have to pay income taxes on that as well as a 10% penalty. The only exception is if you are going to use that money to buy a house.

      But I wouldn’t panic and take it out for no reason, just because you think the stock market is going to go down more. The stock market is now on sale. You should be buying more now and saving for your retirement. Don’t wait until stocks are back at full price to start saving for your retirement again.

      Oh ok, I see you said that ,000 was the original amount you put in, so you are sitting on a loss. That means you can take out the whole amount, ,000, without any penalty at all. You have already paid taxes on this money and it is your money. But still, I wouldn’t take it out if you don’t really need it, just because stocks are on sale. A few months from now the stock market will be back up and you will earn your money back. This is supposed to be retirement money, so you have to think about what the stock market will be like decades from now. Even if the market goes lower in the next couple months, it will come back before you have a chance to buy at the bottom. You should be adding more now while stock prices are low. But if you really, really need it with a baby coming, I could see how you might want to take it out now.

25. QUESTION:
    Where to put 00 for our roth IRAs?
    It is time for me to allocate 00 for both me and my husband. My roth IRA is in fidelity, his is in Vanguard. Both of our portfolios are pretty well balanced right now between domestic and international stocks and a little bit in bonds. I was thinking of just doing a simple index fund for each of us. Any suggestions?

    • ANSWER:
      With an index fund low fees rule. Vanguards are pretty low. I think they are a good choice.
      I am putting my money in the Royce low price stock fund RYLPX and the AKREX Akre Focus Fund. I think these funds are the place to be in 2010.

26. QUESTION:
    D. Bach vs. S. Orman on traditional vs. Roth IRAs- who’s right?
    Better to invest in traditional IRAs, with pretax $s, which can grow faster BUT you have to pay taxes on down the line, or better to do Roth with post tax $s and not have to pay taxes when retired? Or do a little of both ?

    • ANSWER:
      pretax is better – you save more in taxes now that you would in the inflation affected future and it’s not going to affect your social security payments by more than a couple of dollars a month

27. QUESTION:
    Are there any limitations to my contributions annually if I have a 401k, IRAs, Roth IRAs?
    I have a fulltime job, and also am an independent contractor. I usually contribute 4k annual to my traditional IRA to get the tax write-off. I heard there are some limitations if you make more than a 100k annual.

    • ANSWER:
      The IRA limit is 00 for this year, 00 for next year for people under the age of 50 (and 00 and 00 respectively if you are 51 and up.) The salary cut-off determines if you are elligible for a Roth IRA- you can get one if you make less than 4,000 single, 6,000 for married filing jointly. Anyone can set up a regular IRA, but you may not be elligible to take a tax deduction on your contributions. Here are some basics:

      -if you don’t have a 401(k) you can deduct your IRA contribution no matter what
      -if you are single and do have a 401(k) at work, you can only take the deduction if you make less than ,000 per year

      Now, that is for people who are single- if you have a spouse, it will depend on whether or not they are offered a retirement plan (are we confused yet?) for the tax write-off.

      There is a new law going into effect in 2010 that will let you convert a regular IRA to a Roth IRA- you would have to pay tax on your initial investment if you wrote it off before, which is a bummer, but you would have the awesome tax savings of a Roth IRA. So that is something to think about in a few years!

      The contribution limit for 2007 for 401(k)’s is ,500 if you are younger than 50 and ,500 if you are older than 50. Nothing prevents you from fully funding both an IRA and a 401(k).

      I hope that helps!

28. QUESTION:
    what are some ROTH IRAs with low initial investment ?
    i only have 1K, wanna put it away in a roth IRA, since im very young now.

    for vanguard and fidelity you need 3000 and 2500 to start an account….are there any known ROTH IRAs (with low broker fees like vanguard and fideltiy) with a low initial investment (talkin 500-1000)

    • ANSWER:
      FAM Funds allow you to start an IRA with as little as 0 and make contributions as small as

      http://www.famfunds.com/fund_specifics/fam_value/index.asp

29. QUESTION:
    In very simple terms…wht is the difference between IRA and ROTH IRAs?
    I am leaving my job and intend to roll over my 401k into an IRA w/ fidelity. I was wondering which was a better deal. I make less than 50,000 a year and heard that a ROTH IRA was agood deal. Can someone tell me the difference plu the pros and cons of each one. Unfortunately im not very financially savvy so i will need someone to break it down in simple terms.

