Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 28, 1994 TAG: 9403250106
SECTION: MONEY PAGE: A-10 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
A: You do not say what other assets you own outside your retirement fund. If this is your only money, you must be very conservative in handling it. And, of course, with low risk comes limited potential for growth.
An annuity can provide you with income for the rest of your life, if the company offering it is solid. Fidelity has a good reputation.
The downside of an annuity is that the income would be very small, based on your long life expectancy. Check this with the company. Don't forget that inflation will eat deeply into that payment over the 30 or so years you might live in retirement.
Your alternative is to invest in a mixture of U.S. Treasury instruments with a variety of maturity dates. Or you might consider one or more mutual funds - one that invests in U.S. Treasuries, and another that invests for income.
If you are uncomfortable dealing with brokers, read several personal finance publications, such as magazines, and choose recommended investments. Remember to send for and read the prospectus to be sure the fund's investment goals are the same as yours.
Tax crapshoot
Q: I recently heard somebody mention tax lien certificates in the media. I would appreciate any information you could give me about this investment idea. I really would like to know how to find out which communities offer these certificates and how one can obtain them.
A: Tax lien certificates are not so much an investment as a crap-shoot.
Your question was researched by James Pearman Jr., a certified public accountant and certified financial planner with Fee-Only Financial Planning in Roanoke, and by Scott Gardner, a lawyer in Salem.
Their conclusion: "We would certainly not recommend this type of investment to the average investor. It would appear that the investor would need to be very sophisticated and willing to do quite a bit of investigation on his own to make this investment feasible."
Pearman said these certificates are not the normal type of investment encountered in financial planning work. "We talked to several investment contacts and could not locate anyone who was familiar with someone who had invested in these certificates. This lack of familiarity would by itself indicate that these would be a very illiquid investment." In other words, it would be hard to get your money back out of the lien.
Pearman said this is how they work:
A tax lien is filed by a municipality against real estate on which real estate taxes are delinquent. When this lien is filed, it is referred to as a tax lien certificate. Three years after the lien is recorded, the taxing entity can sell the property to collect the lien.
An investor might purchase these liens at the delinquent tax sale. He would hope to recover his money from a resale of the property or from a redemption by the owner. This recovery appears to be somewhat speculative.
When a taxing authority conveys property at a delinquent tax sale, it issues a quit claim deed. This form of deed provides no warranties to the purchaser but transfers only the interest that the taxing authority would have.
The property could be land-locked, have prior liens recorded against the property, have undesirable easements or a multitude of other problems. A purchaser has 120 days to determine if there are problems with the title and to have the selling authority repurchase the property.
The purchaser would be responsible for any expenses incurred for title search, surveys or other research during the 120-day sell-back period.
401(k) withdrawals
Q: I've just turned 59 1/2. I would like to know if I can withdraw small amounts, such as $1,000, from a 401(k) plan, maybe for medical purposes, and only have to pay the taxes, not the 10 percent penalty.
A: When you reach the age of 59 1/2, you can do anything you want with your retirement plans without paying a penalty. You must, as you note, pay taxes on any money you withdraw.
by CNB