Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 2, 1990 TAG: 9003310221
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
A: Banks and S&Ls in Virginia will no longer sell U.S. Savings Bonds directly over the counter starting July 1.
Banks and thrifts will take your money and a simple application for a bond, which will be sent to you through the mail.
Mitch Wilkins, spokesman for the Federal Reserve Bank in Richmond, said interest will be credited from the first day of the month in which you pay the bank your money.
That will be true, he said, even if the bond is processed at a Federal Reserve Bank the following month.
People who buy bonds as a gift will receive a gift certificate showing that a bond will be mailed to the recipient.
Wilkins said the Federal Reserve Bank is phasing in the new system nationwide.
The so-called regional delivery system went into effect last month in West Virginia and will apply to the District of Columbia May 1. Virginia will follow July 1.
Payroll deduction plans will not be affected.
The new system means that banks and thrifts will no longer have to secure and keep track of an inventory of U.S. Savings Bonds. All bonds will be handled by a Federal Reserve Bank.
Correction
Last Monday's Money Matters column incorrectly stated rules that apply to taxation of annuity benefits at retirement.
Public school teachers, unlike other workers, receive an extra tax break because they can deduct contributions to an annuity during their teaching years.
That means, however, that they are taxed on their entire benefits at retirement. Other workers are taxed only on their tax-sheltered earnings.
If the money isn't needed at the age when mandatory withdrawals begin, the tax bite can be reduced by taking the minimum required by law each year.
At 70, buy bonds
Q: I need advice on how to invest $150,000 for someone 70 years old. Income is the primary concern; growth is secondary.
I am interested in specific comments concerning tax-exempt municipal bonds, open-end mutual funds investing in the European Community, and mutual funds whose objectives are stability and income from the U.S. stock market.
A: Safety is the first concern for anyone who is already living in retirement.
Tyler Pugh, senior vice president at the Roanoke office of Wheat First Securities, said tax-free municipals are not a good choice unless the person has other significant income.
Based on a return of 8 percent, the $150,000 would produce interest of only $12,000 a year. That level of income presents no tax problems, so the person would be better off with a higher taxable yield.
Pugh likes open-end mutual funds investing in the European Community, but not for a person who is 70 years old. Those funds, he explained, look for a long-term gain.
Stock funds are oriented toward growth. They are geared to reinvestment of earnings rather than production of regular income.
For a person of 70, Pugh would recommend very high quality government or corporate bonds. The investment should be distributed so that maturities range at various steps between one and five years. That way a portion of the principal will always coming due so that it is available for emergencies.
Low fees count most
Q: I want to invest $6,000 to $8,000 in a Virginia municipal bond or a municipal bond fund. I will not need that money for at least three to five years.
But I am having a hard time choosing between a Virginia bond or bonds, where a commission is charged; a Virginia double tax free municipal bond fund that has a front-end load of about 5 percent and annual expenses of 1.10 per 100, such as the ones offered by American Funds, Flagship or MFS; and lastly a municipal fund that is exempt from only federal taxes but is pure no-load with expenses of 0.35 percent per 100 such as those offered by Vanguard.
Can you provide some information that will help me make a decision and make a recommendation?
A: The Vanguard, hands down.
That assumes you have cash savings on hand for emergencies, a diversified portfolio of other investments and an income that justifies a lower but tax-free yield.
Andrew Hudick, a fee-only financial planner with Elliott & Associates, said you don't have enough money to buy several bonds and thus spread your risk.
All funds devoted to Virginia bonds have a front-end load, Hudick said. No-load funds have been created only for the highest-tax states such as New York. For Virginia residents, the state tax is less of a concern.
You could not recover the up-front commission for the bonds or for the Virginia bond fund within your three to five-year time span, Hudick said. Perhaps five to seven years would be needed to offset this initial fee. That's especially true of the Virginia bond fund.
by CNB