Ask An Expert hotline answers questions about retirement, investing, debt
Callers to the annual Ask An Expert hotline, held on Oct. 16 this year, got advice from certified financial planners about retirement, investments, debt and many other money matters.
Here are some of the questions from the event sponsored by the Orlando Sentinel and the Financial Planning Association of Central Florida.
Q: We sold all of our mutual funds and went to cash due to the current market conditions. Was that a good idea? — J.D., Orlando
A: As the markets are declining, I think it is a good time to buy vs. sell. If you have five years or more working years left, staying invested with quality investments is a better idea than cashing out. But your risk tolerance will dictate your behavior. — Nancy Hecht, Certified Financial Group, (407) 869-9800
Q: I have some Series E bonds that are near maturity. I have heard that if the bonds are used for post-secondary education costs the interest may be tax-free. Is this correct? — R.T., Orlando
A: Yes, interest earned on Series E bonds used to pay college tuition and certain other educational costs may be tax-free if you meet certain income and tax filing status requirements. — Sylvia C. “Chris” Presley, SC Presley and Company Inc., (407) 331-7665
Q: How much can I contribute to my 401(k) this year? — T.B., Orlando
A: An employee may contribute up to $20,500 in 2022. If you are age 50 or older you may add another $6,500 as a catch-up contribution. — Mike Salmon, Moisand Fitzgerald Tamayo LLC, (407) 869-6228 ext. 112
Q: I need $25,000 to do some home upgrades. I hope to retire soon. Should I refinance my house or take out a home equity line of credit? My current interest rate is 3%, and the home will be paid off in 2030. — M.S., Orlando
A: I suggest working until your full Social Security retirement age and trying to accomplish some of your home improvement goals before retiring. The rising interest rate environment means your new rate could be double on a new mortgage or HELOC. Eventually, rates may come down again, and if you still need to refinance, it might be at a lower rate. — David Blount, Investment & Insurance Planning Services LLC, (407) 719-0940
Q: I wish I had learned about financial planning when I was in school. — J.S. Sanford
A: Help is on the way. The Legislature passed a law this year requiring all Florida high school students to take a semester course in personal financial literacy, starting next fall. — Charlie Fitzgerald III, Moisand Fitzgerald Tamayo LLC, (407) 869-6228 ext. 102
Q: My sibling died two years ago leaving behind two children, ages 18 and 25. Can they take advantage of my sibling’s Social Security benefits? — R.J., Ocoee
A: The children cannot get those Social Security benefits unless they are deemed disabled or a minor. — Christopher Dale, Life after Grief Financial Planning, (407) 917-1913
Q: Should I take advantage of a balance transfer offer on my credit card? — M.H., Orlando
A: Such offers can be a good way to save on interest, consolidate credit card debt, and possibly pay off debt more quickly. However, promotional offers are for a limited time and can have fees. It’s important to understand the terms and to continue to make payments. — Derrick Chandler, Moisand Fitzgerald Tamayo LLC, (407) 869-6228 ext. 105
Q: My parents want to contribute toward my 12-year-old daughter’s education. I have a Florida Prepaid Plan already. What else can we do? — S.F., Orlando
A: Uniform Transfers to Minors accounts and 529 plans allow for investments in a child’s education. Consider the restrictions and tax consequences of both. — Gregg Collier, Collier Financial Solutions Inc., (352) 385-0073
Q: Should I start an emergency fund or pay off my credit card debt? — A.C., Orlando
A: Make at least minimum payments on your credit cards to avoid late payments and defaults. Save a minimum of three months of expenses in a separate savings account for emergencies. Then start making extra principal payments on your credit cards. — Jessica Hall, Certified Financial Group, (407) 869-9800
Q: I am retiring in 2-3 years. I’ve always invested aggressively in my 401(k), but it’s down pretty significantly. Should I reallocate now when the market is down? — J.S., Winter Garden
