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The rules of CDs, required distributions and rollovers
Q. My individual retirement account is invested in certificates of deposit at five banks. When I have a CD mature and take the proceeds for a rollover to another bank, I have been told that the first bank must give me two separate checks: one representing the required distribution, which is not eligible for rollover, and the other for the remainder.
This rule seems to contradict IRS Publication 590, which says that you must determine the required minimum distribution separately for each account, but you can then choose to take the total amount from any one or more of the accounts.
What happens if I already have taken the required minimum distribution from other accounts when the CD matures? Am I then forced to take more than the required minimum distribution? I cannot get a consistent answer from the IRS, but this seems to be a very basic and probably very common question. Can you clarify this?
A. You must take your required distribution before you do a rollover, but you do not have to take it from that particular CD, said IRA expert Ed Slott, a CPA in Rockville Centre, N.Y. Try showing the bank a copy of this article along with proof that you have taken the required distribution from another account.
Slott says that the rule on this changed in 1988 with IRS Notice 88-38, but many banks and other IRA custodians are behind the times.
Q. My wife and I plan to sell our home after I retire, which will be in the next year, then buy a new one. I am concerned that the mortgage interest rate may be higher if I am retired. Our credit rating is excellent, and the home we purchase probably will be in the mid- to high-$200,000 range. Would it be advantageous to sell our home and purchase a new one while I am working?
A. Maybe. Whether you are working or retired is not the issue. What matters is what retirement does to your income. A substantial drop in income probably would make a difference in the terms you are offered.
"What every lender will do is determine what the debt-to-income ratio is," said Bob Cabrera, regional mortgage manager for AmSouth Bank. "It's not the source of the income. It's how much is your income, how much is your down payment and how good is your credit."
Retirement has no impact on your credit score.
Q. Can you give me a step-by-step procedure for selling stock when I hold the stock certificates myself? Do I start with the transfer agent, and do I have to have a stockbroker?
A. You can go through the transfer agent if all you want to do is transfer the shares to someone else. For example, if you wanted to give the shares to your children or charity, the transfer agent could handle the change of ownership.
But if you want to find a buyer, you need to use a brokerage firm. That will require you to open an account and deposit the shares. The sell order can be placed in person, over the phone or online, so it does not necessarily require talking to a broker. Once you have sold the shares and gotten your money, you can close the account. Call around first and get quotes on the commission to sell the number of shares you have.
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Q. Will the upcoming tax rebate be based on taxes paid or earned income? The matter does not seem to be clear in the material I have read. If it is only earned income, it would be quite unfair to those retired and living on income they have previously earned.
A. It would be unfair. The rebate is 5 percent of taxable income, capped at $300 for singles and $600 for married couples. The rebate cannot exceed the tax you paid for 2000. If you are curious about how big your refund will be, check out the online calculator that tax information provider CCH Inc. has set up. Go to the Web site (http://tax.cch.com) and click on "Calculate your 2001 tax savings."
- 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, or to firstname.lastname@example.org by e-mail.
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