Roth IRA Eligibility
A Roth IRA is an individual retirement account that allows your contributions to grow tax-free. To determine whether or not you're eligible to contribute to a Roth IRA, you'll need to know your adjusted gross income. For most people, this can be found on your 1040 tax form. If you're single and your adjusted gross income is less than $95,000 you can contribute to a Roth IRA and receive all of the tax benefits. If your AGI is between $95,000 and $110,000 you can contribute, but you will receive fewer tax benefits. If you are married and file jointly, your adjusted gross income must be less than $150,000 for full tax benefits and between $150,000 and $160,000 for partial tax benefits. These limits are modified frequently, so check the IRS Web site for information about upcoming changes.
ETFs
If you have a large sum of money that you want to invest in a mutual fund, look into Exchange-Traded Funds (ETFs). ETFs contain many stocks like mutual funds but can be bought and traded directly like stocks. The benefit of ETF investing are similar to mutual fund benefits. You get exposure to a large segment of the market for relatively low maintenance fees. You only pay the charges associated with buying and selling the stock ¨C which can be pretty low if you go through an online discount broker. ETFs are not appropriate for investors planning on adding to their portfolio in small contributions over time. This investment strategy, called dollar cost averaging, when paired with ETFs will rack up more fees every time you invest and reduce your overall gain.
529 Plan Regulations
529 College Investment Plans are regulated by the Municipal Securities Rulemaking Board (MSRB). Because 529 plans have the same characteristics as mutual funds, the rules and regulations concerning them are similar to those that regulate mutual funds. In fact, the MSRB works closely with the NASD to ensure that 529 plan regulations and mutual fund regulations resemble each other as much as possible. One rule that applies to 529 plans but not to mutual funds is that your broker must inform you about any tax benefits or other benefits of investing in your own state's 529 plan when you make your investment. If you were unaware of this information when you purchased your 529 plan, contact the MSRB to file a complaint.
Small Cap, Mid Cap, Large Cap
A diverse portfolio will include stocks from small cap, mid cap and large cap industries. "Cap" is short for "market capitalization".
Market capitalization is a measurement of the size of a company. It is calculated by multiplying the stock price by the number of outstanding shares. Smaller cap companies are usually riskier investments, but they also have the highest potential for growth. In the past few years, small caps have outperformed large caps, but many analysts report that the trend is changing. Make sure your portfolio isn't too heavily weighted either way in order to benefit (and protect yourself) from market trends.
Cap definitions aren't set in stone, but there are general guidelines for what makes something large or small. Small cap companies are less than $1 billion. Mid cap companies are between $1 billion and $5 billion. Anything higher than $5 billion is a large cap.
Mutual Fund Regulations
The SEC closely monitors mutual funds and their managers. Both mutual funds and mutual fund managers must be registered with the SEC. They are then required to provide a variety of reports including a prospectus that details the fund's objectives, risk level, earnings, and more.
One of the required informational documents for mutual funds is a Statement of Additional Information (SAI). The SAI expands on items mentioned in the prospectus that are not crucial information for investors, but that some investors use to help them evaluate a fund. The SAI must be provided free to investors. To access any mutual fund documents required by the SEC, contact the fund directly and request them.