Could your home help finance your retirement?

Reverse mortgages are a hot financial product these days, mainly because mortgage lenders and brokers see them as a way to revive their flagging business. However, they actually are a great financial tool under the right circumstances, as I wrote about today.  Quite simply, they are a way that older homeowners (62 and up) can tap the equity in their homes for living expenses without having to pay the money back so long as they remain in the home. If that sounds like something that interests you, read my story and check out these great pamphlets

Home Made Money from AARP

Money from Home from Fannie Mae

Americans are spending their retirement savings

This shouldn't come as much of a surprise: Rising food and energy costs are crimping Americans' savings for retirement. Overall, 55% of households said they've cut back on retirement savings because of higher prices, according to a survey the brokerage Edward Jones recently released. The percentage was highest among households with less than $50,000 income, women, young adults and African Americans.

Help! My annuity paid zero interest last year

Q: I went to a seniors seminar on investing and bought an annuity from Alliance, and put it in S&P 500. This year I received no interest on my money. Is there a way that I can get out of this annuity? And should I put my money in another annuity?  I am a single 67 year old woman and other than Social Security, I have no other income.

A: Your annuity contract will describe the rules for getting out of your annuity and the price for doing so. Many annuities have a surrender charge that extends for five or six years or even longer. The charge declines as you get closer to the end of the penalty period. However, you usually can take a certain percentage of your money out each year without penalty. You will have to decide whether getting out is worth paying the penalty.

My opinion: It is NEVER a good idea to put all your money in any one investment, whether it's the Standard & Poor's 500 Index or a jumbo CD and it is NEVER a good idea for a retiree to buy a variable annuity with a surrender charge. An exchange for a better, lower-cost annuity can be appropriate if you don't want to cash out because of a big built-up tax liability. However, it doesn't sound as though that's your situation. If you decide to stick with your annuity, you should diversify your investments so you don't have everything riding on the S&P 500 index. 

How should I handle a 401(k) withdrawal?

Q: My job was eliminated several months ago. My family and I have managed to make ends meet since then, but I am now considering a request for my 401(k) funds (about $17,000). Should I request a direct distribution to me for the full amount to utilize for my family’s day-to-day expenses if required or should I process a rollover that would require me to place the funds within an IRA account within 60 days? Chances are good I will have full-time employment within the next 30 days, but I’m not totally sure.

A: Usually the best approach is to open an IRA with a mutual fund company or brokerage firm and arrange for a direct trustee-to-trustee transfer of the money. If you ask for a check, the 401(k) custodian will withhold 20% for taxes, which creates problems if you want to do a rollover.

However, you might want to leave the 401(k) money right where it is if the plan allows it and if you are between 55 and 59 1/2. There’s no 10 percent penalty on a 401(k) withdrawal if you were at least 55 when you left the company. For an IRA, the penalty is eliminated at 59 1/2.

Better hope you don't need long-term care

The cost of nursing home care is rising faster in the Tampa Bay area than it is in the rest of nation, according to a study released Monday by Genworth Financial, which sells long- term care insurance along with other financial products. Over the past five years, the cost of a private room in a nursing home has risen 24 percent in the Tampa Bay area, compared to 17 percent nationally. Costs are highest in Miami.

Here's what you'll pay per year in the Tampa Bay area: $77,212 for a private room in a nursing home, $33,124 for a private one-bedroom unit in an assisted living facility or $44,959 ($19.65 per hour for 44 hours a week) for a licensed home health aide.

Nightly Business Report launching new series on retirement readiness

In case you haven't heard (like you've been hiding under a rock somewhere), 78-million baby boomers are on the cusp of retirement. That means we'll be hearing lots about this subject. PBS' Nightly Business Report is launching a year-long series of reports called "Get Your Finances Ready for Retirement" that will appear two Mondays a month, starting May 12. The show is broadcast in the Tampa Bay area at 6:30 p.m. on WEDU. The first programs in the series are:

May 12--Getting started: What you need to consider about retirement

May 19--How much money do you need to retire?

May 26--Special Memorial Day program devoted to retirement topics, including when you should begin to collect Social Security

After they are broadcast, programs will be available on demand at the Nightly Business Report Web site. Monthly companion articles will be featured in U.S. News & World Report.

Is there a pension in your past?

My column this Sunday contains some tips on finding pensions from long-ago employers. If you or your spouse ever got a notice from an employer that you were vested in the pension plan, and you didn't receive a lump sum payout, this is something worth looking into. If you run into roadblocks, one of the best sources of helpful information is Pension Help America.

Will your money last as long as you do?

That's the question facing retirees who don't have a traditional pension. Naturally, the financial services industry is coming up with ideas on how to answer it. The latest is a new offering Vanguard introduced today. Fidelity Investments also offers a set of income replacement funds. And, of course, there is the option of the traditional life annuity. Today's New York Times has a story on the money management challenge facing retirees.

Here's your chance to ask an expert your financial questions

The Florida Institute of CPAs is celebrating "Financial Fitness Friday" Friday, April 18, by volunteering to answer your financial questions.So here's your chance to ask that question you always wanted to know but were afraid to ask me :)

Call the FICPA Financial Fitness Hotline toll-free at (800) 342-3197, ext. 554, between 9 a.m. and 5 p.m. Friday.

