ASK AN EXPERT
Sunday’s Ask an Expert hotline drew questions about investment, retirement and savings. See more questions and answers on
Certified Financial Planners from Central Florida answered questions about retirement, investment and savings during the annual Ask An Expert hotline at the Orlando Sentinel this past Sunday.
There even was a question from a lucky lottery winner.
Here’s a sampling of some of the calls and answers. Look for the Ask an Expert feature each Monday in the Sentinel’s Central Florida Business section.
Q: Can I pledge my Individual Retirement Account as security for a loan? I need the money for my business. — D.P., Orlando
A: You cannot use an IRA as collateral for a loan. Any amount you pledge from your IRA would be considered a taxable distribution, and because you are under age 59½ you would also pay a 10 percent tax penalty. — Denise Kovach, Certified Financial Group, (407) 869-9800
Q: Is there anything I should be doing to monitor my credit to make sure I am protected against future breaches? — Y.C., Heathrow
A: You can monitor your credit using services such as Credit Karma, LifeLock, or through some credit cards that offer a similar monitoring service, often for free. You also have access to a free annual copy of your credit report through www.annualcreditreport.com. Also, you can place a credit freeze on your report through the major credit reporting agencies (Equifax, Experian, TransUnion). A recent law allows you to add and remove this credit freeze at no cost. — Colby Winslow, Creative Planning, Inc., (407) 280-3029
Q: I just started a new job and I’m eligible for the 401(k). Can I contribute the maximum limit of $18,500 for the remainder of the year, or am I limited because I haven’t been in the plan for the full year? — D.B., Oveido
A: As far as federal laws are concerned, there’s nothing preventing you from maxing out the $18,500 for the remainder of the year. However, your employer may have contribution limits on the amount you can contribute per paycheck. Check with your plan provider or benefits department to see what restrictions may apply. — Derrick Chandler, Moisand Fitzgerald Tamayo, LLC, (407)-869-6228
Q: I won the lottery! What should I do? I want to take care of my family and want to make sure I do the right thing. — H.S., Clermont
A: Congratulations! Sudden wealth can be overwhelming. You need a good team that includes an attorney, CPA and a Certified Financial Planner. They will work together for estate planning, trusts, taxes and investing. — Gregg Collier, Raymond James Financial, (352) 385-0073
Q: I have an annuity that I can start taking income from but have decided not to do so. Does it make sense to reinvest those dollars in mutual funds? — P.B., Mount Dora
A: The annuity grows on a taxdeferred basis. If you pull funds out, you will pay tax on 100 percent of the withdrawal until your reach your principal investment. You can then deposit the proceeds into a taxable mutual fund and will pay ongoing taxes on the mutual fund growth. It does not make sense to withdraw and subject your proceeds to income tax. — Nancy Hecht, Certified Financial Group, (407) 869-9800
Q: I am 52 years old and recently started a new job that provides a 403(b) retirement plan. Should I move my former employer’s 401(k) plan to the new one, or roll it over to an IRA? — S.M., Clermont
A: An IRA should provide you with the most investment options but consolidating the accounts into the new 403(b) could be convenient for you if the new plan offers a nice set of low-cost investment options. — Mike Salmon, Moisand Fitzgerald Tamayo LLC, 407-869-6228
Q: I am 49 and so far, I haven’t done anything toward retirement and my employer does not offer any help. How do I get started? — D.K., Orlando
A: You can open either a traditional IRA or a Roth IRA and contribute up to $5,500 for 2018. Next year, when you turn 50, you can contribute an additional $1,000 catch up for a total of $6,500. Go to www.plannersearch.org, you can find a local CFP who can help you open the right type of IRA for you. — Rhonda Shurtleff, Stonebridge Financial Planning Group, (407) 695-7100
Q: How do 529 college savings plans work. and what are the advantages? — G.H., Orlando
A: 529 plans allow you to accumulate money to cover qualified expenses required to attend a college, university or other eligible post-secondary educational institution. Starting Jan. 1, 2018, qualified expenses were expanded to include tuition for K-12 schools. Contributions are made with after-tax dollars and accumulate tax free as long as withdrawals are for qualified expenses including tuition, fees, room and board, books, supplies, computers and related expenses. — Jay Stokes, Stokes Wealth, (407) 843-4200
Q: How do I figure the amount of capital gains on a stock we purchased 30 years ago and for which we cannot find the purchase documents? — J.J., Altamonte Springs
A: Give your best effort to researching the price of the stock on the date of purchase and document this in your tax file. Go to the company website’s investor relations tab to find out if there were stock splits during the years you owned it. This will help you calculate the number of shares you originally purchased. Use a website that provides historical stock prices such as Yahoo Finance or BigCharts.com. Determine the average stock price on the date of your purchase and multiply this by the number of shares. You will also need to track your basis in dividends if they were reinvested back into the stock. — Paula Taylor, Lake Mary Wealth Management, (407) 328-1515
Q: I expect my taxable income to be about $65,000. How much tax should I withhold from my husband’s Social Security? — D.K., Orlando
A: At $65,000 in taxable income, you would be in the 12 percent marginal tax bracket. You can use this amount as a rough estimate for the amount to withhold from his Social Security. — Chris Toadvine, Stonebridge Financial Planning Group, (407) 695-7100
Q: In 1998 I performed a 1031 exchange from an investment property in Hawaii into two real properties in Central Florida. I would like to exchange one of these properties into another real property. Does the 2018 tax act allow this? — G.A., Orlando
A: Previously under section 1031, a taxpayer could defer recognition of capital gains and related federal income taxes on the exchange of a wide array of investment properties. The Tax Cuts and Jobs Act of 2017 repealed Section 1031 for certain types of property, but real property is still eligible, so your exchange should still be eligible. — Helen Von Dolteren-Fournier, AEGIS Advisors, LLC, (407) 539-3939