    • ANSWER:
      In very very simple terms, ROTH IRA is the best way to go! …. or you can read on.

      Traditional IRA: Your contributions can be tax deductible. If you withdraw any money from it after age 59 1/2, you will pay income tax on it (except on the contributions you didn’t make tax deductible). Any non qualifying withdrawals before age 59 1/2, add 10% tax on top of your income tax. You must take the minimum withdrawal requirement at age 70 1/2 or there will be a 50% tax on it.

      Roth IRA: Your contributions are not tax deductible. When you withdraw money from it after age 59 1/2, you do not pay any taxes on it. Any non qualifying withdrawals before age 59 1/2, add 10% tax on top of your income tax. You can hold the account for life and pass it to your heirs or beneficiary.

      You can avoid the 10% early withdrawal tax if it used for:
      1) Purchase of a first home (up to ,000 can be withdrawn)
      2) Higher education expenses
      3) You are permanently disabled
      4) You are terminally ill
      5) You are unemployed and need to pay for medical insurance.

30. QUESTION:
    What funds to invest in right now (AMERICAN FUNDS ONLY) for 30 year old married couple- 100$ each in Roth IRAs?
    Right now we each have 50 bucks a month put in to the Growth fund of america and the Capital World Growth and Income Fund…. wise allocation? or should we be doing something else

    • ANSWER:
      That seems a very logical allocation. They each are sound funds. They each have good track records. Keep up the investment plan that you have established. I disagree with one of your responders. The Income Fund has a better 10 year record than the Growth Fund. We never know what the future might hold. By having a balanced investment plan, which yours is, you are allowing for more possible future outcomes than by just investing is aggressive mutual funds. Remember as you reach 50 begin to allocate to a more conservative allocation. You do not want to be caught as many over 50s were during the last year and a half and have to work until you are 80 like they will.

31. QUESTION:
    IRA: Does 5 year holding period only apply to Roth IRAs?
    I’ve been searching online and it seems that the rule only applies to Roth IRAs or when you convert a Traditional IRA into a Roth IRA. Is there a holding period for Traditional IRAs?

    • ANSWER:
      The 5 year rule only applies to Roth IRAs.

32. QUESTION:
    what’s the max you can contribute to Roth IRA, 401, 403B, and traditional IRAs?
    My husband and I contribute to all of those in my question, but I’m not sure what the max is we can contribute all together.

    • ANSWER:
      401k is ,500 under age 50. IRA is k/yr under age 50, k/yr over 50.

33. QUESTION:
    Is it smart to have 2 Roth IRAS?
    I’m 28 years old and, recently, I opened 2 IRAs with 2 different investment firms?

    In other words, my first IRA has a mutual fund
    my second IRA has a mutual fund

    In each of these mutual funds, I’m investing .00 a month, and I’m hoping to increase to 0.00.

    Is this a smart strategy?

    • ANSWER:
      Diversification in many asset classes is designed to mitigate market risk and reduce portfolio volatility. One mutual fund (a target retirement or asset allocation fund, for example) could be better diversified than two funds investing in the same asset class. So, if you’re investing in two large-cap (big company) growth funds, for example, you’re not diversified at all. The only downside of two accounts I can think of could be additional paperwork – two statements for example – and possibly additional annual trustee fees, if any.

      If diversification is your goal, you can achieve it in one account, and adopt an asset allocation profile that’s consistent with your objectives and risk tolerance.

      Kudos! to you for starting a systematic investment plan at an early age. And, if it’s on “auto-pilot,” directly from your bank to the accounts, even better.