More information about financial topics is available at the American Institute of CPAs' "360 Degrees of Financial Literacy" Web site. 

Want to learn more about money? Here are some good places to start

There's so much information out there, it can be overwhelming to know where to start. I came across some recommendations today that I think would benefit anyone who wants to learn more.

Here are RETIREMENT PLANNING RESOURCES, available for free online and in some cases by mail.

Here are INVESTMENT BOOKS recommended on the Vanguard Diehards' forum.

Can I take early IRA withdrawals and avoid the penalty?

Q: I have been told that there is a way to take distributions from an IRA, a little known Section t72, I believe, that allows a person once the age of 55 is reached to withdraw for five consecutive years the same amount of money. My friend has not been able to find it. Does one has to stop working completely? Is part time work allowed?

A: Yes, there is a way to take early IRA distributions without penalty under an IRS rule known as 72(t). Here's a calculator and some explanation of the rules, which are complicated. It's generally advisable to have a tax professional assist you in calculating the correct amount to withdraw. Then you absolutely must follow the schedule. Whether you work or how much your work makes no difference.

How do I handle the distribution from my IRA?

Q: Last year, I took a qualified distribution from my Roth IRA to help pay for my MBA tuition.  I elected to have federal tax withheld when I took the distribution and now I'm wondering how I report that on my 1040 form.  Do I just list the amount of the distribution on line 15b and add the tax I paid to the total payments on line 72?  That seems to make the most sense--but this is the IRS, so I'm not so sure!

A: If it is truly a "qualified" distribution, then it is not taxable. However, you have to be at least 59 1/2 or disabled for it to be qualified. Even if you are too young for it to be qualified, you don't owe tax on the part that represents the return of your contribution. Roth distributions are treated as having first come from contributions, then from earnings. So your taxable amount to report on line 15b may be zero depending on all of the above. The tax withheld would be included on line 64 since it was withheld from a 1099 form. 

How do you get started with a Roth IRA?

Q: My son is 30 and wants to start a Roth IRA. Where should he put his $1,000 and how does he begin to do it? We won't hold you responsible with the outcome. It is our responsibility, but we are not knowledgeable like you about such things.

A: Getting started with an IRA is a three-step process: 1. Opening an account with an IRA trustee, such as a bank, brokerage firm or mutual fund company. 2. Putting money in the account (you have until April 15 to make a contribution of up to $4,000 for 2007 plus an extra $1,000 for those 50 and older). and 3. Choosing the investment.

The type of investment you want will influence where you open the account. For example, if all you want is a bank CD, then your best bet is to simply open an IRA with a bank that offers CDs with above-average yields. How much money you plan to invest also matters since a fund company or brokerage may have a minimum account size or charge fees that make a small account unfeasible. In some cases you can get around an account minimum by signing up for monthly transfers from your checking account to your IRA, such as this program from Fidelity.

Since your son has a long time to go until retirement, I'd recommend a mutual fund that invests in stocks or a combination of stocks and bonds. He should choose only one fund to get started, which can be overwhelming because there literally are thousands of fund choices out there. The important things are to choose a fund that's broadly diversified rather than focused a particular area such as small stocks or health care and to choose one that has reasonable expenses. I don't recommend any particular funds, but I will give two examples of funds you can buy directly from fund companies with $1,000 minimums for IRAs: T. Rowe Price Retirement 2045 Fund and Vanguard STAR Fund. Another approach is to open an IRA account with a low-cost brokerage firm and buy funds available through that firm with no transaction fees.

Can I contribute my IRA withdrawal back to my IRA?

Q: I understand that I will need to start drawing from my IRA when I turn 70 and 1/2, but I don’t need the income. Can I turn around and deposit my withdrawal back into my IRA and use it as a tax deductible contribution?

A: No. You cannot make a contribution to a traditional IRA once you reach 70 and 1/2. There is no age limit on contributing to a Roth IRA as long you have earned income. However, you can’t get a tax deduction for your Roth contribution.

How can I replace my 7% annuity?

Q: I have a fixed-term IRA annuity yielding 7 percent that ends in July. What can I invest this in? I am 80 years old and need this income to live on. My health so far is good.

A: I'm afraid the days of 7 percent returns are long gone for the type of investment you have now. Consider instead an immediate annuity that will pay you a monthly income you can’t outlive. You’ll get the largest payment if you choose the option with nothing for your survivors.

You also could create your own annuity with CDs and money market accounts, withdrawing both income and principal to meet your income needs. Of course you run the risk of running out of money with that option. A third option is a reverse mortgage if you own your home.

More TV: The Retirement Revolution

Retirement planning used to consist of having a lot of children to support you in your old age. If you weren't particularly good in that department, you could end up in the local poor house. Those reminders of retirement past are among the many fascinating details presented in the Retirement Revolution, which airs the next two Monday nights at 10 p.m. on WEDU and many other PBS stations. The producers at WTTW in Chicago who put the program together managed to interview dozens of retirement experts, retirees and workers who hope some day to be retired. Three people in that last category are from the Tampa Bay area and I interviewed one of them for my column today. Unfortunately, they're examples of people who aren't financially prepared for retirement. Hopefully those who watch will be inspired to do some saving for the future. Every little bit helps.

