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Letter to the editor

Personal Finance questions: National insurance, with strings

We asked: Should we have national windstorm insurance or some other type of federal catastrophe fund?

By Helen Huntley, Times Personal Finance Editor
Published November 11, 2007

We asked

Should we have national windstorm insurance or some other type of federal catastrophe fund?

Your question begs the question of whether or not you want to have a large socialistic government. Remember that a government big enough to give you everything you want is a government big enough to take everything away.

Everything from the government comes with a string attached.

Sam Lasley, Clearwater

You asked

I have a small 401k with my former employer. A friend who sells insurance is trying to get me to buy annuities. He claims that annuities are protected from creditors but not 401(k)s. I haven't been able to verify his claims with anyone. I heard that once you leave your employer you should move your 401(k), but mine is doing really good and I have the option to diversify any way I want. What is your suggestion?

My suggestion is to tell your friend the insurance salesman to buzz off. Your 401(k) is protected from creditors. There is nothing wrong with leaving it right where it is if you are happy with the investment options, performance and fees. If you are unhappy with any of those or if you are concerned about your employer's financial solvency, I recommend an IRA for your retirement stash rather than an annuity.

I'll have a $50,000 capital gain in December. How much must I pay on my Jan. 15, 2008, estimated tax form to avoid any problems with the IRS? Should I add a note of explanation?

As long as your estimated taxes add up to 100 percent of the tax you paid last year, you should be fine. If your income is more than $150,000, you need to pay 110 percent of last year's taxes. However, you might feel more at ease if you went ahead and mailed in a check for 15 percent of your gain. Don't send notes with estimated tax payments. Should any explanations be needed, send them with your tax return.

I am 55 and just got laid off of my job of 18 years. If I take the money out of my 401(k), which I will need to live on, what kind of taxes or penalties will I have to pay? I was told you do not have to pay a penalty if you are 55; you would just pay the taxes. Do you have to pay taxes at the end of the year?

Because you were 55 or older when you left your job, you will not owe a 10 percent penalty on withdrawals. However, you will owe regular income taxes. Your employer will withhold 20 percent of the money for taxes, but you'll need to prepare an income tax return to know whether that was too much or not enough. You'll get a refund or owe taxes accordingly. Good luck with your search for another job.

Next week's question

Will you spend more, less or about the same this holiday season than you did last year? Why?

To ask a question, make a comment or answer the Money Question of Week, e-mail hhuntley@sptimes.com or write Helen Huntley, P.O. Box 1121, St. Petersburg, FL 33731. Visit her MoneyTalk blog (blogs.tampabay.com/money) for more money information.

[Last modified November 9, 2007, 22:43:22]