"The check is in the mail" may be one of the most common lies, but sometimes it's true: You open your mail and there's an unexpected check.
That's great if the IRS or somebody else owed you the money or a relative was moved to generosity.
But under most other circumstances, a surprise check should be treated as a red flag warning you to be alert for a come-on. Cash the check and you could be committing yourself to pay for something you don't want.
Usually this is explained in small type, but if you are not paying attention, you could end up signing up for long distance or Internet service, a magazine subscription or something else.
"Once one of these so-called checks is cashed, it will be very difficult to reverse the new services you may have unintentionally ordered," said Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. "The consumer's best defense against this type of marketing tactic is to read the fine print, and don't expect free money for nothing."
No matter how winning your personality, companies do not send you money because they like you.
Q. How will dividends on real estate investment trusts be treated under the new tax law?
Most of the REIT dividends you receive will continue to be treated as ordinary income and taxed at your regular income tax rate, whatever that happens to be. However, some portion is likely to qualify for taxation at a maximum rate of 15 percent. For example, when a REIT makes a capital gains distribution, that would be taxed at no more than 15 percent.
The National Association of Real Estate Investment Trusts estimates that in recent years about a fourth of REIT dividends would have qualified for the 15 percent tax treatment.
Q. My husband and I are retired. This year we will have only about $4,300 in taxable income plus our Social Security. I am not yet required to take minimum distributions from my individual retirement account, but I am considering withdrawing about $12,000 for a Roth IRA conversion. I know I will not need to touch this money for at least five years. When I do a "test" Form 1040 with this conversion amount, my tax comes to zero. This seems like a way to avoid ever paying taxes on $12,000 of tax-deferred income plus never paying taxes on any future income from this money. Am I missing something, or does this work?
It works. When you made your retirement contributions during your working years, the theory was that you would get the income tax break up front, then pay the taxes when you were in a lower tax bracket after you retired. That time has come. Since you don't need to spend the money, you can let it sit in a Roth IRA and earn more income that will never have to be taxed. What a deal!
Your strategy makes a lot of sense. In fact, I encourage you to think further ahead. What do you expect your income tax situation to be in future years? How much money is in your IRA? When you reach the age for required withdrawals, will they be large enough to make your Social Security income taxable? If so, consider taking even more out of your traditional IRA and converting it to a Roth account before that happens. Taking IRA withdrawals tax free is the best, of course. But paying a small amount of taxes now also would be beneficial if it enables you to avoid larger taxes later.
Even if you were just withdrawing the money to put it in a taxable account, withdrawals would make sense for you. Why pay taxes on it later when you don't have to?
Q. How can I cash U.S. savings bonds that I purchased seven years ago through a payroll deduction program for the future college fund of my grandson? I think they have matured and are no longer gaining interest.
You can cash them at any bank that handles savings bonds, but there is no reason to rush. Your bonds will earn interest for 30 years from the month you bought them.
- 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.