      The hardest part of investing I believe, as you accumulate wealth over a lifetime, is STAYING THE COURSE. Fear drives investors to sell near market bottoms, and buy near market tops, due to greed. To the extent you’ll be able to avoid this counter-productive emotional behavior over your lifetime remains to be seen. So, (1) find and adopt a strategy you’re comfortable with, (2) invest systematically, regardless of market conditions, and (3) stay the course!

      Hope that helps.

      DISCLAIMER: While the information in this response was obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. The opinion voiced in this answer is for general information only and it shall not be construed as tax, legal, or investment advice for any individual. Questioners are urged to consult with their professional advisers before making any decisions regarding their finances.

34. QUESTION:
    For 2009, can I contribute K to both my Roth and Traditional IRAs, or a COMBINED K across both?
    Or, can I contribute K to my Roth and K to my Traditional, but just not take the tax break from contributing to the Traditional IRA? I want to contribute to the Traditional too because I like the fund.

    • ANSWER:
      k is the total contribution allowed for ALL IRAs.

      If you have extra to invest, you can invest it OUTSIDE an IRA. You just have to pay taxes due, if any.

35. QUESTION:
    How do roth IRAs work?
    I’ve been told continuously to start one (i’m eighteen) but I’m not sure where to begin, what happens when I begin, and what happens at the end. Can someone explain it to me in lame mans terms?

    • ANSWER:
      Roth IRA is a retirement savings account. You can contribute up to ,000 this year. When you contribute you are contributing money that has been already been taxed.

      You can start to withdraw money from that account when you are 59.5 and you won’t get taxed on any distribution or withdraws. One exception is that you can withdraw ,000 without any penalties for your first home, though not a good idea.

      You can start by opening an account with E-Trade or Charles Schwab. If you have a job, just put from every paycheck you receive into your Roth IRA to start building funds. When you have enough, you can buy stocks, mutual funds or bonds.

      Since you are only 18, you want to be aggressive on your investments.

      Listen to those who are telling you to open one up. You need to think about your retirement now and not later. Each year that you don’t open one up can make the difference living at a very nice place or working until you die.

36. QUESTION:
    if i been investing 300 month in mutual funds and Roth IRAs for the last 2 years, can I lower the amount?
    I am going to be getting out of my job in February and I need to lower my amount that I put into the investing each month. Do I just talk to my financial planner and he can take care of that. Or anre there penalization fees? I just need to lower it for a while until I get a different job or get some other similar income. Ive done this through First Command, and they been investing my money through Pioneer Investments and Franklin templeton.

    • ANSWER:
      You can lower or stop your contributions without any penalties. You only pay extra taxes or penalties for early with-drawls made before you are 59 1/2. Hope this is helpful.

37. QUESTION:
    Roth IRAs and other after-tax investments?
    I recently opened a Roth IRA and am wondering if this is the only investment tool available for after-tax contributions? I want to make more investments but have already paid income taxes on the funds I want to use without incurring a back-end tax hit

    • ANSWER:
      Contributions can be withdrawn from a Roth IRA at any time with no tax (already taxed) or penalties. That and gains will never be taxed as long as you wait until they are “qualified”, But up to ,000 of unqualified gains can be used to buy, build, or modify your first home without penalty (but those gains would be taxed).

      So there should be no back end tax from a Roth IRA unless you draw more than your contributions out too soon, or the government totally does away with the income tax system for a national sales (consumption) tax instead.

38. QUESTION:
    how many types of ROTH IRAs are available?
    And which is the best company to work with? Which companies have the better plans with more options, etc?

    Right now I’m being courted by NMFN and I already do a little business with Edward Jones (but not much).

    • ANSWER:
      Most often times Roth IRA’s are self-directed, since this is AFTER tax money you are playing with.

      Pretty much all the same… just look at the maintenece and trade fees and pick the lower one.. such as Schwab or Etrade…

39. QUESTION:
    Why are annual contributions to Roth IRAs limited to ,000?

    I guess I am asking WHY that is the law. I’m assuming lawmakers didn’t blindly choose ,000 as the cap….