Social Security still facing some big challenges

The Social Security Administration delivered another reminder today that it's running out of money to pay promised benefits. Although there's been some improvement in the long-rate forecast, the projected disaster dates remain the same as last year: benefits will exceed tax income in 2017 and the "trust fund" will run out of money in 2041. At that point there would be enough money to pay about three-fourths of promised benefits unless there's been some cut in benefits or increase in taxes.

This report from the Center for Retirement Research puts the latest information in perspective for those who are interested in digging into the subject. I think a Social Security tax increase is inevitable, but I hate to see it happen before 2017. If it's enacted earlier, Congress will just spend the money on other things, as it does now with the current Social Security surplus. That borrowing and spending is building up the IOUs in the trust fund, which we'll turn to in 2017. I think the money in the trust fund will be there because the government will borrow the money from someplace else to repay trust fund debts. However, I can't see making the debts even bigger by giving Congress more money to spend in the meantime.

Should we tap our home equity?

Q: We are both newly retired and living on one Social Security check and investments. Would it be ridiculous to borrow on our already mortgaged home? In doing this, we would be getting a tax break and invest the amount not needed. We would use that amount borrowed to supplement our monthly income in place of the drawing down our investments. Common sense tells me that this is not a good idea. Do you think it's crazy?

A: I recommend listening to your common sense. Using home equity as a piggy bank to finance living expenses is something best saved for when you are in your 70s or older and have no other options. Borrowing against your home equity to make investments is a high-risk strategy I don't recommend, especially not to retirees. You don't say how old you are, but I assume that one of you is too young to collect Social Security. If you are concerned about the adequacy of your investments to last you through retirement, you've probably retired too soon. Working a few extra years or continuing to work part-time in retirement can make a huge difference in the adequacy of your retirement income.

What kind of retirement plan is best for me?

Q: My employer only offers 403(b) and 457 plans to save for retirement. Do these plans have stocks that I can choose from and allocate by percentages like I was able to do in my 401(k)? I am considering rolling my investment over to a traditional IRA because the other two do not seem as appealing to me right now. Where can I find simplified information comparing all three options so that I can make the best financial decision?

A: If you want to buy individual stocks, I recommend rolling your 401(k) money to an IRA with a discount brokerage firm. To find out whether buying individual stocks is even an option with your 403(b) or 457 plan, you need to contact your plan providers.  If by "stocks," you really mean "stock mutual funds," all these plans provide that type of option. Your plan provider can tell you which particular fund options you have and what kind of fees are involved. Comparison info tends to be written for the employer trying to decide which type of plan to offer. But here's some info if you want to read up: One,  Two, Three, Four.

How do you report an IRA withdrawal?

Q: When filing a tax return where the only income is from an IRA withdrawal, do you use the standard tax form? If so, do you take the standard deduction and personal exemption and if it results in a negative figure are no taxes owed? Or is there a special form for IRAs?

A: You can use Form 1040 or 1040A to report an IRA withdrawal and calculate whether you owe income taxes. Yes, you take your personal exemption and either the standard deduction or itemized deduction and the bottom line will determine how much, if anything, you owe. You need to fill out a special IRA form (Form 8606) only if certain situations apply, explained here on page 22-23 (the section about IRA distributions). The form is mainly for people who have made nondeductible IRA contributions in the past, who are converting to a Roth IRA or who are taking distributions from a Roth IRA. Be sure to report your Social Security income (some of which may be taxable) to make sure you qualify for the rebate. If you need help, go here to find an AARP tax volunteer site.

Annuities can be tax time bombs

The tax deferral annuities offer is one of their big selling points. But people who buy them often don't understand that these investments carry negative tax consequences too. Today's column is about a couple (Keith and Dolores Cutler, shown here) who learned about one of those consequences the hard way. Here are some things you need to know about annuities and taxes:

Annuities and taxes

- Taxes are deferred as long as the money stays in the annuity.

- When an annuity is purchased outside a retirement plan (with after-tax dollars), withdrawals are partly taxable/ partly tax-free return of principal.

- Withdrawals are taxed as ordinary income, not capital gains, even when they are invested in stocks.

- Taxes may continue to be deferred in a direct annuity-to-annuity transfer between companies, known as a 1035 exchange.

- An heir who inherits your annuity is taxed the same as you would be. There is no step-up in basis at your death.

[Times photo]

Can I make an additional nondeductible IRA contribution?

Q: Could someone who is age 45 and has already made the maximum allowable IRA contribution for 2007 make a non-deductible contribution for 2007 (I assume that interest and dividends would accrue tax-deferred) and, if before they reach 59-1/2 they needed to get the non-deductible contribution dollars back, is it possible to do so without paying taxes or penalties for early withdrawal?

A: First: If you already have made the maximum IRA contribution for 2007 ($4,000 since you are younger than 50), you cannot contribute any more to any type of IRA. You are, however, free to make a 2008 contribution (up to $5,000).

