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Orlando Sentinel, Your Money Section - Ask the Expert
- September 14, 2008
Q: We opened a UGMA/UTMA account for our son several years, and it has a current value of about $7,000. What, if anything, can we do to improve his chances of receiving a better financial-aid package for college?
- February 10, 2008
Q: It is my understanding that Roth IRAs must be open for five years before any tax-free withdrawals can be made from the account.
Instead of opening a Roth IRA and waiting five years to withdraw money, can I add to an existing Roth IRA that has met the five-year requirement and not have to wait five years before withdrawing tax-free?
- February 10, 2008
Q: I have heard a number of people state that they refuse to utilize a Revocable Living Trust because you can't get your money when you need it. I do not know what they or at what point they are referring. Do they mean while the trustor is alive? Or do they mean family members once the trustor passes on? Could you speak to the benefits/disadvantages of utilizing a Revocable Living Trust in the state of Florida to include this legal issue of unavailable funds?
- November 5, 2007
Q: I have a question about my Roth IRA. The person I opened this with about 5 years ago has retired, and it seems, he "sold or transferred" it to another company, that is out of state. It is the type that is based on buying share's in a mutual fund (Oppenheimer) although; I don't contribute as much as I should into it...
- October 28, 2007
Q: I have a 3/1 adjustable-rate mortgage on a home I purchased, and quite frankly I do not understand how the reset in monthly payments works. Could you explain it to me?
- May 27, 2007
Q: I received a $300,000 inheritance from the sale of my father’s house. Can I open a Roth IRA and deposit the inheritance into the account?
- April 29, 2007
Q: I am retired and in the 15% tax bracket. My adjusted gross income consists of mainly taxable interest. My CPA suggested that I look into tax-free or tax-exempt money market funds.
- October 8, 2006
Q: I retired last month. My husband is 64, and I am 62. I met with a financial planner and purchased a variable annuity. What type of asset mix should I have to assure a lifetime income?
- October 13, 2002
Q: I am 80 years old and recently widowed. I have a 7.75% mortgage on my manufactured home with a balance of $31,000. I live very comfortably from my pension and social security. I have $125,000invested in my IRA, which is in a money market fund. I also have $65,000 in savings. I have been beaten up by the Market recently. Should I get back in the market or pay off my mortgage?
- March 17, 2002
Q: I currently own a bond fund inside of an IRA that has been decreasing in value. What should I do? I am concerned because it is starting to eat into my principal.
Orlando Sentinel, Your Money Section - Ask the Expert
Q: It is my understanding that Roth IRAs must be open for five years before any tax-free withdrawals can be made from the account.
Instead of opening a Roth IRA and waiting five years to withdraw money, can I add to an existing Roth IRA that has met the five-year requirement and not have to wait five years before withdrawing tax-free?
A: A Roth IRA owner may access funds at any time and for any reason; however, if the distribution is not qualified, earnings may be subject to taxes and penalties.
A qualified distribution from a Roth is one that meets both of the following requirements:
- A five-year holding period beginning with the first taxable year the individual made the contribution or conversion.
- Having attained age 59 1/2 . The distribution must be made on or after the individual reaches 59 1/2 .
Please note that all after-tax contributions to a Roth IRA are accessible anytime without incurring taxes and penalties. It is only the taxable portion (earnings) that are subject to the above-stated requirements.
Q: I have heard a number of people state that they refuse to utilize a Revocable Living Trust because you can't get your money when you need it. I do not know what they or at what point they are referring. Do they mean while the trustor is alive? Or do they mean family members once the trustor passes on? Could you speak to the benefits/disadvantages of utilizing a Revocable Living Trust in the state of Florida to include this legal issue of unavailable funds?
A:A revocable living trust is an agreement you make for management and distribution of your property at the time of your death (or death of your spouse). Like a will, the trust is "revocable," meaning that you can modify or eliminate it at any time. However, at your death your wishes are final and the trust must distribute your assets as you stipulated. Theses trusts are established by a written agreement which appoints a "trustee" to administer the property, and which gives detailed instructions on how the property is to be managed and eventually distributed.
