Last week, we dealt with readers who earn too much money to contribute to Roth IRAs, This week, we turn to a legal strategy for accomplishing the same goal: getting more assets into a Roth individual retirement account. Two weeks in a row. Doesn't seem like I have enough money to benefit from reading their website.

Remember you can own more than 40 different types of assets in an IRA account. You're not limited to holding just traditional securities. Most major brokerage firms managing IRAs offer a selection of mutual funds for you to invest in but restrict your holdings to traditional securities. They are usually not equipped to handle real estate, private equities or others asset classes that the IRS permits. For instance, you can own most any type of real estate including vacation houses, boat slips, and/or commercial. You cannot, however, own any real estate that you care currently benefiting from. For example, you can own a beach house but you or your family cannot use the property during the time it's held within your IRA. But, you can rent it for a profit. Another example...you can purchase a building lot and flip it 30 days later for a profit...all legal within your IRA. You can even invest in cattle within your IRA. Banks will also lend on IRA purchases. So, it's possible to use leverage. You can expect to pay a slightly higher interest rate than if you were borrowing personally but, in some cases such as real estate, the ability to use leverage in your IRA more than justifies the higher rate. Most people are only aware of the traditional mutual fund type of investments. But, if those are doing poorly...well, you've got other choices. To invest in other types of assets, you need to open whats called a "self-directed IRA" with a custodian that allows you to invest in the full range of asset types allowed by the IRS. With a self-directed IRA, you can invest in real estate and privately held businesses, make secured loans (such as a mortgage), make unsecured loans, and also invest in traditional assets such as stocks and mutual funds. With real estate bought by a self-directed IRA, any income and capital gains grow tax-deferred in the case of traditional IRA or tax-free in the case of a Roth. Fees for a "self directed" IRA with a full-service custodian are higher than those charged by custodians offering only traditional securities. There are only 3 assets classes the IRS forbids you to hold within an IRA: Collectibles, Life Insurance, & S Corporations. As usual with the IRS, there are lots of little quirky rules that failure to follow could result in significant penalties so this type of IRA investing is not recommended for people skittish about actively participating in the decision making process. Anyway, you would not have to sell an office building or a herd of cattle just because you changed custodians. The "system" is geared towards funneling the "masses" into traditional securities. OTOH, that's the safest investment for the vast majority of people. /tricia

I do not think you can reduce the amounts of your required minimum distributions by listing your grandchild as a beneficiary. In order to avoid "market timing" in taking your distributions, try to make them "neutral" with respect to the market performance. You can do that my planning in advance to take equal distributions of 1/4 of the total amount to be distritubed each quarter of 2009 -- say, March, June, Sept, and Dec. If you are fortunate enough that you do not need the money from your distribution for living expenses, you can just transfer the money to a taxable account and put it in a similar investment that it was in in the tax deferred account -- or you could take the opportunity to consider a different investment. One more thing: If you made any IRA contributions and paid taxes on them because your income was above the limit for taking a tax deduction, your required minimum distribution should deduct those taxed contribitutions, or you would be paying taxes on that money twice. I'm sure there an IRS information sheet that explains that whole situation. It makes excellent reading if you have insomnia. Look up tax form 8606. That's the one you should be using when you file your return to report your cumulated taxed IRA contributions. Have fun.

I think you have a misapprehension. Withdrawals from Roths are tax-free, because they're funded with after-tax dollars and are allowed to be tax-free by law. If you want to transfer regular IRA money into a Roth, that non-Roth money has not been taxed and you have to pay taxes on it for the privilege of converting it to a Roth. In the long run, this will typically be a good deal...but it ain't free. If you want a Roth and you make less than $100K/year, you can always fund a Roth directly; you'll just need to do it with after-tax dollars. And I believe that all the Tax Reform Act did was to remove the income ceiling on who could do this, meaning that rich people have had one more benefit provided to them. Here is a link that should help explain: Here is a link that might be useful: Roth