Q. During his campaign, President Barack Obama promised retired people making $50,000 or less would not have to pay federal income taxes. With all of the publicity on the stimulus plan, further information on this promise is not mentioned. Do you know if he intends to keep this pledge?
A.M.
A. The proposed budget doesn’t mention that tax break.
Policy watchers on both sides of the political aisle doubt it will surface as a priority any time soon.
“If you put the question of taxation of retirees on the table, you’d have to put taxation of Social Security benefits on the table, and my guess is that’s why he walked away from it,” said Clint Stretch, tax principal in the Washington, D.C., office of Deloitte Tax LLP.
Q. So far I have been unable to find any mention of the 2009 rules on required minimum distributions on either the IRS Web site or other tax-information locations. Can you furnish either a Web site or an IRS information publication number that would provide additional details? J.P.
A. The IRS has issued several publications on this topic. For frequently asked questions, go to www.irs.gov/retirement/article/0,,id=96989,00.html.
For the 2009 provisions for individual retirement accounts, see Page 34 of Publication 590, at www.irs.gov/pub/irs-pdf/p590.pdf.
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For employer plans, check out Page 26 of Publication 575 at www.irs.gov/pub/irs-pdf/p575.pdf.
Q. Both my husband and I are five years from retirement and have taken a hit on our investments. We decided to wait it out on the money we have in the stock and bond funds in our 401(k)’s, hoping they will recoup in a few years.
As for future contributions, we don’t want to keep throwing money into a losing proposition. Should we make our future contributions into a money market or some other “safe” fund? At least we would not be down the 46 percent that our losses are averaging today.
C.S.
A. Don’t get hung up on whether it’s new money or old money that is vulnerable to the market. Instead, get your overall asset allocation to fit your needs, said Ty Bernicke, a financial planner with Bernicke & Associates in Eau Claire, Wis.
If you are five years from retirement, chances are you have a fairly sizable chunk of savings in these retirement plans. If that nest egg is too heavily weighted with stocks, the smarter strategy might be to do the opposite of what you describe, Bernicke said.
“For someone who is nervous about the stock market, I would suggest temporarily making their [core] allocation more conservative and adding the future contributions to stocks until they get back to the appropriate asset mix for their unique circumstances. Essentially, they would be dollar-cost averaging back into the market,” he said.
Keep in mind you won’t need your entire portfolio in the first few years of retirement, so think about the longer time horizon instead of the impending retirement date, he said.
Q. My 79-year-old father has a $10,000 GMAC SmartNotes bond with a maturity date of April 15, which he purchased in 2003. Is it secure? Should he cash it in now?
J.S.
A. The time for cashing in on the secondary market has probably passed, said Marilyn Cohen, president of Envision Capital Management in Los Angeles.
“Chances are they wouldn’t get a bid, which is why I don’t like SmartNotes,” said Cohen, who warned investors years before GM’s current financial problems not to buy them because of a lack of liquidity. But your father has a chance at getting his full investment back at maturity, she said.
Go to www.investinginbonds.com, input the CUSIP number on your bond and see where it is trading.
Beth Coggins, a GMAC Financial Services spokeswoman, said the company has met its obligations to investors on time and expects to do so in the future.
You can reach the company’s investor relations team at 866-710-4623.
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