How to Find the Net Worth of S
QUESTION: A recent Los Angeles Times story indicated that more than 25% of California’s estimated 200 savings institutions had net worths below the required regulatory minimum at the end of 1984, including seven S&Ls; with negative net worths. How can I find out if the S&L; where I have my money is among those that are technically insolvent because their liabilities exceed their assets?--W. S.
ANSWER: If you’re willing to invest $10, you can learn a great deal about the financial health of any federally chartered savings and loan in California, Nevada and Arizona.
Once a year, the Federal Home Loan Bank of San Francisco publishes a directory of the federally chartered S&Ls; in the bank board’s 11th District, comprising those three states. Accompanying the name and address of each savings and loan listed is a run-down of its assets, liabilities and net worth. If the net worth exceeds 3% of the assets listed, the S&L; is meeting federal regulatory standards. If its liabilities exceeds its assets, it is technically insolvent.
It is important to remember that, as with any once-a-year report, the numbers are slightly out of date. Figures cited in the 1985 directory are from last Dec. 31, and the financial health of an institution can improve or deteriorate dramatically in six months. But you would be hard pressed to find more up-to-date asset and liability figures in a form available to the public. Once you have the information, you can decide for yourself whether you feel comfortable leaving your money where it is.
For a copy, send a check for $10 along with a letter requesting a copy of the 1985 Directory of Members for the 11th District to the Federal Home Loan Bank of San Francisco, Public Information Department, P.O. Box 7948, San Francisco, Calif. 94120.
Q.: I have a rollover IRA account at a savings and loan association with a balance well in excess of $100,000. I haven’t yet begun withdrawing money from it, so the balance will continue to grow. I’m very concerned about that because the government only insures the first $100,000, and officials at the S&L; insist that I cannot split the money into two accounts, each insured up to $100,000. They also claim that I cannot transfer part of the rollover account to another institution for separate coverage. I don’t have any reason to believe that the S&L; is on the verge of insolvency, but with all the recent failures I’m nevertheless concerned about my retirement savings. What can I do?--F. C. Q.
A.: Ellen Marshall, a Southern California lawyer who authored the master IRA plan used by most California S&Ls;, says your S&L; is wrong and you have every right to split that account into as many pieces as you please.
She says the easiest way to ensure that the full amount is insured is to select a second financial institution, tell one of its IRA experts what you want to do, sign the necessary papers setting up a new IRA account and leave it to the trustee at that institution to direct your current S&L; to transfer part of the money into your new account. If you prefer, repeat the process at a third institution so your accounts are all well below the $100,000 level, leaving plenty of room for growth.
It’s that simple. You never have to touch the money. That’s a plus because the laws governing IRAs permit only one transfer of IRA funds per year from one institution to another if you actually take possession of the money. But if you authorize the trustee at the financial institution to conduct the transfer, you’re permitted unlimited transfers. Although the S&L; cannot stop you from splitting up the account, it can charge you a penalty if you decide to authorize the transfer before the maturity date of the financial instruments that your IRA money is in. So if you feel comfortable waiting, you could save yourself some money.
Q.: You noted in a recent column that California isn’t nearly as liberal in allowing taxpayers to defer income taxes on individual retirement accounts as the federal government is. With that in mind, how on earth do we taxpayers determine how much to report to the state as taxable income when we start withdrawing the retirement money? The federal government makes it easy--all of the principal and interest has to be reported as taxable income upon withdrawal because none of it has been taxed previously. But in my case, the state has already taxed part of the money. I don’t want to be taxed twice. Is there any publication that can help us figure out how to account for these differences when the funds are commingled?--N. J. J. and R. H. M.
A.: First the easy answer. There is no such publication, and the financial institutions that act as trustee of your IRA money have no obligation to help you sort this out. As you suggest, this is a bookkeeping nightmare, one that keeps hundreds of accountants in work. All you can do is keep careful records.
California taxpayers who are covered by a retirement plan at work have it the easiest in this case because they aren’t allowed a deduction on their state return. That means they pay tax on the full amount at the outset. So when they withdraw their retirement funds, they owe no taxes on the principal amount.
They do, however, have to pay state income taxes on the interest accumulated over the years. How do you know what’s interest and what’s principal if you don’t withdraw the entire sum from your account? Lawyers who are specialists in the field advise their clients to figure out what proportion of their total IRA holdings is interest and then apply that percentage to the money they’re withdrawing.
Imagine how much more difficult this bookkeeping process is for taxpayers who qualify for the tax deferment on part of their IRA contributions. That is the case for those who aren’t covered by a retirement plan at work and qualify for the maximum deduction under California law--currently $1,500. Since the federal government allows a maximum deduction of $2,000 on federal income tax returns, these taxpayers are forced to keep two sets of books for the day when they start withdrawing the money and have to figure out their tax.
Debra Whitefield cannot answer mail individually but will respond in this column to financial questions of general interest. Do not telephone. Write to Money Talk, Business section, The Times, Times Mirror Square, Los Angeles 90053.
