Where to Find Good Credit Advice

Q. I want to learn more about improving my credit. What should I do?-- A.M.B .

A. Among the best sources of information about credit rebuilding and responsible spending and budgeting is the Consumer Credit Counseling Service. For the nearest office, call (800) 388-2227. Another source of thorough information is "Money Troubles: Legal Strategies to Cope With Your Debts," by Robin Leonard. This book, published by Nolo Press in Berkeley, is available at public libraries, at book stores for $24.95, or through Nolo Press at (800) 992-6656.

Q. I am going to lend my son $45,000. I want to charge the lowest rate I can without triggering a gift tax or other tax consequences. How much interest must I charge him to satisfy the Internal Revenue Service?-- E.S.S .

A. The answer depends on two critical factors: the interest rate you charge your son and whether he receives interest income on any of his own investments. If he does get interest income from investments, your loan would have to carry an interest rate equal to or greater than the "applicable federal rate" for family loans for you to avoid both gift-tax and income-tax consequences.

Should you charge less than the applicable federal rate--an amount that floats with the market and is set every six months--the forgone interest would be considered a gift from you and deducted from your lifetime gift limit of $600,000. You would also be required to claim as your income the amount of interest your son receives on his investments.

If your son receives no interest income from investments, you may lend him up to $100,000 and charge less than the applicable federal rate (or even no interest at all) with no gift-tax or income-tax consequences.

Q. I would like the address for the local chapter of the American Association of Individual Investors. -- J.R.G .

A. The association, whose aim is to help individuals learn how to invest in the stock market, has three chapters in Southern California. Los Angeles area residents should contact David Wright, 3420 Ocean Park Blvd., Suite 3060, Santa Monica, 90405. In Orange County, contact Wayne Johnson, 24271 Sunnybrook Circle, El Toro, 92630. In San Diego County, contact Paul Speckman, P.O. Box 232821, Encinitas, 92023.

Q. I am retiring from the federal government at the end of this month. I have been told that because my Social Security benefits will be subject to the so-called "government pension offset," it is likely that any benefits I would be entitled to receive will be negated by the offset.

That all makes sense to me. My question is whether my wife, who is not entitled to any Social Security on her own account, will be eligible to draw spousal benefits through me even though I am subject to the offset. What do your experts say? -- L.J.K .

A. Your wife will be eligible to claim spousal benefits on your account regardless of whether you actually collect any yourself. Remember that technically you are eligible to receive benefits and that the offset is the only reason you won't.

Your wife's eligibility for her share of spousal benefits is not affected by the formula that eliminates benefit payments to you.

If your wife begins taking benefits at age 62, she will receive 37.5% of what you were eligible to claim at age 65. If she waits until she turns 65, she could draw the full 50% spousal benefits. As a widow, she would be entitled to full widow's benefits.

By the way, Social Security rules apply equally to men and women. A man can apply for spousal benefits on his wife's account under the same set of rules women do on their husbands' accounts.

Because readers so often ask about Social Security, we have prepared a special pamphlet to address some of them.

To order one, send a check payable to the Los Angeles Times for $4.33 (tax and postage included) and mail it to Times on Demand Publications, P.O. Box 60395, Los Angeles, CA 90060. Please allow up to eight weeks for delivery.

(A similar pamphlet on 401(k) plans may be ordered from the same address for $5.41.)

Q. My revocable trust is the beneficiary of my individual retirement account. I understand that any distributions from the IRA are subject to income taxes, but is the IRA subject to estate taxes upon my death? -- M.A.C

A. The value of an IRA or any pension plan is included in one's estate for the purposes of computing applicable estate taxes.

However, should your estate be left to your spouse, the unlimited marital deduction--which allows spouses to leave their estate to each other untaxed--would apply and no estate taxes would be levied. Of course, any withdrawals a spouse makes from an IRA are still subject to ordinary income taxes.

Should you leave your IRA to anyone but your spouse, it will be subject to estate taxes. However, the beneficiary is entitled to an itemized deduction on his or her income taxes for the estate tax amount paid on any withdrawal from the inherited IRA.

Some tax specialists recommend that an IRA be left to an individual rather than to a trust because individuals are afforded more latitude in handling the accounts.

In addition, the rules governing withdrawals are more lenient for individuals (and more lenient still for spouses) than for trusts.

However, this matter is complicated and can depend on several factors unique to each taxpayer. You would be wise to consult with a trusted professional before proceeding.

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