Lottery Heirs Need Not Fear Reaper
Q. My grandfather, who is 90 years old and in frail health, enjoys playing the California Lottery. What would happen in the unlikely event that he wins one of the huge jackpots and is required to collect his winnings over the next 20 years? Would the payments stop upon his death? --R.C .
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A. Lottery winnings, including future payments, are considered assets of the winner and become a part of that person’s estate if he dies before the payments are completed. In the event of the winner’s death, the payments are disbursed on schedule according to the deceased’s will as adjudicated, if required, by the probate court. In no case do the winnings revert to the state, as many taxpayers have apparently been misinformed.
Does Divorce Cut Off Spousal Benefits?
Q. If a divorced spouse earns the same or more than her ex-husband, is she eligible to collect spousal Social Security benefits? I have never been able to get this question answered. -- E.S .
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A. Full spousal benefits, regardless of whether a spouse is married or divorced, are never more than 50% of the primary wage earner’s benefits. (Widow’s and divorced widow’s benefits are equal to 100% of the wage earner’s benefits.)
A spouse or former spouse who has contributed on his or her own into the Social Security program can be technically eligible to collect spousal benefits as well as his or her own, but the real issue is which account will generate a larger payment--your own or your spouse’s. Assuming that you have contributed to the Social Security system over the same time period as your ex-husband and have consistently earned the same or more than he has, 100% of your own benefits is better than 50% of your spouse’s. (You aren’t eligible for both.)
Using Savings Bonds to Pay for College
Q. How can I get more information about the U.S. Savings Bond College Saver program? -- G.U.B .
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A. College Saver savings bonds are technically the same as any Series EE U.S. Savings Bond, with two differences: To be eligible for the College Saver, the bonds must be registered in the names of the parents upon their purchase.
And when the bonds are redeemed, the family’s adjusted gross income cannot exceed the federal maximum limits in order for the bond proceeds to be free of federal tax. (Remember, they are already exempt from state taxes.)
Income limits are set each year and have not yet been published for 1995. Last year, taxpayers filing individual returns were entitled to a full federal tax break on bond proceeds if their adjusted gross income was less than $45,000. Partial breaks were available for couples with incomes up to $98,250.
For more information about Savings Bonds and the college bond program, write for the free brochure “U.S. Savings Bond Investor Information” available from the Federal Reserve Bank of Kansas City, P.O. Box 419449, Kansas City, MO 64141.
A Direct Source for Ginnie Maes?
Q.Is there any way to buy Government National Mortgage Assn.(Ginnie Mae) bonds directly from the federal government as you can purchase T-bills? J.S .
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A Ginnie Mae bonds are not sold directly to the public by the government. You may purchase them from a registered securities agent or through a mutual fund that invests in Ginnie Maes. These are the only two ways to hold them.
And remember, when you buy a mutual fund that invests in Ginnie Mae’s you don’t actually own the bond itself. You own shares in the mutual fund. Its investment strategy is determined by professional managers whose buying and selling movements are largely invisible to investors--except when the monthly or quarterly statements are mailed. Depending on the wisdom of the fund manager’s strategy, the value of the fund you purchase may rise or fall at a different rate than the secondary market value of any individual bonds you might hold. It is wise to keep this distinction in mind.
When Can You Deduct IRA Contributions?
Q. Between my salary and the spousal support payments I receive from my ex-husband, my annual income is just over $35,000. I am eligible to join a 403 B tax-deferred retirement plan at work, but have elected not to. No payments are made on my behalf by my employer. Am I eligible to make a tax-deductible contribution to an individual retirement account? -- G.R.W.
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A. Probably not. In order to take any deduction for an IRA contribution, a single taxpayer cannot have an adjusted gross income exceeding $35,000. So, if your spousal support is alimony, you would not qualify.
If however, the payments are child support, your adjusted gross income would likely qualify you for at least a partially deductible IRA contribution. (Remember, a full deduction is available for single taxpayers whose adjusted gross income does not exceed $25,000. The deduction gradually declines as the income rises and is eliminated at $35,000 per year.)