Second: The deductibility of your contribution is not determined when you make the contribution, but when you file your tax return. If you want your contribution to be nondeductible, then don't deduct it. Instead, file a Form 8606 with your tax return. If you already filed your 2007 tax return, you can amend it by filing a 1040X. Of course, you will have to pay taxes if the amount previously deducted is added back into your income.

Third: Sadly, you are not allowed to withdraw only your nondeductible contributions from an IRA. Once you have made nondeductible contributions, all withdrawals will be partly taxable and partly tax-free. The taxable part will be subject to the 10 percent penalty for early withdrawal.

Good news for Florida teachers saving for retirement

Florida teachers have some of the worst retirement savings options out there with fees so high that many of them would be better off putting their money in taxable accounts with low cost providers. Their choices are about to get a whole lot better, at least in counties where school boards adopt a model plan put forth last week by the Independent Benefits Council. Read more about it in my column today.

Can I avoid paying taxes on the sale of stock?

Q: My adviser recommended selling some of the stocks in my portfolio. Here's my question:  If I sell stocks and reinvest all the money from the sale into my IRA, will I have to pay federal taxes?

A: If your stock portfolio is part of your IRA, selling stocks will not have any tax consequences. You only owe tax on an IRA when you withdraw money. If your your stock portfolio is in a separate taxable account, you definitely will owe capital gains taxes on your sale. If you have earned income, you can make an IRA contribution, which may be tax deductible. It makes no difference whether the money comes from sale of stock or some other source.

Should I gradually convert my IRA to a Roth?

Q: Should I consider systematically converting my IRA to my Roth? I read somewhere that this was prudent as long as you stayed in a low income bracket. What’s a low income bracket?

A: Gradual conversion is a good idea since money in a Roth grows tax-free. Money left in a regular IRA at your death will be taxable to your heirs, while Roth IRA money will be tax free. The lowest tax bracket is 10 percent, which applies to taxable income AFTER deductions and exemptions of up to $7,825 if single and $15,650 if married filing jointly.

You are eligible to convert from a traditional IRA to a Roth if your modified adjusted gross income is $100,000 or less (not including the amount of the conversion.)

Is the Tampa Bay area still a good place to retire?

Hurricanes, sky-high property insurance rates, clogged roads.....I could go on. It seems as though there's plenty to complain about regarding life in the Tampa Bay area. But then I take a walk along Tampa Bay and I feel incredibly lucky to live here.

Do you think the Tampa Bay area is still a good place to retire? Why or why not?

I would particularly like to get a few responses (with first and last names and city) that I could put in the newspaper. Email me or post your comment here.

Are IRA withdrawals taxable if used to pay for college?

Q: I am due to withdraw money from my IRA (non-Roth) next year and had planned to use it solely for my granddaughter's college expenses; will it be taxable to either of us?

A: Yes. You will have to pay income tax on your IRA withdrawals. If you give her more than $12,000 a year, you will need to file a gift tax return, but will not actually have  to pay gift taxes until you've given away $1-million. Tuition costs paid directly to the college do not count as part of the $12,000 annual limit.

Your granddaughter will not owe any taxes on your gifts. Because she is not your dependent, you will not get the benefit of any of the education tax breaks. However, she or her parents may be eligible, depending on their situation.

New retirement planning resource available

The Department of Labor is offering a new retirement planning resource for people who are 10 to 15 years from retirement. You can use the interactive worksheets to project retirement income and expenses. The worksheets are a companion piece to the publication "Taking the Mystery Out of Retirement," which is also available in print form. Happy number crunching!

Can I split my IRA contribution between regular and Roth IRAs?

Q: For 2007, can I contribute $3,000 to a Traditional IRA and $2,000 to a Roth IRA? I am over 50 years old.

A: Yes. As long as you meet the income requirements for Roth IRA contributions, there's no problem splitting your contributions between regular and Roth IRAs. The contribution limits are $4,000 for those under 50 and $5,000 for those 50 and older.

The income limits for a full 2007 Roth contribution are $99,000  (single) and $156,000 (joint) and for a partial contribution $114,000 (single) and $166,000 (joint).

Regulators look at how brokers do business with older investors

How should brokerage firms relate to older investors? Securities regulators said today they plan to compile ideas and best practices from the industry, then publicize them and encourage other brokerages to use them. They are looking at marketing and advertising to seniors; account opening; product and account review; ongoing review of the relationship and appropriateness of products; surveillance and training.

They say they don't intend to impose new regulatory requirements, so it remains to be seen how effective the effort will be. But it's good that they're paying attention to the issue. Other parts of the initiative include enforcement actions and the "free lunch" report highlighting abuses involving investment seminars.

How do I report my IRA contribution to charity?

Question: I had IRA money sent to three different charities last year and have letters from them acknowledging same. How do I report this on my income tax form? The 1099 reports only the total amount withdrawn from my IRA, which also includes funds that I withdrew for myself.

Answer: If you look at Form 1040, you’ll notice that the IRS asks for two numbers on the line for IRA distributions. The first one is the total amount of the distribution. The second one is “taxable amount,” which is the amount that you kept for yourself. Write the letters QCD (for qualified charitable distribution) next to the taxable amount on your form.

