LIPPER SENIOR RESEARCH ANALYST DON CASSIDY ON KTLK AM-760

Thursday, March 28, 2002

A. Definitely. The big thing about April 15 is that it IS the finaldeadline for making your LAST-YEAR's IRA contribution. You will never beable to go back and make it up if you miss this date. Even if you get anautomatic extension on FILING your taxes, that does NOT extend the IRAdeadline.

Q. Aren't there some nicer new rules on IRA contributions now?

A. Well, actually those increased limits apply to 2002 contributions, notthose for last year. Some people, of course, have already used the newrules for the new year.

Q. Don, we've heard of a lot of fund companies that have been RAISINGtheir minimums for starting accounts. Doesn't this hurt the IRA investor?

A. Well, in a very few cases it does, but the truth is that MOST fundcompanies waive their usual standard minimums in the case of an IRAaccount. You have to IGNORE what the website says, and phone the 800# andASK about lower minimums for an IRA. You will be happily surprised, mosttimes!

Q. But still, with 18 days to go, finding $2,000 can be a lot for manypeople...

A. Glad you raised that, because some people have the mistaken idea thatan IRA is $2,000-or-nothing. Definitely not true. The $2,000 is theMAXIMUM per year, not a required minimum. And you can put in money insmall amounts a number of times, if you prefer.

Q. So then check-a-month or automatic debit would work?

A. Absolutely, out of your bank account -- or in some cases your employerwill let you make an automatic, direct allotment to the fund company eachpayday. And quite often that is exactly the condition the fund companyputs on, in exchange for waiving its normal minimums.

Q. And what about choices, like a conventional IRA vs. a Roth?

A. I've got to say everyone should talk with their own advisers, and oftenthe fund companies themselves can help you figure out the answer. But ingeneral, I would lean to Roth because, while it is never tax deductible, itgives you a lifetime of tax-FREE investment buildup, not just tax deferred.

Q. OK, let's talk about that $2,000/year limit then.

A. Right. First, it is the LOWER of your earned (labor) income or $2,000.So a child with earnings from shoveling driveways or babysitting might haveearned only $800 or something, but they could put all of THAT into an IRAthen. There is no minimum age for starting an IRA if the person had earnedincome.

Q. Suppose they've already spent all their money?

A. A parent could give or loan them money that they would then put intothe IRA. It does not matter where the actual dollars come from, as long asthere IS labor income. And I believe encouraging a life-long investmentmind-set with young people from early on, is a great thing to do for them.Compounding works miracles over the long term!

Q. How about people who don't work?

A. Well, a so-called non-working SPOUSE can contribute up to $2,000 totheir own IRA account, as long as the working spouse DOES have laborincome. Again, the actual dollars could come from the cookie jar, or abank account, or an inheritance - anywhere.

Q. Anything else?

A. I just want to make it clear that the $2K is a limit, not a minimum.Put in whatever you CAN, even if it is not the full allowed amount.

Q. What about MIXING kinds of IRAs?

A. No problem, but the combined contribution cannot be over $2K per workeror non-working spouse. In some high-income cases, you may hit theincome-test ceiling or phase-out for Roth, but you could put in the rest ofyour $2,000 into a regular IRA.

Q. What about deducting contributions?

A. Most people listening, because of income tests or because they areeligible for a retirement plan at work, are not able to deduct their IRAcontribution, which again points towards Roth anyway. It is a shame a lotof people have quit contributing because they can't deduct. We would makecharitable gifts even if we could not write them off, right? How aboutfinancial "gifts" to our own futures!?

Q. What KINDS of funds should people put into their IRAs Don?

A. Everyone has their own taste and risk tolerance, and age is a factor.But I would say two things: the younger you are, the more time you have tomake up any early setback like a 2000-2002 market, so invest moreaggressively the younger you are. That means, even if you are still alittle worried, stock funds rather that bond and certainly not Money Marketfunds! And also, I would say index funds or tax-managed funds do NOTbecome the first choice for an IRA, because there are no annual taxconsequences to worry about if the fund buys and sells a lot. The tax onan IRA, if any, comes when YOU take the money out, not by when the fundbuys and sells.

Q. Speaking of buying and selling, can you switch funds in your IRA?

A. Absolutely! Buy and sell whenever you want, to take advantage of highand low times. There is no tax event as long as the money stays inside theIRA itself! So take pressure off yourself: this is not a once-foreverbuying decision!

Q. What about owning a lot of different funds, to diversity your IRA risk?

A. Valid issue. Think about a mutual funds supermarket at some of themajor brokerages. Schwab, Fidelity, Waterhouse, Brown, TRowe Price, andothers. The advantage there is having a SINGLE IRA with ONE annual fee (ifany) rather than many. That matters early when the account is small. $20,say, is 2% drag on a $1,000 account!

Q. Back to choosing funds, Don. What does Lipper have that can helppeople?

A. Our FREE website called LipperLeaders.com. We show not only pastreturns, but also give you some more tools to look at funds from differentangles. "Consistency" is rated, and that refers to how smooth or choppythe ride is over the years, from one level of wealth to the next. Somepeople can't hold on to high-return funds because the ride is so wildduring the interim declines. We also rate funds on "preservation," whichlooks at DOWNSIDE volatility separated out from UPside volatility.

Q. So people can just GO TO the website?

A. Right. Look at the Q&A. Sort on some funds, look at your candidates.Don't worry, you will not break anything! And I should add, if peoplewant more help in understanding Lipper leaders, here in Denver, TONIGHT at7, there will be a meeting of the AAII funds group, where a couple of myresearch department colleagues will demo and explain the site. Just southof the Pepsi Center: Tivoli Student Union, Room 640. For more details,call me at 303-603-8332 TODAY. Or email at AAII_Denver@hotmail.com.

Q. Could help make the decisions easier?

A. We think so. And I should add, since there are no tax consequences ofbuying and selling funds inside an IRA, relax a little and MAKE thatdecision before April 15. You can always change it later! But you cannotgo back to 2001 once we hit April 16.

Q. And, those new, nicer rules for 2002?

A. You have until NEXT April on those. But the old $2,000 annual limit isnow $3,000 for 2002 and later years. AND for those 50 and older, you canthrow in an extra $500 annually to "catch up" in case you wish you had putmore in, in the past. But for NOW, focus on 2001 if you have not done allyou can for LAST year. Clock's ticking!

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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).