Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 15, 1993 TAG: 9303160022
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
TIME TO SOLICIT FINANCIAL ADVICE FROM AN EXPERT
Q: I plan to retire this year at age 62. I will receive a sizable amount from a savings plan. I own my home and have only daily and monthly utility bills or normal month-to-month expenses. I will also receive Social Security benefits.What option should I use with the savings plan? Should I:
Roll over to a local financial group for diversification of funds?
Roll over to an IRA with a local bank and accept the going interest rate?
Accept lump-sum payoff, pay the taxes due and use 10-year forward averaging?
I want to get the maximum amount of security but would also like to have the funds placed to work for me. I will not be working except possibly part-time as a supplement.
A: This is a major financial decision in your life, and you need expert advice from someone like a certified public accountant to help you make the choice. This decision can be made only once because you will be bound by your original option.
It depends on individual circumstances whether you should roll over the money into an IRA or use forward averaging. You will have to put a pencil to both options to determine which is best for you.
People, such as you, who were born before 1936 can forward average for 10 years. That means the money will be taxed as if it were your only income over the next decade. Younger people are limited to five years.
If you have no other income besides reduced Social Security, your adviser might find you would profit from rolling over the money and paying tax only on what you withdraw.
If you do roll over, pick your plan in advance and have the money transferred directly between the two trustees. You will have 2 percent withheld if you take control of the money at any time. And if you can't make up the difference when you reinvest, you will be taxed on the withholding as if you withdrew the money.
You should diversify your money by putting it into a variety of investments. You should plan on living for 25 or 30 years after retirement, so inflation is potentially your worst enemy. You must give some money an opportunity to grow or inflation will eat into your buying power over the years.
But you don't have to pay someone to make your choices. You can set up a self-directed IRA and diversify your investments as you wish. Start now taking the time to read financial magazines for advice on your decisions.
Intended adoptee cannot become heir
Q: Can a child be an heir to an estate if an intended adopted parent died before the adoption became final? She was not listed on the estate of her intended adoptive father, but she is trying to be an heir to the estate of his father (her intended adoptive grandfather).
A: The answer is no if the facts are as you present them, but that won't necessarily prevent her from trying or even suing the heirs.
Deborah Oehlschlaeger, a Roanoke lawyer who specializes in estates, said under Virginia law there is no adoption if the proposed adoptive parent dies before the matter is final. If a person is not adopted, he or she cannot be an heir to the estate of a proposed adoptive father or grandfather.
IRA withdrawals must begin after 70 1/2
Q: At what age must all funds contributed to IRAs be withdrawn? Is all accumulated interest required to be withdrawn at the same time all contributions are required to be withdrawn?
Also, I presume the bank and credit union where I have IRAs are sending me the correct amounts. Will I be held responsible if they miscalculate? What formula do they use in determining the amounts they distribute to IRA owners?
A: You must begin withdrawing from your IRA by April of the year after the year in which you turn 70 1/2. But there is no date for total withdrawal of all funds. If you are basing your withdrawals on life expectancy because you wish to take the minimum amount, your life expectancy is recalculated every year. The tables always show time ahead of you no matter what age you reach. You never run out of life expectancy.
Interest and principal have the same status if you qualified for a tax deduction of your contributions over the years. If some of the money was taxed before you made your contribution, you can take some of each and avoid taxes on the principal.
If you are over the age of 59 1/2, you can withdraw any amount you wish over any time period. If you are taking only the minimum, you would be responsible. Your bank, however, has the computer software to make these calculations.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.