A: You may only be contributing for another 2-3 years, but could be living 20+ years beyond that. If you don’t need the money for a few years and don’t feel bad about your account performance going forward, you might stay the course. Talk with an adviser about your specific situation. — Dennis Nolte, Seacoast Investment Services, (407) 506-2173
Q: I am 62 years old and still working but would like to start collecting Social Security. I have no need for the money today and have saved through my 401(k). Does it make sense for me to start collecting Social Security now? — J.G., Port Orange
A: Your full retirement age is 67. Until you reach that age, you are limited in how much income you can earn. I recommend you continue to defer your Social Security until at least age 67 or even 70. Your benefit will continue to increase by about 8% per year. — John West, III, Spraker West Wealth Management Inc., (407) 478-7899
Q: I want to buy some gold bars. How do I know if buying from a company online is safe? —S.A., Lake Panasoffkee
A: Check the Better Business Bureau and read the reviews other buyers have left. If you can’t find anything on the company, then I would be leery of doing business with it. — Rhonda Shurtleff, Stonebridge Financial Planning Group, (407) 695-7100
Q: Can I do anything from a tax perspective to take advantage of my IRA value dropping this year? — H.Y., Winter Garden
A: You may be a good candidate to do a Roth conversion. You will pay income taxes now on the money that moves to the Roth, but then it will grow tax-free and you can withdraw the contribution and the growth tax-free after age 59½. Talk with a tax expert about your specific situation. – Tommy Lucas, Moisand Fitzgerald Tamayo, LLC, (407) 869-6228 ext. 116
Q: I just got married and we are expecting a baby. Should we put additional money into a Roth IRA or start a 529 plan? — S.A., Orlando
A: Since providing for your child’s college education is a priority for both of you, I recommend funding the 529. The money can be used for any qualified college-level expense for your designee. — John Cash, HUB International, (407) 781-4400
Q: I have an annuity that is worth $875,000. It started with $500,000. If I cash it in, will I have to pay income tax on the gain? — R.C., Sanford
A: Yes, you would have to pay income tax on $375,000. I suggest talk to a financial planner to understand other options. — Chris Toadvine, Certified Financial Group, (407) 869-9800
Q: We received money for my 12-year-old child who was in a car accident, and we don’t want him to have the money till he is in his 20s. What can we do? — K.D., Orlando
A: One option is to open a Uniform Transfers to Minors Act for the benefit of the child. The assets belong to the child with a parent acting as the custodian and decision-maker. — Casandra Garrett, Moisand Fitzgerald Tamayo LLC, (407) 869-6228 ext. 118
Q: I am about to retire at age 65 and am concerned about the cost of Medicare. My income is about to drop. Is there anything I can do to reduce my premium? — B.B., Orlando
A: File an SSA-44 form with Medicare that specifies you had an income-related, life-changing event. That could potentially reduce your Medicare premium. — Colby Winslow, Creative Planning Inc. (407) 280-3029
Q: My sister added me as an owner of her home before she died. I am selling the house. Do I have to pay any taxes on the sale? — G.A., Kissimmee
A: Yes. When your sister added you to her deed, she actually gave you the home. So you do not receive a step-up in basis. You must recognize her cost basis when she purchased the home in 1995. — Helen Von Dolteren-Fournier, AEGIS Financial Advisors Inc., (407) 539-3939
Q: My father has an annuity, and the company sent a letter indicating it will mature next month because he’s 95. They said he can take the money out or get payments. What should he do? — L.M., Mount Dora
A: If he elects a lump sum, the amount above the basis will be subject to income tax. If he gets payments, they will have a taxable portion and a tax-free portion. — John Pinkley, Raymond James and Associates, (407) 246-4973
Have a question? E-mail askanexpert@fpafla.com. Include your name (only your initials will be printed), hometown and phone number. 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. Look for the Ask An Expert feature each week on Monday’s business page.
