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On money

Personal Finance editor
huntley

HELEN
HUNTLEY

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By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times
published January 27, 2002


Patriot bonds are EE savings bonds with 2 extra words

Q. What can you tell me about the new Treasury bonds called "Patriot Bonds"? Any information would be appreciated.

A. Patriot bonds are regular EE U.S. savings bonds with the words "patriot bond" printed on them. If you were hoping for a colorful picture of the flag or Uncle Sam, you will be disappointed, but this approach was undoubtedly a lot cheaper than redesigning EE bonds or creating a whole new bond program.

When you buy a savings bond or Treasury bill, you lend money to the federal government. In that sense you help the government fight the battle against terrorism even though the money is not earmarked for this or any other purpose.

At least for now, all EE bonds purchased through banks or online will have "patriot bond" printed on them while those purchased through payroll savings plans will not. Both types will continue to sell for half their face value and earn an interest rate that adjusts every six months, currently 4.07 percent. They are available in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. For more information, check out the savings bond Web site.

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Q. Where should I invest required minimum distributions from my individual retirement accounts? Because I won't be needing this money any time soon, I will be reinvesting it in another fund, but I will have to pay tax again on the dividends earned every year. My retirement funds are 60 percent in stocks, 30 percent in bonds and 10 percent in CDs. I wish I knew more about tax-free funds and whether that's where I should put my distributions to avoid double taxation.

A. Reinvesting IRA distributions is no different from any other type of investing. You should first consider your objectives and your tolerance for risk. Do you want to invest for income or for growth? Can you tolerate fluctuations in principal? Next, you should look at how all your investments are allocated. If you determine that a 60-30-10 ratio is right for you, your new investments should be allocated the same way. On the other hand, you may decide that you want to use the new investments to shift the weighting to a heavier focus on income.

You don't have to worry about double taxation. You pay taxes when you take your money out of an IRA and you are not taxed again on that same money. Of course, future earnings no longer enjoy tax deferral, which I guess is what you are worried about.

If you want to put the money in stock funds, consider index funds or "tax-managed" funds that aim for tax efficiency. Most mutual fund groups have both types of funds.

If you are investing for income and are in at least the 28 percent tax bracket, municipal bonds or bond funds are an option. High-quality individual bonds may be your best bet if you have at least $100,000 to invest and can hold the bonds to maturity. Municipal bond funds work better for investors with smaller amounts of money and those who want to make withdrawals of principal. If you decided on a fund, look for one with a very low expense ratio. Expenses are a killer when rates are as low as they are now.

* * *

Q. I opened a checking account advertised as being free, but then I got hit with several charges. How can they do this?

A. Have you heard the saying "what the big print gives, the fine print takes away"? It sounds as if that's what you have run into. "Free" accounts have no regular monthly charge, but there may be conditions you have to meet to maintain that "free" status. In addition, even "free" accounts charge for returned checks and special services. Your bank has to tell you about these conditions and fees. It's up to you to read the disclosure statements provided.

Online money map

Did you know that some teachers, nurses and child care providers qualify for forgiveness of federal student loans? For details, check out Mapping Your Future's Web site.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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