Home ownership odd for a 12-year-old boy
DEAR BRUCE: When my son was 5 years old, his father transferred the deed of our house to the child’s name. By that time, we weren’t married and we weren’t living together, so my ex-husband was afraid that, if he died, I would remarry and another man would take over the house. I finally got remarried last year, and we want to buy a bigger house. When we applied for a loan, they said we couldn’t use our home as equity because our son is only 12 years old. They said we would have to wait until he’s 18 to transfer the house back to us, or we could get a ‘legal guardianship.’ What is a legal guardianship? ‘ L.R., Palm Bay, Fla.
DEAR L.R.: I have been doing this sort of thing for a great many years, but this is a brand-new one. How your husband managed to transfer the deed to a 5-year-old child is a mystery to me. Though you and he would be the legal guardians, whether you have the ability to sell the house or transfer it back is a question I simply can’t answer. When he is 18, he could take the house, sell it, buy fast cars and chase faster women. It is HIS house. To sort this out, see an attorney and ask what responsibilities come with what appears to be your youngster’s legal asset.
DEAR BRUCE: I have a regular IRA annuity worth $16,000. I am considering the idea of moving the funds to a Roth IRA. The Roth outperforms the regular IRA, but I will have to pay 10 percent penalty for early withdrawal, as well as a 10 percent minimum in taxes. I can continue to contribute any amount over $50 to the Roth, but the regular IRA minimum is $2,000. I am 45 years old and earn less than $50,000 per year. I also have a 401(k) to which I have been contributing 10 percent for two years, so it hasn’t built any real value yet. The IRA pays annual commissions to a broker, along with company administration fees. The Roth has administration fees, but no broker’s fees. Your input would be greatly appreciated. ‘ S.P., via e-mail
DEAR S.P.: You call it a regular IRA annuity. Is this truly an annuity, or is this your IRA investment? I suspect the latter. You are correct when you say that, if you move the funds into the Roth, you will have to pay taxes, since the money in the IRA is tax-deferred. Furthermore, you mention that you’re contributing the maximum to your 401(k) ‘ I think that’s great. You say the Roth has administration fees, but no broker’s fees; that may or may not be the case. The Roth allows you to save after-tax dollars, and whatever it earns is tax-free. You still have to select how the money inside the Roth is invested, and that requires a third party. You must weigh the potential savings in deferred taxes against paying the taxes on those funds now and getting tax-free earnings until the funds are withdrawn. Given your income, it’s hard to come up with a definite answer. In general, folks with relatively ‘modest income’ are better off with a Roth, where there will never be any taxes. In the short term, you will pay for that privilege.
DEAR BRUCE: We are in our early 70s and, several years ago, placed the bulk of our savings in indexed annuities to avoid risk in our golden years. During the down market years, we had no losses and, since 2003, have averaged more than 8 percent and have paid no taxes. Since you discourage annuities, should we take more risk in the stock market to get better returns? ‘ R.M., via e-mail
DEAR R.M.: It seems to be working for you, so I wouldn’t suggest you change course now. Assuming you’ve held these annuities, on average, seven years or more, there will be no heavy-duty penalties. You say you’ve averaged more than 8 percent and paid no taxes. I think you’re saying you haven’t paid any taxes yet. It seems to me you have tax-deferred annuities.
As to the stock market, you weren’t comfortable there years ago, and I’m not about to tell you at this late date to become more adventurous. If your calculation of 8 percent is accurate, stay where you are. If you had asked me this question 10 years ago, my answer would be different.
DEAR BRUCE: I just turned 50 years old. I work for a school district in Palm Beach County, Fla. I know the money I had in my 401(k) took a hit during the last couple of years. If I want to retire at 58 or 60, what should I have in place at this point? ‘ E.T., via e-mail
DEAR E.T.: Nobody can tell you that. What would be adequate for one person might be luxurious for a second and impossible for a third. If you want to retire ‘early’ at 58 or 60, that requires a lot more money and diligence than does a more traditional retirement at 65 years old. At best, you’ll still be without Social Security for two years and Medicare for five. A general rule of thumb is that you’ll need to have somewhere between 75 percent and 80 percent of your current earned income in retirement. Without specific numbers for the school district ‘ they’ll probably have a 401(b) or something similar available ‘ the money in your 401(k) and other investments, it would be impossible to say where you ought to be at this point. Bear in mind that you have a very nice goal, but it could present many problems.
DEAR BRUCE: Is it illegal to hold U.S. currency in a safe deposit box? I don’t mean thousands of dollars. I am aware of the rules about money laundering, but I mean a sum of cash for holding until I decide where I want to place it. ‘ E.G., via e-mail
DEAR E.G.: You are allowed to put as much money as you choose in as many safe deposit boxes as it takes. There is nothing whatsoever illegal about this. The source of the money is another problem. It could be money on which you didn’t pay taxes, or money hidden from a spouse that one is divorcing. There are many legitimate reasons why you may have plenty of cash around, and there are no rules about money laundering as you are describing. Should you be accused of some other crime and a responsible judge has executed the appropriate search warrants, you may be asked about the money’s origin.