December 8, 1997

Q. I am confused by the advantages and disadvantages of the new Roth IRA. Everything I read says it is a glorious invention and everyone should have one. The only alternative view I have read is a newsletter from American Century funds, which asserted that if an investor uses the tax money saved through a deductible IRA to fund a taxable investment, the investor will end up roughly even -- netting the same after-tax amount in retirement with either the Roth or the traditional IRA. I now use my $560 annual tax break to fund my taxable mutual fund accounts. Would I come out ahead by ceasing to invest in my current IRA and opening a Roth, or by continuing as I have been doing?

H.W., Malden

A. There is an awful lot of aggressive selling of the Roth IRA going on. Certainly the assertion that everyone should switch to Roths, both for new retirement savings and by transferring old IRA accounts, is indefensible.

And American Century is correct: The after-tax position of people who use a Roth will be the same as for people who use a traditional IRA and invest the tax savings in a taxable account -- provided people are in the same tax bracket when they withdraw as when they contribute.

The basic rule of thumb here is that the Roth is beneficial if you expect to be in a higher tax bracket when you retire. And it goes without saying that the Roth is best for a person who is currently in a very low tax bracket, or in a no-tax situation.

Given your situation, I think the Roth is best -- not only because of the potential tax savings in retirement, but also the flexibility it will give you in handling your affairs at that point.

Not only can you take out as much or as little as you like at any age after 59 1/2 (provided the account has existed for five years), but there are no mandatory withdrawals at any time. If you're still working you can keep contributing after age 70 1/2, unlike with a traditional IRA.

As for the disadvantages of a Roth, I see only two. The first, of course, is that you will pay more in taxes if you are in a lower tax bracket in retirement than when the contributions are made. And the second is just a matter of bucks: To put $2,000 into a traditional IRA costs you $1,440 if you're in the 28 percent tax bracket -- the $2,000 contribution less the $560 saved on your taxes. If you put $2,000 into a Roth IRA, you will have to earn $2,778 to make the payment and pay the taxes.

If you simply can't afford to spend more than $1,440 on retirement savings, I would rather see $2,000 go into a traditional IRA than see $1,037 ($1,440 less $403 in taxes) go into a Roth.

Q. My wife and I are both 50, and we want to retire in five years. I work for a small bank, earning $65,000 a year; my wife earns $15,000 annually. Our tax-deferred retirement accounts include $474,312 in eight stock mutual funds, a $62,265 variable annuity invested in a stock fund, and $404,914 in five individual stocks, the largest of which is $262,840 worth of the stock of the bank where I work. I also hold $150,000 worth of the bank's stock in a taxable account. I will have a $254 monthly pension from a previous employer at age 55, and my wife will have a $735 monthly pension beginning at age 59. How are we doing? How is our portfolio mix? We would like to have at least $80,000 income when we retire.

G.W., Portland, Ore.

A. I know the stock market has treated you well, but this is ridiculous. Virtually every cent of your retirement savings is invested in stocks.

Obviously you are in a much better position than I am to evaluate the prospects of the bank where you work -- but it's dangerous to have such a large percentage of your portfolio in one security, and it becomes increasingly dangerous as you near retirement. I suggest you limit your exposure to a maximum of 20 percent of the portfolio.

By no means should you stop there. Now is the time to begin shifting the balance of the portfolio toward fixed-income holdings.

I suggest a portfolio such as this: 20 percent in your employer's stock; 20 percent in individual stocks or stock funds, allowing no single stock to represent more than 5 percent of the total portfolio; and the balance in fixed-income holdings such as GNMA funds, corporate bond funds (including a dollop of junk bond funds), Treasury funds, and so forth.

If such a portfolio produced average annual returns of 7 percent during the next five years, that would take the total portfolio to $1,530,872 by the time you retire -- more than enough to supply your needs.

Q. I have had $16,000 invested in Templeton Growth I fund for about 18 months. When I compare its performance with Janus Worldwide and Janus Overseas, they seem to do better in every way -- plus they don't carry a sales load. I'm seriously considering selling Templeton Growth and using the proceeds to buy one of the Janus offerings. Is this a good move?

E.S., Oceanside, Calif.

A. All three of these funds win the top five-star rating from Morningstar Mutual Funds; all are rated high for performance and low for risk.

The only differences among them are their objectives: Janus Overseas invests entirely in foreign stocks, while the other two hold portfolios of world stocks. Janus Worldwide holds 10 percent of its assets in US stocks, while 28 percent of the Templeton Growth I portfolio is in American equities.

Entering this week your fund had a 15.8 percent year-to-date gain, compared with 17.5 percent for Janus Overseas and 20.3 percent for Janus Worldwide.

Clearly you're right that your fund is running third. Nonetheless, I think you are taking too short a view. All three have established superior long-term records, and I would wait longer than 18 months before deciding that you made the wrong selection. For the moment I would stick with the fund you have.

Kenneth Hooker will answer selected investors' questions in the Sunday Mutual funds and Monday Money sections. Send letters, including your name, address and telephone number, to: Kenneth Hooker, The Boston Globe, Boston, MA 02107-2378.