ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, June 24, 1996 TAG: 9606240116
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: For retirement, my wife and I have about $13,000 invested in one mutual growth fund, seven stocks and a money market cash account with a broker. Because we are in our late 40s and do not have retirement programs at work, I believe we need to be fully invested in growth or aggressive growth equities. We are willing to leave it for 15 to 20 years and work a little longer in order for it to grow. We also understand the importance of regular contributions over the life of the investment.
I believe I need to change the mix of our investments.
Would a diversity of mutual funds work best for us, or should we be in individual stocks (assuming I have the time and expertise to follow the stocks and make our own investment decisions)?
What would be the best way to insure diversity with this amount? Can $13,000 be adequately divided among four or five funds or stocks? Or will we have to go with less than that? Will less than that give us enough protection through diversification? What kind of asset allocation percentages would give us a good mix in terms of growth, aggressive growth, balanced, etc.?
A: If you have no pension plans at work, you and your wife must work harder to provide for your own retirement. The amount you mention is small for a couple in their late 40s. You should be making larger contributions to your retirement fund than you have in the past.
As to your quandary about the proper investments, John C. Parrott II, a certified financial planner with Wheat First Butcher Singer in Roanoke, said you should be invested completely in mutual funds. He said $13,000 is not a sufficient amount of money to own stocks, because you would be spread too thin.
Your first step, he said, is to identify your goals and risk parameters. He suggested you spread your money among several funds. Three, he said, would give you a good mix and nice coverage. They should be three different types of funds. Parrott could not provide specific recommendations without knowing your tolerances for risk.
He recommended you follow a procedure of dollar cost averaging. This means that you make periodic investments in your funds on a routine basis whether the market is up or down. When the market is up, your fund will be more valuable. When the market falls, your money will buy more shares, increasing your gains when the market rises again.
Using retirement funds to pay for college
Q: My husband had a retirement account with one company that was bought out by another company. The account was kept by the company. My husband has a son in college. Is there any way we could use the money for college without a penalty?
A: Whether you can withdraw the money at all depends on the terms of the specific plan your company had, but there is no way to avoid the penalty unless your husband is 591/2 or older.
Donald J. Potter Jr. of PR Taylor in Roanoke, a pension and investment consulting company, said some 401(k) plans and profit-sharing plans allow for hardship withdrawal. This depends on the provisions of the company plan rather than on the law.
Potter suggested that you look at the terms of the company plan or ask the administrator of the plan if it provides for hardship distributions.
In any event, he said, you would have to pay all taxes due. If your husband is younger than 591/2, he would also have to pay a 10 percent penalty. That is a very steep price to pay.
Some proposals have circulated in Congress to allow people to use that type of money for education or purchase of a first house, but nothing has come of these ideas. Potter said most members of Congress want to encourage people to use such plans for their retirement.
Pay Social Security, taxes quarterly
Q: I recently became an independent contractor as a real estate agent. I know I have to pay Social Security and make quarterly tax payments.
When do you pay your Social Security, and how do you pay your Social Security? Do you pay on your tax form at the end of the year, or is there some form from the Social Security Administration to make quarterly payments on this?
A: You make quarterly payments.
J. Patrick Budd, a certified public accountant with the Roanoke firm of Budd, Ammen and Co., said both taxes and Social Security payments are made through the quarterly vouchers, Form 1040-ES.
When you use the worksheet for these quarterly payments, Budd said, you estimate your Social Security along with your tax payments. The Social Security tax is plugged into the form.
You must pay at least 90 percent of the tax you owe for the year through the quarterly payments.
LENGTH: Medium: 88 linesby CNB