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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 October 20, 2002


Shop around for exchange rates to send money abroad

Q. I want to send money to a relative in France. A wire transfer from my bank will cost $50 up front and also some reduction in the exchange rate. What alternatives do I have to transfer dollars to euros and gain the best possible exchange rate?

A. The exchange rates you see in the newspaper are based on $1-million transactions, so don't expect anybody to offer you those rates. Banks usually have the best rates, said Nooshin Mohtashami of Oanda Corp., which offers currency exchange services, including a handy currency converter on its Web site (www.oanda.com). She suggests that you call several banks and do some comparison shopping.

Mohtashami thinks your best bet is to do the exchange on this end, sending euros rather than dollars. That's because she thinks someone wiring money is likely to get a better exchange rate than someone receiving it, since the recipient is not in a position to shop around for the best rate.

Fees are another matter. If your transaction is relatively small, you certainly don't want to pay $50.

For transfers up to $700, the U.S. Postal Service sells international money orders. If you mail it yourself, it costs $3. If you want the post office to send it to a post office in your relative's town, it costs $8.50.

Transfer services such as Western Union and its competitors also are an option. Some will even deliver the money to the recipient's home. Internet-based electronic payment services are another possibility if the recipient has an e-mail address. PayPal even maintains accounts in euros and British pounds sterling as well as in dollars. Just be sure you have a clear understanding of fees and exchange rates up front.

Q. Would you please explain the difference between an IRA, a 401(k) and a 403(b)?

A. All three are tax-deferred retirement savings arrangements. You can contribute to an IRA if you have any earned income, but you can contribute to a 401(k) or a 403(b) only if your employer offers one. Schools, hospitals and nonprofit organizations sponsor 403(b) plans, while state and local governments have their own savings plan, known as a 457. The numerical names come from sections of the IRS code.

Because an IRA is an individual plan rather than an employer plan, it offers the most flexibility. You can set your IRA up at the bank, brokerage firm or mutual fund company you like best, which means you have thousands of potential investments from which to choose.

When people leave a company, they often roll over their retirement plans to an IRA specifically to gain this flexibility.

One big drawback of an IRA is a lower limit on contributions: $3,000 a year plus an extra $500 if you are over 50. The other drawback is that contributions may not be deductible, depending on income and participation in a retirement plan.

Employer-sponsored savings plans allow pretax contributions of up to $11,000 this year, plus $1,000 for a catchup contribution if you are 50 or older. In addition, many companies contribute to their employees' 401(k) accounts, often as matching contributions, putting in 50 cents or $1 for every $1 an employee contributes, up to a set limit. This is a big incentive for employees to contribute at least enough to their plans to earn the matching contributions.

The investment options available depend on what the employer has chosen to make available.

That's a brief overview, but if you are eligible for a plan, I recommend getting more details before making any important decisions. All three types of employer-sponsored plans must operate within a framework of rules set by the federal government, but these rules allow for variation. That means the best source of information about how a plan works is usually the plan administrator chosen by the employer.

Online Money Map

Our Family Place (www.ourfamilyplace.com) bills itself as a "resource center" for family life, including the family finances. There are tips and even forms you can use for setting up a budget as well as advice on investing, buying a home and getting organized.

-- 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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