Oops I forgot to report my Roth IRA distribution

Question: I cashed in my Roth IRA in April of 2007 and received $11,000.  I just filed my tax return today and, would you know it, my 1099R statement arrived today in the mail.  Do I need to do an amended return even if I had no taxes withheld and even if my Roth was not taxable, since  had had it for more than five years and since I am 65 years old?

Answer: Yes, you should do an amended return that includes Form 8606 for reporting your distribution. You won't owe any taxes, but if you don't complete the form, the IRS won't know that your distribution qualitifed to be taxfree.

By the way, this is why I advise waiting a while to file your return. I know I haven't received all the forms I'll need for my return.

How do I handle tax on an IRA withdrawal from nondeductible contributions?

Question: Last year our tax adviser led us to believe that we could deduct the $10,000 we put in our IRAs for the 2006 tax year. We had additional income from the sale of some property and it turned out that all we could deduct was $5,000, which is what was put on our income tax form. The extra money that we were not able to claim was in a CD, which I cashed in when it matured in late 2007. We have now received a Form 1099-R stating that the gross distribution is taxable this year in full. Is there a form we can fill out so the IRS knows that we were unable to use the contribution last year and that only the interest should be taxable?

Answer: Yes indeed, but it's a little more complicated than you might expect. Essentially you made $10,000 of IRA contributions for 2006--half of which were deductible and half of which were not. Form 8606 has to be filed when you make nondeductible contributions and when you withdraw from IRAs after having made nondeductible contributions.

First you will need to file an amended return for 2006 including Form 8606---one for each of you if the nondeductible contributions were divided between your two IRAs. When you file your 2007 return, you will file another Form 8606 on which you will calculate the taxable portion of your distribution. Again, it will be one for each of you if the withdrawal came from both of your accounts. It will be more than just the interest you earned on your nondeductible contributions. Unfortunately, IRS rules say that when you have made any nondeductible contributions, all your IRA withdrawals will be partly taxable and partly tax-free based on the percentage of your total IRA funds that the nondeductible contribution represents. The fact that you kept the nondeductible contributions in a separate account doesn't matter. IRS Publication 590 tells all about IRAs.

How's your fiscal fitness?

I put together a little quiz offering an opportunity to rate yourself on 10 key points of financial well-being. If you're up to the challenge, click here.

Which is better: a Roth IRA or a CD?

Question: I am a retired school teacher, aged 58, with a good pension.  I have recently been putting money (about $40,000.) into CD's that average about 5% interest. Is a Roth IRA a better way to go with this money?  I probably will never need to use it, but would like to leave it for my companion of 20 years, who has a small pension plan, and is 13 years younger than me.

Answer: You have to have earned income to contribute to an IRA. If your friend is still working, you could open a Roth IRA on his/her behalf and invest the money in a CD. A regular or Roth IRA is a tax-deferred wrapper for your investments, with CDs one of many investment options. You have until April 15 to make a 2007 contribution (up to $4,000 for those under 50: $5,000 for 50 or older) plus you can make a 2008 contribution (up to $5,000 for those under 50; $6,000 for those 50 or older).

New Medicaid rules for long-term care penalize gifts, reward people who buy insurance

Today's column takes a look at the new rules for qualifying for Medicaid in Florida. The primary goal is to make sure that the government doesn't pick up the tab for nursing home bills unless you really are poor. People who impoverish themselves by giving away assets will be disqualified (how long depends on how much you gave away). One way you can preserve more assets for your spouse or other heirs will be to purchase a new long-term care insurance policy that qualifies under the new "partnership program." Essentially you're allowed to keep assets matching the amount of benefits under the policy.

One note of explanation: The look-back period for transfer of assets is now officially five years rather than three. However, the longer period only applies to assets transferred after February 8, 2006, when federal law on the subject changed. Thus a three-year lookback will still apply until February 2009, when gradually it will be extended until it encompasses five years. Here's some discussion on this point. A five-year lookback is already in effect for asset transfers involving trusts.

Medicaid eligibility is administered by the Florida Department of Children and Families. Unfortunately, I've never found anyone there willing to discuss the subject with me. However, you might be able to get someone to answer your questions if you call 866-762-2237.

Here are the income and asset eligiblity requirements.

What a surprise: My stock has been sold

Question: I had hundreds of shares of TXU stock in my TD Ameritrade IRA account and had done very well with it. Then I checked online and saw that my shares had been sold and the proceeds placed in a money-market account. TXU is no longer listed. When I searched for information, I found out that they had been bought out. I knew about the negotiations, but assumed any buyout would mean conversion of TXU shares for shares in the new company, not merely a cash transaction. Clearly I was wrong.

I'm a cautious 79-year-old seeking income. If this was not in an IRA, I'd yank the money out and put it in a CD, but now I'm stuck in a money market account unless I am willing to take some risk. Do you have any comment on my experience?

Answer: My first comment is that investors should not buy individual stocks unless they are prepared to follow them more closely than you did this one. I think you are fortunate that this episode turned out as well for you as it did. When you know a deal is pending, it is best to do some research rather than assuming that it will take a particular form. Here's the story of how the buyout worked.

