Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 9, 1990 TAG: 9004070034
SECTION: BUSINESS PAGE: A9 EDITION: METRO
SOURCE: mkag poff
DATELINE: LENGTH: Medium
A: How do you propose to invest your IRA?
Do you have the discipline to invest monthly in an IRA without the automatic payroll deduction for U.S. Savings Bonds?
U.S. Savings Bonds that are held five or more years earn a market rate of 85 percent of the average on 5-year Treasuries for the prior half-year, with a minimum of 6 percent.
You can't calculate long-term because the rate changes every six months. At the 6 percent minimum, the money will double in 12 years.
The current market rate through April 30 is 6.98 percent, which isn't bad for a tax-deferred investment.
But Individual Retirement Accounts are also tax-deferred, so you can shelter an investment that would otherwise be taxed.
Insured certificates at banks earn higher rates.
Dominion Bank, for instance, recently offered IRA deposits in 1- to 5-year certificates with a rate of 7.9 percent and a yield of 8.14 percent. A special 2-year IRA paid 8.25 percent with a yield of 8.51 percent.
Because you can invest your IRA in almost anything, you could go into a money market mutual fund at still higher rates.
Or you could put the money into stock mutual funds which, over the long-term, have the greatest potential for growth. All of this assumes you already have an emergency cash fund of three to six months' salary that is easily accessible to you.
IRA and U.S. Savings Bond investments are for the long-term with penalties for premature withdrawal.\ Note `shadow interest'
Q: Can you tell me how the annual income for tax purposes is figured on a zero coupon Treasury bond? For instance, a bond costing $15,000 in 20 years with a face value of $60,000, a purely hypothetical figure. They inform me each year as to the sum on which taxes are to be paid.
A: The interest on zero coupon bonds is paid in a lump sum, along with the principal, at maturity.
Even though you don't receive the money, you must pay taxes on the so-called "shadow interest" or the amount the bond earns each year.\ GNMAs subject to taxes
Q: Is interest from GNMA certificates taxable by the state? How about income from GNMA Series funds? I can't get a straight answer from the Department of Taxation.
A: There are no special tax advantages in any form of the issues of the Government National Mortgage Association (Ginnie Mae). The interest portion of the money you receive is subject to federal and state tax. So is the capital gain, if any, when you sell your securities.\ Office estimates benefits
Q: There is a good chance that my company will be taken over by another.
At my current age of 55, I am considering retiring and living off my IRAs and company pension until Social Security is available at age 62.
The Social Security office will calculate an estimated retirement benefit for ages 62 and 65. Is there any way to calculate benefits at age 62 if you take early retirement at age 55?
A: The Social Security office in Roanoke has computer capability of performing a reasonably accurate estimate of benefits for a person who is within six months of retirement. Even that figure, however, is an approximation.
A spokeswoman at the office said another computer program can estimate future benefits at longer range. But there's no guarantee that the calculation is correct.
If you want to obtain that rough estimate, you should visit the office on the fifth floor of the Poff Federal Building in downtown Roanoke.
You can also make rough calculations yourself with the help of Publication SSA 7004, Request for Earnings and Benefits Estimates.
The publication is available at the Roanoke Social Security office. You also can obtain a copy by mail by calling Social Security's toll-free number: 1-800-234-5772.
The course of action you are contemplating could result in a sharply reduced benefit when you reach the age of 62.
The benefits are determined on the basis of all years of earnings after dropping the five lowest years.
Most people earn their highest income just prior to retirement. In your case, you would have no earned income during those seven years.
You must also make arrangements for health insurance coverage prior to your eligibility for Medicare.
You should also check with the trustee of your IRAs on a method of avoiding the 10 percent penalty for withdrawal of funds prior to the age of 59 1/2.
That method involves distribution of equal monthly payments that would result in total distribution during the term of your life expectancy. You will want to know if the payments are sufficient to allow you to live comfortably.
by CNB