Q: Should I be investing in individual stocks in cannabis, artificial intelligence and computer chips? — D.E., Orlando
A: These sectors are volatile, and in the case of cannabis and AI, would also be considered speculative investments. You may gain a lot or lose it all, so you may want to consider not doing it. — David Blount, Investment & Insurance Planning Services, LLC, (407) 719-0940
Q: I have two annuities from two companies. One withholds 5 percent in taxes and one withholds 10 percent and sends it direct to the IRS. Why are they different amounts and why are they withholding anything? I don’t file a tax return. — D.G., Orlando
A: Generally, the amount withheld for the IRS is adjustable depending on your circumstances. I would contact your annuity provider to ask how they determined those amounts. Depending on your circumstances you may not owe any taxes and might be due a refund. If so, consult a tax adviser to file your past returns in order to claim your refund. — Marisa Bradbury, Sigma Investment Counselors, (888) 718-1132
Q: How should I determine which Medigap plan to enroll in, or if I should get a Medicare Advantage Plan? — M.G., Orlando
A: You will want to sit down with a CFP to determine which Medigap or Medicare Advantage plan is right for you based on premium amounts, insurance needs, and estimated out of pocket expenses. Each plan has pros and cons depending on your specific needs. — Tommy Lucas, Moisand Fitzgerald Tamayo, LLC, (407) 869-6228
Q: I’m thinking about investing in bonds in my Roth IRA. What should I consider? — R.H., Leesburg
A: The basics are price, interest rate and maturity date. Next would be credit quality of the issuer. The U.S. government has the highest credit rating and is considered “risk-free.” “Investment grade” corporate issuers are next and high yield ( junk) issuers are the lowest. Typically, the higher the credit quality, the lower the yield. — John Pinkley, Raymond James and Associates, (407) 246-4973
Q: I am 84 years old and have a 15-year-old universal life insurance contract with a $150,000 death benefit that guarantees me 4.5 percent on the cash value, which is $110,000. Is it possible for me to exit this contract without paying income tax? — H.B., Debary
A: Section 1035 of the tax code allows for the transfer of the cash value of your current life insurance policy to another life insurance policy or an annuity. The transfer is not taxable and is the only option you have to leave your life insurance contract without incurring tax. If you need the money for other purposes, any amount withdrawn from the policy in excess of your cost basis will be taxable to you. — Larry Breen, Breen Financial Management, Inc., (407) 712-6780
Q: My sibling who died two years ago is survived by two adult children, age 24 and 28. Can they take advantage of my sibling’s Social Security benefits? — C.B., Maitland
A: The children cannot take advantage of qualifying Social Security benefits unless they are deemed disabled or a minor as qualified by Social Security. Go to the socialsecurity.gov site for specific information regarding beneficiaries. — Christopher Dale, Life After Grief Financial Planning, (407) 917-1913
Q: I heard a financial adviser on the radio recently offering an investment that guarantees a 7 percent growth rate with no downside stock market risk. He said his clients can participate in stock market returns with no risk of losing any money. Is this really possible? — L.B., Orlando
A: The advisor is probably an insurance agent and the offer is likely an index annuity, which is a complicated insurance contract. The 7 percent growth rate is applied to the insurance contract’s accumulated value. The accumulated value isn’t “walk away” money but a value used to calculate how much you can withdraw from the product. Generally, the internal rate of returns for these products are those of a bank Certificate of Deposit or a bond mutual fund. — Charlie Fitzgerald III, Moisand Fitzgerald Tamayo, LLC -(407) 869-6228
Q: My husband died, and I was beneficiary of his IRA held in an annuity paying $500 monthly. I took a lump-sum payment and they sent me a beneficiary check, which I used to open a new IRA and deposited the check. Do I have to keep taking the $500 every month? — S.A., Winter Park
A: Please review this transaction with a tax professional as you may have inadvertently disqualified your spousal IRA. You should have done a beneficiary/spousal IRA and then completed a custodial IRA transfer to keep this IRA. If the accountant finds an error was made in the rollover process he or she may be able to petition the IRS for you to be granted an exception and not have to pay taxes on the entire distribution for this year. — Beth Fleming Brown, Sagemark Consulting, (407) 916-9500
Q: My job is requiring me to move to South Florida. My employer will pay my moving costs but will include them as a taxable benefit on my W-2 for this year. I thought employer payment of job-related moving were nontaxable for the employee. — S.F., Longwood.
A: The Tax Cuts and Jobs Act of 2017 eliminated the deduction for moving expenses except for active-duty military personnel and their families. Any payment of these nondeductible moving costs paid by an employer is a taxable fringe benefit for the employee. — Sylvia “Chris” Presley, SC Presley and Company, Inc., (407) 331-7665
Q: I have three rental properties that I want to sell because I am tired of being a landlord. I am in a 24 percent marginal tax bracket, and I own these properties outright with no debt. I have not lived in any of these properties and I have owned them for over a decade. What are my tax consequences of each sale? — G.H., Mount Dora
A: You will be required to pay taxes at the long-term capital gains rate, minus any real estate commission, improvements and depreciation. I would encourage you to look at spacing out the sale over a couple of years to stay in your current tax bracket. — John West, Spraker Wealth Management, (407) 478-7899
Have a question? E-mail askanexpert@fpafla.com. Include your name (only your initials will be printed), hometown and phone. Questions are answered by Certified Financial Planners from the Financial Planning Association of Central Florida. Answers are for educational purposes only; you should also consult a financial professional. Questions and answers may be edited for space considerations.