    • ANSWER:
      Because the government doesn’t want you with too money. I mean, no one needs million of dollars right? (sarcasm)

40. QUESTION:
    How many Roth IRAs can one person have?

    • ANSWER:
      There is no limit to the number of IRAs you can have.

      The IRA limit only pertains to the amount you can contribute each year.

41. QUESTION:
    Starting in 2008, how will 401Ks rolled over into ROTH IRAs be taxed?
    I know that starting next yr, it will be possible to roll those 401K accounts eligible for rollover into an IRA to be rolled directly into a Roth IRA. If 100K is rolled over from a 401K to a ROTH IRA in 2008, will all 100K be taxed in 2008.

    • ANSWER:
      I believe everything will be taxed such as contributions, dividends, interest, and capital gains. Well, your contributions came out of your income before taxes were applied and your investments grew tax-deferred. You are going to be taxed anyway when you start withdrawing them when you retire.

      But now that you are going to roll it over into a Roth IRA, you pay the taxes now so that you can enjoy the tax-free withdrawals after age 59 1/2.

      I don’t know. That’s just my thinking. Maybe you should ask this question in the tax section.

42. QUESTION:
    Will the IRS give me my total deposits for roth and sep IRAs. I have many different brokerages?

    • ANSWER:
      No, the IRS does not have a consolidated amount for all your accounts. You are going to have to construct that yourself.

43. QUESTION:
    Can I combine two Roth IRAs?
    Say that I open up a Roth IRA with Fidelity in 2005 and fund it with the maximum for the year. Then I open up a new Roth IRA in 2006 with Ameriprise and fund that with the max for 2006. Can I combine the two accounts? Are there any penalties or disadvantages to doing this?

    • ANSWER:
      You can definitely combine the IRAs without penalty. Decide which one you’d like to keep, and contact the other provider and let them know you will be transferring funds into the other one. They will provide you the proper Distribution paperwork and instructions on how to initiate the transfer.

      I recommend finding out which one has higher annual fees as well as higher management fees and close that one. (There should be an 800-number somewhere for you to get help on these questions)

      Good luck!! Remember to diversify your holdings!

44. QUESTION:
    What are the tax implications for Canadians for 401k and ROTH IRA at retirement?
    How do taxes work when Canadians who may have worked in the US withdraw money from their 401k or ROTH IRAs at retirement? Someone told me that a 401k can be withdrawn (and taxed in the US), but when the money is taken to Canada it will not be additionally taxed. However, the ROTH IRA would be taxed as new income in Canada. Is this true? If so, this defeats the whole purpose of the tax free growth provided by the ROTH IRA.

    I am currently working in the US but am a Canadian Citizen and hence dont really know where i will be come retirement (40 years away) so I am not sure as to where I should invest. I am trying to collect details so I can make an informed decision.

    Thanks
    Mathew, I know how the taxes work if you remain in the US. I need to find how they work if you plan to take the money to Canada. Of course I dont know how things will work in 40 years, but how do they work now?

    • ANSWER:
      For US taxes the 401 k disbursements will be taxed at your tax rate when you retire and the Roth disbursements will be tax free. Who knows what the Canadian tax rules will be in 40 years.

45. QUESTION:
    Should I convert my Rollover IRA to an existing Roth IRA?
    I currently have two IRAs, a Rollover IRA worth ,100 and a Roth IRA worth ,000. They are both at the same brokerage.

    Is it wise for me to convert my Rollover IRA to my current Roth? What kind of penalties and taxes will I have to pay? Is there a better way to minimize taxes? Should I have the tax withheld or should I pay from the taxes/penalty from an outside source rather than from the IRA?

    My current gross income is around 45k and in the 25% tax bracket.

