April 6, 1998

Q. My wife and I are both 36 and we would like to retire at age 55. We have three children, age 2, 4, and 5. We contribute $2,000 a year to our IRA, which is in T. Rowe Price Mid-Cap Growth fund and now stands at $6,000, and we also contribute $50 a month to each of these funds: Janus, Janus Worldwide, Janus Mercury, PBHG Growth, Kaufmann, Mutual Qualified, Mutual Discovery, Warburg Pincus Emerging Growth, T. Rowe Price International Stock, and T. Rowe Price Science and Technology. These accounts now total $15,000. Are we taking a good approach to college costs and retirement? What do you think of making each fund into a Roth IRA?

R.F. Stoneham

A. While you can use the money in the taxable accounts to establish Roth IRA, you can't simply transfer it into a Roth. Instead, you'd have to sell the shares, pay any tax liabilities, and use the proceeds to fund Roth IRAs.

Provided you fall into the income limits for Roth IRAs, this will allow you to move $2,000 for yourself and $2,000 for your wife. You could transfer your traditional IRA into a Roth, but you'll have to pay taxes on the entire value of the account.

Better, since your savings schedule calls for putting away $8,000 a year, why not leave the current fund accounts as they are and instead begin each year's future savings by maxing out Roth IRA investments? The balance of your taxable savings could help pay for your children's education.

By and large your fund selections are fine for your nest egg, but probably too aggressive for college savings. Given the current high stock market, perhaps funds such as Vanguard Balanced Index and Vanguard Index Value would serve you better.

All of your funds have good records, except PBHG Growth, which delivered poor performances in 1996 and 1997. I would drop this one and add Vanguard Specialized Health Care.

You'll need to step up your retirement savings, which at the current rate would amount to only $250,679 (assuming 10 percent annual returns), which won't be a huge pile in 2017.