If you want a CD, there is nothing stopping you from getting one. You can buy CDs and other fixed-income investments at TD Ameritrade. Or, if you haven't already done a rollover involving this account in the last year, you can withdraw the money from your IRA brokerage account and roll it over to an IRA at a bank. Just be sure you get the rollover accomplished in 60 days so it's not a taxable transaction.

Can I move my Canadian retirement money to an IRA?

Question:We opened a Canadian RRSP ( Registered Retirement Savings Plan) in the 1970s when we were Canadian residents/naturalized citizens. Now we are in our mid-to late 50s and we would like to have our RRSP funds transferred to a local US bank IRA. Can we accomplish this safely without any penalty or causing a loss and major tax penalties? It seems appropriate to have our money close to where we live and plan to retire. We gave up Canadian citizenship in 2000 when we became naturalized US citizens.

Answer: I am not an expert on foreign tax law, but my resesarch indicates that moving money out of the Canadian account would trigger a Canadian tax obligation. If you are going to have to pay taxes in Canada, the last thing you'd want to do is put the money in a U.S. account where you'd have to pay taxes again when you withdrew it. Here are a couple of sites (one and two) with some discussion of this topic. The U.S. tax law is very specific about which types of accounts are eligible for IRA rollover and foreign accounts are not among them.

Where can I find out about investment adviser designations?

Question: You mentioned that some of these investment seminars are put on by persons that use dubious professional designations that require no meaningful training, but suggest expertise and mislead investors. How do I as a senior know what these designations stand for? And which designations are meaningful and which are not?  What do the designations CSA and CLDP stand for? Can you email me a list that will answer some of my questions?

Answer: Here's the best source I have found for professional designations used by investment advisers. You have to pull down the drop-down box and hunt for the one you're looking for. I have never heard of CLDP and don't see it on the list. CSA is "certified senior advisor," which is one of the more dubious designations. Some credentials I consider of particular value are CFP, CFA, ChFC and PFS (for people who already are CPAs). For those who are interested, here is a column I wrote on the subject and here is some commentary on the proliferation of designations from author Errold Moody.

Susan Antilla takes on Phillip Wasserman and "the # 1 retirement income planning firm in the nation"

A Tampa Bay insurance agent/financial executive is getting some national attention today from Bloomberg columnist Susan Antilla, but it isn't exactly complimentary. Phillip Wasserman, chief executive of Phillip Roy Financial Services in Clearwater, is described as a bully who is currently being investigated by both the Florida Department of Financial Services and the Florida Office of Financial Regulation. On its Web site the company says it speaks to 40,000 seniors a year through investment seminars. Wasserman is a former lawyer who resigned from the Florida Bar after being suspended. The St. Petersburg Times covered his dispute with the bar back in 1995 and 1996. I called his office and asked for his comment on her column, but he wasn't available.

Update: Wasserman's attorney, Anthony Battaglia, said the state has a "personal vendetta" against his client and Wasserman has filed formal complaints with the office of the inspector general regarding the conduct of the investigations. Wasserman called Antilla's column false, biased and unfair.

Another update: Wasserman called me to tell me more about his company. He said more than 800 representatives are now affiliated with him and that he's now a multi-millionaire and a major charitable donor.

Money question of the week: How are you managing your income in retirement?

Making your income last as long as you do is one of the greatest challenges facing retirees. There are inevitable tradeoffs--the more you spend now, the more likely you won't have enough later to maintain your lifestyle. But being too conservative exacts a price as well. In my column in today's Times, Gail Bruckner of Franklin Templeton gives her recommendations. This report from Fidelity talks about the potential role of annuities.

I want to know how you are managing your income in retirement. Do you have any tips to share with others? If so, I'd like to hear them.  Please give your first and last names and your city so we can consider your comments for publication in the St. Petersburg Times.

(Photo credit: Getty Images)

Does Social Security cheat working women?

Specifically, married working women. I'm one of them so this question is of personal interest to me. Since one-earner couples were the norm when Social Security was created, it's not surprising that the system was set up for their benefit. Compared to two-earner couples with the same combined level of earnings, the one-earner couples receive more benefits.

How can that be? Here's an example: Joe earns $34,200 a year and his wife Susie stays home. At retirement, their Social Security benefit is $1,350 for Joe and $650 for Susie, or $20,025 total. When one of them dies, the survivor gets $1,350 (100% of the higher benefit.) Compare that to Bob and Barbara, who each earn $17,100, or $34,200 combined. At retirement, they each get a benefit of $875, or $1,750 total ($275 less than Joe and Susie) and when one dies, the survivor's benefit is just $875 ($475 less than Joe or Susie). Both couples paid the same amount in Social Security taxes. This example comes from an issue brief on Women and Social Security, published by the American Academy of Actuaries.

How could this inequity be fixed? One idea proposed in the past would be to cut the 50% spousal benefit for one-earner couples to 33% and increase the survivor benefit for two-earner couples to 75% of the total benefit paid when both were alive. Another idea would be to eliminate the spousal benefit entirely and instead add a couple's earnings together each year and split them evenly between them for the purpose of calculating benefits. I like that second idea myself.