One of the main reasons to establish a revocable living trust is to avoid probate. If you fail to do this, you will not avoid probate.
If a revocable living trust is set up properly by a qualified attorney, there should be no obvious reason that your assets would be frozen or unavailable unless you have some strict instruction which only you stipulated in the trust. Definitely consult a properly qualified attorney to establish a revocable living trust for you.
Q: I have a question about my Roth IRA. The person I opened this with about 5 years ago has retired, and it seems, he "sold or transferred" it to another company, that is out of state. It is the type that is based on buying share's in a mutual fund (Oppenheimer) although; I don't contribute as much as I should into it. - I'm low income and it's difficult for me). It hasn't really grown much. I'm willing to keep it going, but I don’t like that it's now controlled by someone I don't really know and out of state. I've called the company twice and never really get a satisfied answer as to what I can do with it. and the person in charge of it, never calls, back, One conversation I had with a clerk there was because it was so small, and that I didn't contribute to it that much, they said I wouldn't get much service on it.
So my question, is it something I can transfer to a local institution, so I can at least have some control over it? And because it's based on shares, rather than a $$ amount, would I expect to loose a lot of when I transferred it? I'm 48 years old , and other than my house which is nearly paid, have no other retirement program (my employee pays nothing , not even health insurance) so it's a struggle each month, I doubt I could increase my contribution to the IRA at this time. What would be a more conservative, type ROTH IRA, (when it was opened the fellow told me they all were these types based on mutual funds), and sadly I believe him.
A: First I will be honest with you and tell you that this is not an uncommon issue that arises from time to time. A broker retires or leaves the business and transfers his book to another. However, please recognize that whether your account is transferred to a broker out of state, town, or wherever, the money always stays at the institution (in this case Oppenheimer). You are free to contact Oppenheimer at any time and ask them as many questions as you feel are necessary.
If you do so desire, you do have the ability to transfer this account to another institution and or investment of your choice. There usually might be a small fee to close the account or if your prior broker put you into “B-shares” there are some surrender charges that you might incur. Again call Oppenheimer and ask them.
A Roth IRA does make sense and you should continue funding it. However, if it is your intention to transfer this money look to invest in no-load index funds to not only reduce overall cost but commissions as well. If you are not putting in that much to begin with, why subject that little bit to commissions and additional fees inside the funds. If you need a little bit of help you might consider contacting a Certified Financial Planner to go over this and maybe hire him/her by the hour to help lead you in the right direction.
Q: I have a 3/1 adjustable-rate mortgage on a home I purchased, and quite frankly I do not understand how the reset in monthly payments works. Could you explain it to me?
A: You are not alone. Many homeowners entered into mortgages during the housing boom without a full understanding of how the financing was structured. First when rates rise during the introductory period of a variable loan, the interest rate you are paying on the outstanding balance of your mortgage gets recalculated. In your case, 3/1 ARM will reset after the first 3 years and will continue to adjust to the terms of the specified in your contract- typically every year. The first reset is usually the most drastic, because it reflects not only the increase in the index used to calculate your mortgage but also the “margin”, or extra percentage that your mortgage company tacked on. If you have enough equity in the home, and your reset interest is due for a hefty increase, you might consider refinancing to a fixed-ate mortgage, which would offer you the security of having the same payment for the life of the loan.
Q: I received a $300,000 inheritance from the sale of my father’s house. Can I open a Roth IRA and deposit the inheritance into the account?
A: A Roth IRA has limitations as to how much an individual may be able to contribute. For 2007, the limits are $4000 ($5000 for someone over 50). In addition the money invested in a Roth IRA must be from income, not from an inheritance. A Roth may fit your particular needs; however, you would not be able to deposit the $300,000 into a Roth IRA.
Q: I am retired and in the 15% tax bracket. My adjusted gross income consists of mainly taxable interest. My CPA suggested that I look into tax-free or tax-exempt money market funds.
A:It is not customary for us to recommend a specific investment from one firm over another, or to compare firms. This is especially true when we have very little information from you in order to formulate a complete financial picture.
