You've probably heard about the windfall baby boomers are supposed to be inheriting from their parents. The figures that get bandied about range from $10-trillion to $136-trillion over the next 55 years, which appears to leave more than just a little margin for error.
The truth? Some boomers will get a nice inheritance, but the vast majority can't expect a dime. That's the conclusion of an interesting article published recently in American Demographics magazine.
The magazine says that at the very least, boomers will inherit $1-trillion in the next decade, including $161-billion this year alone, but longer-term projections are not reliable. Today's seniors have both unprecedented wealth and unprecedented living expenses, particularly for health care. Whether it's for fun or for necessity, many of them will spend their children's inheritances. Others will bypass their boomer children, giving their money to their grandchildren or stashing it in college savings plans on their behalf.
A government poll a few years ago found that just 8 percent of Americans had ever received a bequest, most of them for less than $25,000. Based on that data, it is likely that fewer than 20 percent of boomers will get an inheritance. Most of the people who get big bequests are already wealthy. And whites are more likely to inherit money than minorities.
Those boomers who receive an inheritance may spend it differently than their parents did. The magazine speculates about the likely possibilities: second homes, educational programs, exotic travel, luxury cars, psychotherapists, cosmetic surgery, debt repayment, college tuition for late-in-life children and gifts to charity. What doesn't get spent will get invested, which means the financial services industry also stands to benefit.
Q. I sold my primary residence, where I had lived for four years, for $145,000 in May. I bought a new home in March for $165,000. Do I have to pay capital gains on the sale of my primary residence? Now I want to sell my new home and buy another one. When I do that will I have to pay capital gains tax? If so, how can I legally avoid paying?
You are home free on the sale of your old house. Because you owned the house and lived there at least two of the past five years, you owe no tax on up to $250,000 of gain ($500,000 if you were married filing jointly).
You may have to pay tax on the sale of your new house if you have a profit after subtracting the cost of any improvements or sale expenses, such as a real estate commission. Since you bought the house so recently, your profit is likely to be small if you have one at all.
People who do not meet the two-year residency and ownership test may still qualify to exclude part of their profits if the sale of the house is because of a change in place of employment at least 50 miles away, job loss, serious health problems or unforeseen circumstances such as divorce, giving birth to twins or sustaining damage from a natural disaster.
If you qualify for a partial exclusion, it is prorated based on the time you owned and lived in the house. For example, if the period were six months, you would qualify for one-fourth the full exclusion, or $62,500 for a single person. That should be more than enough.
Q. I recently got a raise and plan to increase my contribution to my company's 401(k) plan. How much of my contribution should I direct toward my company's stock? I have a long time to go until retirement.
If you think your company's future looks promising, you should be buying its stock. However, you don't want to go overboard lest you end up like Enron employees whose retirement plans plunged in value along with the bankrupt company's stock.
I'd suggest putting 10 percent of your contributions into company stock. You could go higher if you have investments outside your 401(k) plan, but overall, no one stock should account for more than 10 percent of your portfolio.
If your company is contributing company stock to your account, then your own contributions should be smaller to compensate.
- 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.
