Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 1, 1993 TAG: 9301310036
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
NO WAY AROUND PAYING TAXES ON THIS MONEY
Q: I have a tax-deferred mutual fund account. I rolled over my annuity, IRAs and CDs about three years ago through a broker with a local firm. My wife also rolled over her tax-deferred accounts.We are 65 now and would like to put our money into some tax-free investments so we could use the interest to supplement our income. Together we have about $100,000.
How can we do this without paying a lot of taxes when we withdraw? Is there some way to get the funds from the brokerage firm and into our own hands without paying the broker too? We are not really close to the broker who handles our money.
A: You cannot touch this money without paying taxes on the full amount you take. Even if you roll it over to another broker or bank, the money must go directly from one trustee to another to avoid 20 percent withholding.
But you can begin making withdrawals from your account in any manner you wish, paying taxes only on the money you take each year. This was the purpose of creating the retirement account in the first place.
Talk to your broker about withdrawing money on a monthly or quarterly basis. If you are not comfortable with your broker, find another one who can arrange for direct transfer of your account - unless your fund has an early withdrawal penalty. Check your contract provisions for this type of penalty.
Your money is already in a tax-sheltered account, so you do not need to double up with a tax-free investment. You did not state the amount of your retirement income, but you should consider tax-free investments only if you are in the upper-income brackets.
\ Q: When we added a room to our house, I took out a whole life insurance policy of $8,500 to protect my wife in case of my death before the mortgage was paid off. It also included an accidental death benefit of $8,500. The monthly premiums are $44.81 for the life insurance and $1.45 for accidental death. I pay $512.15 on an annual basis.
I'm now 73 years old. In the 11 years I've had the policy, I've paid $5,500 in premiums. In six more years, I will have paid in premiums as much as the policy is worth, not including the accidental death benefit.
I can take cash now in the amount of $2,780 on reduced paid-up insurance in the amount of $3,621.
I have no major health problems. I'm retired but work part time. Our house is paid for. I have paid-up insurance in the amount of $3,600, a mutual fund of $2,400 and an IRA of $38,000. We make do with Social Security of $1,000 a month, and pay from my part-time job is put in savings. My wife has only a $1,000 paid-up policy.
I would like to take the reduced paid-up of $3,621 and put the $512.15 premium money in a certificate each year or put it in the mutual fund.
A: Special purpose insurance, such as for paying off a mortgage, is extremely expensive. The way to buy life insurance is to calculate your family's needs vs. other sources of income. Then you buy enough insurance so that, when invested, it will throw off sufficient money to cover the difference. People with limited income may have to buy term life in order to obtain enough coverage.
Buying accidental death coverage is not a good idea. Your family's needs will not vary with the cause of your demise.
You haven't really lost, however, because your wife did have some protection in case you had died. You never really come out on insurance unless you die, your house burns, or whatever. But you have to buy insurance and hope you're lucky enough to avoid using it.
Your instincts are good. Accept reduced coverage, take the cash and invest the premium money. Gamble that you will live for another six years.
\ Q: I am a twice-married man, 75 years old. My first wife from 1947 to 1960 was a real horror, causing my new house to be sold off the courthouse steps in 1960. For nine years, I paid support to my two children.
I now own a nice small home in the mountains and am happily married to a wonderful person.
I read that if I was married over 10 years to this first wife, there is a law that she can come in on my inheritance at my death. Enlighten me please.
A: Your first wife has no claim on your estate, according to Harvey S. Lutins of the Roanoke law firm Lutins and Shapiro. He said that she has no more legal status "than I would."
Perhaps you read that a divorced wife might make a claim for Social Security payments, in certain cases, based on the former husband's records.
You should, of course, write a will making clear how you want to handle your estate between the children of your first marriage and your second wife. Everyone should have a will.
\ Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.