Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 23, 1993 TAG: 9308200379
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Long
Also, what would be the best source for information and advice in setting up an educational fund for small children - bank, financial adviser or mutual fund? Does the $10,000-per-year limit for each child apply in this case to avoid taxes?
A: Western Virginia financial managers tend to charge a percentage of the portfolio rather than a percentage of the profits.
J. Gregory Tinaglia of Investment Management Corp. in Roanoke said managers of high-risk funds generally charge a percentage of the profits from an investment. These managers specialize in areas such as hedge funds, commodity pools and other investments that require aggressive and active management. They also are risky investments that the average person is often advised to avoid. Tinaglia said he knows of none of this type of manager in Western Virginia. Tinaglia said such managers generally take 25 percent to 35 percent of the profits, which is pretty steep.
Managers who specialize in advice and supervision of more conventional assets, such as stocks and bonds, generally charge a percentage of the value of their clients' portfolios. Tinaglia said a typical fee might be 0.75 of a percent to 1 percent, plus any commissions on trading securities.
A recent development, he said, is the wrap account. With this type of account, managers charge 2 percent to 3 percent of the assets, but the fee covers all advice and all trading commissions. These are all accounts in which the adviser actively manages the money.
Certified financial planners and other people who offer financial advice also have different methods of charging. They can be fee-only, commission-only or a combination of the two methods.
A fee-only planner also may set a charge based on the size of the portfolio. More typically, the charge is set by the hour or the difficulty of the task. Tinaglia estimated the range of fees at $75 to $250 an hour depending on the task and the credentials of the planner.
Planners who rely on commissions might charge a fee if you don't buy anything or even if you do. Others rely entirely on persuading you to buy something with a commission. If you can afford financial advice, a certified financial planner is the way to go. Others rely on a trusted money manager or stockbroker. Or you can learn to handle your own money by reading books and magazines on personal finance.
Each person can give any other person - adult or child - up to $10,000 a year without tax consequences. Despite a slight tax advantage from keeping money in a child's name, you should strongly consider holding the money for college in your own name. Any money given to children becomes the outright property of those children when they turn 18. They are free then to spend it any way they wish, not necessarily on college.
Another reason for retaining money in your own name is that colleges, at least today, require students to spend more of their assets on costs than parents are required to spend. This would cut down on financial aid if it were needed. Teach as you like
Q: My wife was a schoolteacher who took early retirement and is now 60 years old or five years from receiving Social Security benefits.
She would like to do some substitute teaching and would probably make less than $1,000 annually. Would this affect the amount of her Social Security benefits at age 65? I have been told that the Social Security folks, when computing the individual's benefits, deduct the individual's five least contributing years before making computations.
So if she worked five years substituting, they would deduct perhaps a total of $5,000 for the five years. But if she did not substitute, they would deduct the five lowest teaching years, say $100,000, which would give her a higher yearly average to compute her benefits.
Would it decrease the amount of her Social Security annual benefits if she did a little substitute teaching for the next five years?
A: Your wife's Social Security benefits won't be affected by doing some substitute teaching during the coming five years.
James Harris, assistant manager of Roanoke's Social Security Administration office, said the five lowest years between 1951 and the retirement date are deducted. The government does not limit that calculation to just years in which the person earned money. You misapprehend the system if you believe the Social Security Administration would ignore five years with no earnings at all. The government will look at all the years to the age of 65, then drop the lowest five years. Those will be the five years of her early retirement whether she has no income or very limited income.
Your wife, in fact, might profit by claiming Social Security at the age of 62. That way, she would give up only two of her retirement years, plus three other years when she received lower pay.
The only way to determine whether this would be an attractive option for your wife is to call the Social Security Administration at its toll-free number: 1-800-772-1213. Ask them to compare benefits at ages 63 and 65.
Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
by CNB