Fearless Financial FAQs
By Amy A. Brandts, CLU, ChFC
It’s true; there are no foolish
questions, particularly when it comes to your finances. So be
brave, don’t hesitate, ask on…
- Why do I keep getting those pesky prospectuses
from my mutual fund company? Do I really have to read them?
-
The short answer is YES! YES! YES!
As dry and boring as they may first appear, inside those
pages is some very hot stuff! Things like:
1)
What it invests in (types of stocks or bonds etc)
2)
Past performance (NOT an indication of future performance but good
to know)
3)
Investment strategy and risk (how they generally invest to achieve
these results)
4)
What they are charging you (fees and expenses)
5) Who
is managing the fund?
This is not a total yawn when you
really think about it. The fees reduce the investment return – it’s
not what they make, it’s what you keep that counts! Plus the fund
manager or management team is critical. Perhaps a fund had superior
performance for the last 10 year, but the person that managed during
that time period was lured away to another firm and a less
experienced unknown manager has taken over. Certainly this could
make a difference in the future performance of the fund. A
prospectus is designed to provide you with key information that
helps you assess the risk of investing. If you have questions about
this, talk to your advisor.
Q. Help!! I’m drowning in paper! I
have 4 IRA accounts with 12 different mutual funds, 4 bank accounts,
6 credit cards, two 401K plans and 4 insurance policies.
A. Stick your head out of the
paper pile and consolidate! Not only is this an administrative
nightmare, but it is extremely difficult to know whether your assets
are allocated properly. You could easily have several mutual funds
that overlap in their investment objective and style, but also in
the specific stocks that they hold. Your IRAs could be transferred
into a single brokerage IRA account (check first to see if there are
any fees for closing the old accounts). A 401(k) from a prior
employer can also be rolled to the same IRA account. You usually do
not have to sell assets, as they can be transferred “in-kind”. This
will make them easier to manage properly and may well reduce your
annual IRA fees.
Close duplicate and small bank
accounts and transfer funds into the highest interest bearing
account (but only to the extent of $100,000 at each bank, to keep
funds fully insured by FDIC).
If you own term insurance and are
still in good health, you may save money by purchasing a single term
policy (listing multiple beneficiaries if needed) rather than
keeping several small policies. Insurance companies have prices
breaks at certain amounts of insurance and taking advantage of these
can save money.
Review each credit card to
determine which ones have the lowest interest rates. You need one
card for everyday and one or two for a back up in emergencies. Put
the everyday card in your wallet and the emergency cards in a
drawer. Do not cancel the other cards, just cut them up and pay off
or transfer out the balances. By canceling cards, you could be
wiping out important credit history which could adversely affect
your FICO score.
Q. I’m confused about IRA
accounts. How much can I contribute and can I have both a Roth and a
Regular IRA?
A. First, here are the general
rules. If you and your spouse have earnings from work, you can each
contribute to one or more traditional or Roth IRA accounts (you must
be younger than 70 ½ to contribute to a traditional IRA). The
maximum contribution to all accounts for 2005 is $4,000 each ($4,500
if you are over age 50) and you can make this contribution as late
as April 15, 2006.
What you must remember is that if
you make too much money, you may lose the tax deduction for the
traditional IRA and/or be ineligibility to make any IRA contribution
to the Roth. Here are the rules:
Traditional IRA – if neither you nor your spouse has a retirement
plan, your contribution will be deductible. However, if you have a
plan at work, then your ability to deduct the contributions begin to
phase out if your modified adjusted gross income is over $65,000
(assuming you file a joint return). If your spouse has a plan and
you do not, the deduction for a contribution to your IRA begins to
phase out with a joint adjusted gross income of $150,000.
Roth -
These contributions are not tax deductible. Eligibility to
contribute to a Roth begins to phase out at an adjusted gross income
of $95,000 for singles and $150,000 for married couples filing a
joint return.
There are tremendous advantages to
a Roth. Contributions can be withdrawn at any time, without taxes
or penalties, because they have already been taxed. Investment
earnings accumulate on a tax deferred basis and may be withdrawn tax
free after five years and once you are over age 59 ½. In addition,
they are no minimum distribution requirements for a Roth and at your
death, if the funds have been in the plan for a minimum of 5 years –
they can be passed tax free to your children.
Send your questions to Amy Brandts
at:
abrandts@symphonyfinancial.net
. Amy is president of Symphony Financial in Herndon, VA and an
Investment Advisor Representative with Cambridge Investment
Research, Inc. Securities and investment advisory services are
offered through Cambridge Investment Research, Inc., member NASD/SIPC.
Cambridge does not offer tax advice.
|