However, to give a general answer, tax –free investments, such as municipals often are part of the portfolios of individuals in high tax brackets.
Potentially, this increases the after-tax yield of the investments without increasing the tax impact, thus creating a very tax –efficient income stream.
Since you said that you are in the 15% tax bracket, this would have little effect on your yield.
In addition, the income derived from the municipal bonds would also be included as part of the calculation towards the taxation of your social security.
One of the first questions I would probably ask is if you need the income. If you do not need this income and you are just incurring the tax liability every year, I would probably look at using a fixed annuity that will shelter the income from tax while inside of the annuity. Look for an annuity with either little or no surrender charges and a guaranteed interest rate.
Also as an advantage to you, all interest earned is not subject to tax unless you withdraw it. In addition, all interest earned and reinvested inside your annuity will have no effect on taxes paid on your social security.
I would most definitely take some time to meet with a financial planner who is well versed in not only income distribution but taxes and go over your complete scenario.
Q: I retired last month. My husband is 64, and I am 62. I met with a financial planner and purchased a variable annuity. What type of asset mix should I have to assure a lifetime income?
A:First I want to congratulate you on your retirement. Second, I would highly recommend that you begin to work with a planner who is well-versed in retirment income distribution.
One needs to understand that retirement-income planning has more to do with reliability of income than a specific product or asset mix.
There are many variables that come into effect when planning to take income from your investments such as taxes, time and withdrawal rate, etc. All these must be looked at as they apply to your personal situation.
Q: I am 80 years old and recently widowed. I have a 7.75% mortgage on my manufactured home with a balance of $31,000. I live very comfortably from my pension and social security. I have $125,000invested in my IRA, which is in a money market fund. I also have $65,000 in savings. I have been beaten up by the Market recently. Should I get back in the market or pay off my mortgage?
A:The first question you must ask yourself is how you feel about paying off your mortgage. Since you answered “Great” I would say pay it off.
However, remember to take the money out of your savings account in lieu of the money in your IRA because your IRA will incur taxes when you withdrawal the funds. You also stated you wanted to continue investing in the market. I would suggest that you invest only the portion of your money you feel comfortable with seeing fluctuate and have a little more “long term” outlook than what has occurred in the last few months. In addition, invest in a properly diversified portfolio of index funds. If properly allocated this would reduce the risk and cost you incurred in your actively managed portfolios.
Q: I currently own a bond fund inside of an IRA that has been decreasing in value. What should I do? I am concerned because it is starting to eat into my principal.
A: You should first determine whether this is a short, intermediate or long-term bond fund. Bonds act inversely to interest rate direction. As rates decline the value of the bond will rise and vice versa. Interests rates are probably at their lowest so they could likely rise in the future. With bond funds you will get “penalized” as rates increase. If you are concerned about fluctuation of this principal and need the income I would consider a fixed annuity or other type of fixed investment vehicle, which would allow you to lock in your principal, relieve income and possibly participate in the increase of rates in the future.
Q: We opened a UGMA/UTMA account for our son several years, and it has a current value of about $7,000. What, if anything, can we do to improve his chances of receiving a better financial-aid package for college?
A: In order to maximize your child’s financial aid eligibility, you may want to consider moving the UGMA/UTMA money into a 529 savings plan, or prepaid tuition plan. The Deficit Reduction Act of 2005 eliminated the negative financial –aid impact of a custodial account. Effective July 1, 2006, the custodial versions of 529 college savings plans, prepaid tuition plans and Coverdell Education Savings Accounts are treated as the assets of the parent for federal student-aid purposes when the student is a dependent. So if you roll over the custodial account into one of these three types of accounts, you will shift its financial-aid treatment from a student asset to a parent asset.
However, if this is a problem, all is not lost. A reasonable plan would be to use the UGMA/UTMA funds for the first year of college and seek your fair share of financial aid in subsequent years.
Since an UGMA/UTMA is considered an irrevocable gift to the minor, the transfer to the 529 plan may sometimes be made difficult by the institutions involved. Seek the advice of a certified financial planner who is qualified in this matter.
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