Morningstar’s Annuity Guide a Great Investment Resource
Q I’m considering concentrating retirement savings in a variable annuity that will have a large array of investment alternatives available. What appeals to me most are the tax advantages of withdrawals since I expect income tax rates to rise substantially by the time I retire.
Do you have any recommendations for variable annuity companies or how to allocate investment money among mutual funds in the annuity?
--Arizona Annuitant
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A.Morningstar Investments in Chicago publishes a comprehensive directory of variable annuities, noting their fees, risks and historic rewards. This directory, “Morningstar Variable Annuities/Life,” is a binder with frequently updated full-page reports on a wide array of the annuities offered and the different investment options within the funds. These directories are sold by subscription through Morningstar ([800] 876-5005). But they’re expensive: $295 for a full year, $45 for a three-month trial subscription. The good news is they’re usually available in public libraries. In any event, they’re a great tool when you’re trying to choose among annuities offered by different companies.
As for allocating your assets, that’s always the $64,000 question. One rule of thumb is to invest your age in percentage of bonds, the rest in stock. You can also get fancy and break the investment mix down further--dividing assets among different types of assets in any given asset class.
In other words, you might put 40% of your portfolio in bonds but break that into categories--maybe half your bond portfolio would be in domestic medium-term Treasuries, one-quarter in a high-yield fund and a quarter in an international bond fund. And do the same type of thing with the stock portion of your portfolio.
But the best plan for you is going to depend on your goals, age, assets and ability to tolerate risk. Anyone who hasn’t spent quite some time getting to know you and your family can’t give you good asset allocation advice. If you’re uncomfortable making the decision alone, consider hiring a financial advisor who will do just that.
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Q I purchased a $25 U.S. Savings Bond in 1962 in response to a chain letter scam using Savings Bonds. I was about to mail this bond to another person, whose name I had put on it, when I realized it was a pyramid scheme. I never mailed it, and this bond has been sitting in my desk since 1962. I would appreciate any suggestions you can give me about redeeming it.
--Stumped and Scammed
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A There’s good news and bad news. The good news is you can get a refund of the purchase price by filling out form PD-2966 and sending it and the bond to the Bureau of Public Debt, Parkersburg, WV 26106-1328. (Get forms from the Bureau of Public Debt or a bank that sells Savings Bonds.)
The bad news is you don’t get any interest on the bond because you’re not technically the owner, says Sheila Nelson, a spokeswoman for the Treasury Department’s Savings Bond division.
It’s worth mentioning that chain letters that involve money are illegal, says Nelson. Anyone who suspects they have been solicited for such a pyramid scheme should contact a postal inspector immediately.
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Q My husband and I have moved several times over the last several years, always moving into houses that were somewhat more expensive than the ones we left. But now he’s accepted a job in Arkansas, where real estate prices are substantially lower than they are here in California. So we’ll probably spend less on our new house than we get for our old one. I know that means that we’ll have some tax liability, but how do I determine how much?
--Tense Transferee
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A The taxable gain is determined by looking at the lesser of the net gain on the sale of your residence--which includes all “rolled over” gains from sales of previous residences--or the portion of the sales price you don’t reinvest within two years, says Gregg Ritchie, partner in the personal financial planning group at KPMG Peat Marwick.
To illustrate, let’s say you sell your current home for $250,000 and want to buy a new house for just $100,000. You pocket $150,000 in cash. However, you figure that you had $100,000 in profits from all your home sales and purchases over the years. You’ll pay federal tax on the $100,000--the lesser of your total gain or the non-rolled-over amount.
The tricky part, especially for those who have moved a lot, is determining your net gain, Ritchie notes.
That’s because to determine it you have to have kept good records of all your home transactions, including the cost of any permanent improvements made to these homes, the cost of buying and selling, the cost of fees paid to refinance, etc. Your net profit is the accumulated difference between each purchase and sales price, minus costs. If you’ve kept good records over the years, this won’t be difficult to tabulate. But few people bother with the record keeping until they are in your situation.
If you have a question of general interest that you would like to have answered in a future column, write to Kathy Kristof, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or send the question via e-mail to kathy.kristof@latimes.com. Please include your name and phone number in case any details need to be clarified.