What do you think?

(Photo credit: Getty Images) 

   

Safe Investing for People over 50

Learn more about how to avoid becoming the victim of a scam at these upcoming seminars:

Tuesday, May 15: Jeri Dresner, senior special counsel for the U.S. Securities and Exchange Commission Miami office, will lead a seminar on "Safe Investing for People over 50" at the Sunshine Center, 330 Fifth St. N, St. Petersburg. 7 pm registration and refreshments, 8:30 pm program. This is a meeting of the American Association of Individual Investors' local chapter (a good group to meet if you're interested in learning more about investing). Cost for nonmembers is $14 at the door. More info.

Monday, May 21:  Governor Charlie Crist, Stetson University College of Law and the Florida Dept. of Law Enforcement will sponsor “Investigating and Prosecuting Financial Exploitation of an Elderly Victim” in the Eleazer Courtroom on  Stetson University Gulfport campus, 1401 61st St. S.  10 a.m. to 4:30 p.m. More info: Special Agent Nita Ashley at 850-410-7568 or e-mail nitaashley@fdle.state.fl.us.

Thursday, May 31, "If it is too good to be true...scams old, new and internet" by professor Richard Graves at Stetson University College of Law, in the Eleazor Courtroom at 1401 61st St. S, Gulfport. 10:30 a.m.-11:15 a.m. Free.  More info.

Buying a house with IRA money

Q. I have money invested in mutual funds in an IRA. Can I use this money for a down payment on a house?  Will I be taxed and penalized?  Please advise.

A. Yes, you will be taxed. You also will owe a 10 percent penalty on your IRA withdrawal. However, you can avoid the penalty (but not the tax) on up to $10,000 of home buying expenses if you have not owned a home in the two years ending on the acquisition date of the house. The house must be purchased within 120 days of taking the money out fo the IRA.

Organize your family records

Here's a new tool for organizing your family's financial, medical and other important records - and it's free. T. Rowe Price is offering the PC-compatible CD covering investments, credit cards, income, insurance, loans, property, medical information and estate and funeral planning. You can get it here or by calling (800) 538-2706.

(Photo credit: T. Rowe Price)

Senior insurance deals--not such a great deal?

Business Week recently had an interesting piece, "The High Price of Free Insurance" about investors trying to convince wealthy seniors to take out life insurance policies for the purpose of resellign them. According to this articles and others I've seen, promoters are offering inducements such as cars and cruises to people to take out these policies. Have any of you ever come across that in the Tampa Bay area? If you have, I'd appreciate it if you'd email me the details. I have seen solicitation letters, but that's about it.

If you've ever thought of taking out one of these policies for resale, I recommend discussing the details with a financial adviser (other than the one trying to sell you on the policy) to confirm that it's right for you.

Are you tuned in to your employee benefits?

Most companies offer at least a few employee benefits and some have a whole array of options. However, many employees focus on health insurance and forget about everything else. If you're one of them, you could be leaving important benefits on the table, from retirement savings plans to disability and life insurance to flexible spending accounts. The key questions to ask are: What are my options? How much do they cost? Does my employer subsidize the cost? Are there tax benefits in it for me for participating? Is this something I need? If you are married, you and your spouse should go over this together, reviewing information from both your employers. Here are two benefits I especially recommend:

*Saving through payroll deduction. Saving is easiest when you don't get your hands on the money. Sign up for a retirement savings plan AND for direct deposit of part of your paycheck into a credit union or money market account where it can accumulate to help cover emergencies and major expenses.

* Flexible spending accounts for health care and child care expenses. Money is deducted from your paycheck and from your taxable income. You get it back tax-free when you submit receipts for covered expenses. If you've got  predictable expenses in either category, this is a very valuable benefit. It's great for paying for day care and orthodontics.

Fiscal education for midlife

Retirement may seem like an impossible dream, but if you're still earning income, there are things you can do now to improve your quality of life down the road.  In today's Life Times section, I offer some of my top tips for people in their 40s, 50s, and 60s. Here are three that are among the most important:

40s: Keep debt under control. Pay off credit card balances in full each month and resist the temptation to cash out home equity.

50s: Empty the nest. Develop a timetable and a strategy for helping your children achieve financial independence.

60s: Test drive retirement finances. Live within your projected retirement budget to see if it's realistic. Keep a record of your spending for a few months to identify where adjustments might be needed.

Here's the story that goes with the tips.

The free programs at Analyze Now! can help you with your planning.

Good news and bad news from Social Security

There's a little bit of good news out today from the Social Security trustees. Their annual report to Congress says that the money will run out in 2041, one year later than last year's estimate. The bad news: Benefits are still projected to exceed income in just 10 years and they're counting on the old Social Security trust fund (a stack of government IOUs) to make up the difference. Even assuming the trust fund is up to the job, it will take an extra $4.7-trillion to pay all promised benefits over the next 75 years, which is about $100-billion more than projected last year. It says the problem could be solved by immediately increasing the Social Security payroll tax 1.95 percentage points or immediately cutting benefits 13%. Of course we all know that nothing will happen immediately, so any tax increases or benefit cuts will be more drastic.