    • ANSWER:
      Here’s the situation:

      1. Converting to a Roth does not have a penalty. All you will owe is income tax on that money, so….

      00 x 25% (your tax bracket) = 75 extra taxes you will owe

      2. It does make sense to convert this if…
      a. you have enough money to cover the tax bill
      b. you expect your tax rate to rise in the future (in other words, when you retire, you think your tax rate will be higher than it is now
      c. you want a source of tax free money when you retire

      3. Another strategy is this: you could convert a portion each year. Since this money is taxed as ordinary income, you could convert a small amount each year so it doesn’t bump you into a higher tax bracket. Also this strategy would ensure that you are not shocked by your higher tax bill at year end

      4. Once you make over 0,000, you are no longer eligible to convert (this law is changing in 2010)

      5. DO NOT, I REPEAT DO NOT WITHHOLD TAXES! take care of them yourself at year end. The reason for this is the following: if you convert lets say 00 and withhold 20% or 00, the 00 withheld goes straight to the federal government. Well, guess what? Since that money did not go into the Roth, the withholding itself is now subject to taxes PLUS a 10% penalty. Very bad deal.

46. QUESTION:
    Do I have to file any forms with the IRS for making a ROTH IRA contribution?
    The online tax form that I am using asks if I made any IRA contributions. Are they talking about both traditional and ROTH IRAs. Do I have to fill out any additional forms to prove that I already paid taxes on the money contributed to my ROTH? Thank you for your reply.

    • ANSWER:
      There are no filing requirements on a Roth. That is handled by the account custodian.

      If the software asks about IRAs in general, just answer ‘Yes’. It will ask you later what type of IRA it was and will handle the reporting properly — i.e. none for a Roth.

47. QUESTION:
    What do I need to do if I mistakenly make a Roth IRA contribution which I am not entitled to make?
    My wife and I have been making contributions to Roth IRAs for a few years. Last December my wife started working again and we anticipate that her income this year will push our joint income above the 0K cutoff for a Roth contribution. Before I came to that conclusion, however, I made a 00 contribution to my Roth IRA for 2007 – which I now think I am not entitled to make. My institution says that they cannot reverse out the transaction to make it appear as though no contribution was made. What will be the consequences of this mistake and is there anything I can do to fix the situation?

    • ANSWER:
      IRS publication 590 answers this. Basically, you will need to pay a 6% excise tax on the excess amount (see 590 to understand exactly what the “excess amount” is).

      You should be able to withdraw the excess contribution, as long as you have no earnings (investment gain). If you do have gains, you’re required to withdraw them, as well.

      You can apply the excess to a future year, with some provisions.

48. QUESTION:
    How are your Roth IRAs doing?
    With the economy the way it has been have you lost any money from your IRAs recently? I ask because I am thinking of starting one but I dont want to lose my money!

    • ANSWER:
      I’

      m down 4k year to date.Don’t buy citigroup or legg mason.Check Morningstar.com for ratings.

49. QUESTION:
    Can you withdraw money from a Roth IRA before your in your 60′s without penalty?
    If so, is there a limited amount of money you can take out, can you do this only once? Do you know the rules behind Roth IRAs? What your allowed to spend ROTH IRA money on? Does that affect your credit score in any way?

    • ANSWER:
      You can take money out prior to 59 1/2 penalty free by waiting five years from your first contribution, AND death, disability, or first time homebuyer.

50. QUESTION:
    Which online brokerage firm do you suggest for a Roth IRA?
    I recently opened a roth ira with e trade, but have been reading a lot about a potential bankruptcy. I know my money would be insured because I am only investing ,500, but I am weary of a company that might start to perform poorly. Do you have any suggestions for a firm that has low fees on their IRAs? Is it possible to transfer my roth ira to another online brokerage firm?…Thank you!

    • ANSWER:
      I currently have an account with Firstrade http://www.firstrade.com/. They’re service is great. I would definitely recommend them to you. They offer no-fee IRAs. There are no setup fees, no maintenance or inactivity fees, and no termination fees. For more information, check out their website: http://www.firstrade.com/public/en_us/retirement/.