Leslie from Glen Mills asks: Should I open a Roth IRA account?

Leslie, yes you should open and contribute to a Roth account if you qualify for it.  The contributions are after tax dollars and, as long as you own the account for at least five years and wait until you're at least 59½ to take withdrawals, gains on your investment are never taxed again. Plus, you never have to withdraw the funds like you do with traditional IRAs.  If you have children it is a wonderful inheritance for them that they never will pay tax on! If you don’t have children the power of tax-deferred growth will still work beautifully for you.

If you are single you can contribute up to $5,000 or $6,000 (50 years old and older) if your 2009 adjusted gross income is less than $120,000 (you can’t contribute the full amount if your income is between $105,000 and $120,000). And if you are married and filing jointly your 2009 joint adjusted gross income must be less than $176,000 (you can’t contribute the full amount if your income is between $166,000 and $176,000.)

If you are working for a company that offers a matching 40l(k) or 403 (b) plan make sure you take advantage of it and first fund the company’s matching plan before funding the Roth.

Linda from Chadds Ford asks: Now that Congress says that people who earn more than $100,000 can convert their IRA to a Roth in 2010 is there any reason I shouldn’t convert?

Linda, converting does not make sense for everyone. The upfront taxes are a heavy burden and the Roth needs at least 20 years for the conversion to make sense when you compare the traditional IRA and the Roth.  I look at the upfront taxes paid, the opportunity cost of the taxes, and the required minimum distributions from the traditional IRA. If you won’t need the funds for retirement and you have children or grandchildren to leave it to, converting is usually a good idea.

Ken from Chadds Ford asks:I am so nauseated and scared by the huge federal deficit spending and $12 trillion national debt level. Is the dollar going to collapse and should I be putting all of my assets into gold and silver?

Ken, I get asked this a lot. It is scary and the dollar is weak for good reason (reflecting our weakened balance sheet and budget deficit).  If you think that the dollar will collapse you should not only buy gold and silver, you should buy a farm and grow your own food!

But seriously, perhaps I am an eternal optimist, but I don’t believe that the end is near. The dollar’s strength or weakness is relative.  Our country absolutely has problems but relative to the rest of the world we are doing better. You won’t see a steady stream of Americans leaving the country to become taxi drivers in Beijing or Bangalore any time soon.  And, though the Chinese make noise about selling dollars for Euros or a new basket of currencies, the reality is that the U.S. dollar remains the safest currency. Why? Because despite out economic deficiencies, we still have an infrastructure of law and free movement and free speech and possibility of advancement and sophisticated technology and economic efficiency and environmental safety that is much better than most other nations.

Realistically, I can envision a basket of currencies replacing the dollar to reflect the globalization of trade, but it will take several more generations before it materializes. 

* I look forward to receiving your questions about anything related to investments, retirement planning, or the economy. Send them to: ellen@ascendinvmgt.com and write “Chadds Ford Live” in the subject line.