If you're the type that likes to delve into these things, the report contains lots of interesting info about population growth, fertility rates, earnings and inflation assumptions.

Here's one take on the report, from the Center for Retirement Research at Boston College.

There's still time to make an IRA contribution

  Here's a reminder that you have until midnight April 17 to file your income tax return and - if you wish - to make a 2006 IRA contribution. Although you can get a six-month extension of time to file your return (Form 4868), there's no extension for paying what you owe or for making your IRA contribution. The maximum per year for 2006 and 2007 is $4,000, or $5,000 if you are 50 or older.

If you're due a refund on your return, you have the option of depositing it in an IRA, but it's too late to do direct deposit for a 2006 contribution. If you use direct deposit for a 2007 contribution, check with your IRA custodian after a few weeks to be sure that your account was properly credited.

The best places for your IRA are with a mutual fund company, brokerage or bank. You have the widest selection of investments with a brokerage.   

How safe is your pension fund?

The New York Times has a shocking story about New Jersey's failure to fund its pension funds for government workers. In one case, the state reported contributions to its teachers' pension fund of $551 million or $56 million when it actually contributed nothing at all.

Some people who are due pensions are collecting nothing, apparently not aware that they are even entitled. You can check to see if you have lost pension benefits at the Pension Benefit Guaranty Fund Web site. (Although the search function seems to work sporadically.)

Is my husband's pension safe?

Q. I am concerned about my husband's pension. He worked for a large company for 30 years, retired and is receiving a monthly pension. Is there any way the company can cancel or change his pension? Is the company able to renegotiate the terms of his pension, the way they did with his healthcare coverage?

A. Legally, a company cannot change or renegotiate pension benefits that already have been earned. (It can change the way future benefits are accrued.)  If a company goes bankrupt and dumps its pension plan, the plan is taken over by the Pension Benefit Guaranty Corp. to protect the participants. The PBGC has limits on what it will pay, which are most likely to affect high earners and early retirees. As you have discovered, health care benefits are not legally protected.

Do you have all your eggs in one nest?

The end of the year is always a great time to review your investments. My personal approach is three-pronged:

1. I add up all my investments, subtract my debts and calculate my net worth. I like to see how much progress I've made in the past year.

2. I take a look at how my money is allocated among stocks, bonds and cash so I can tell whether I'm still where I want to be.

3. I look at the individual investments within those categories to check how they've performed over the past year and review whether I still think they're my best options.

When I talk to friends and readers, I find a lot of people completely skip over Point 2. Many of them take the all-or-nothing approach. They've got all their money in CDs or stock funds. Or even worse, they've put their life savings into a questionable investment somebody told them was "safe" or "insured." The problem: Even if you think it's the world's greatest investment, it shouldn't get all your money. There are no "sure things" when it comes to money. If you think it's risk-free, you just haven't understood or you've overlooked the risk you're actually taking. So do yourself a favor: When you get your year-end statements, check your investment balance, not just your returns.

(Photo credit: Getty Images)

More on rolling over an IRA to a Health Savings Account

Q. I just read your article in the St. Petersburg Times, and would like to find out more about the IRA to HSA rollover.  I could not find this information on the IRS website.  Would it be ok for me to set up a regular (not Roth) IRA for 2006, take the tax deduction for the IRA, and then roll it over to an HSA account? Would a IRA to HSA account rollover effect the maximum yearly contribution to my HSA account?

A. It's too soon for the information to be on the IRS Web site. President Bush just signed the bill today. Here's the best source I have found for info on the new tax law. A helpful reader also posted this link explaining the new law. I'd say stay tuned before you act.

What's your favorite money book?

Today's column mentions some of my favorite money books for readers to consider as possible holiday gifts. When I wrote it though, I knew I was undoubtedly leaving out some really super books. Although money-related books come across my desk by the cartload, I don't have time to read very many of them.

Thus I'm asking you: What's your favorite money book and what do you like about it? Please post your comments here.

BTW, Here's what I said in my column:

Don't want to give money? Here are a few lower-cost ideas, available from bookstores except where noted:

- Personal Finance for Dummies, 5th Edition by Eric Tyson ($21.99, Wiley) There's a reason this book is in its fifth edition: It's a well-organized, practical guide to the world of personal finance.

- The Bogleheads' Guide to Investing by Taylor Larrimore and others ($24.95, Wiley). A good choice for people interested in learning how to invest wisely and keep their portfolios balanced.

- All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi ($14, Free Press). Readable advice from a mother and daughter, aimed at people who are struggling financially.

- KidsWealth Money Kit ($39.95) contains materials to help you teach your kids money management. Made by a Tampa company. Where to go: www.kidswealth.com or call (813) 472-8600.

- Starting Out by Sheryl Garrett ($15.95, Dearborn Trade Publishing). One of a series of guidebooks, this one is aimed at young people who are or soon will be living on their own.

- Nolo (www.nolo.com) publishes outstanding books for those who want more detailed information on topics such as bankruptcy, credit repair, divorce, real estate and wills.

(Photo Credit: Wiley)