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On money
© St. Petersburg Times, published November 26, 2000 Sorting through rules for SIMPLE IRAs isn't easy Q. My employer offers a SIMPLE IRA. Can I have the investment company where I have a traditional IRA and a Roth IRA request transfer of the funds? I think I could do better with the money added to the larger pots of money since it will be a while before the SIMPLE accumulates into anything significant. I have had trouble getting any answer. Someone told me the account had to be open two years before funds could be transferred. A. SIMPLE IRAs are a great option for small businesses that want to help their employees save for retirement. Employees can set aside up to $6,000 in pretax contributions each year with employer matching contributions of up to 3 percent of salary. But SIMPLEs are not simple. The rules for SIMPLE IRAs differ from those for other types of IRAs, which can be confusing for participants. The person who told you about the two-year waiting period was correct. Until the two years are up, you can roll the money over to another SIMPLE IRA, but not to a regular or Roth IRA. You cannot ever move money from a regular or Roth IRA to a SIMPLE, in the opinion of the tax researchers at CCH Inc. If you have a small amount of money in your account, your best bet is to invest it in a stock mutual fund. Q. I am 87 and live on the interest from two CDs I have coming due. I like the rate on a three-month CD I saw advertised in the paper. Is this okay for me? Should I renew every three months? My friends give me different opinions. A. A three-month FDIC-insured CD is a very low-risk investment, but it is not risk-free. The risk is that interest rates may go down and you will get a lower rate at renewal time. Of course, rates also could go up and you would be renewing at a higher rate. I am guessing that your friends favor longer-term CDs allowing you to lock in the current rate. Rather than making an all-or-nothing decision, why not invest your money in CDs of two to three different maturities? One popular option is a CD "ladder." You start with four or five CDs of varying maturities. For example, you might have CDs of three, six, 12 and 18 months. Whenever a CD matures, you buy a new 18-month CD. The result typically increases your interest without greatly increasing your risk. You can create a ladder with CDs, bonds and notes of any maturities you like. Q. I would appreciate your opinion and advice for an AT&T bondholder concerning the breakup of AT&T into four entities. I own AT&T bonds for which I paid about $50,000, the par (face value.) How will this shift affect AT&T's bond debt responsibilities? Please explain. A. It is not entirely clear how bondholders will be affected. Two rating agencies have lowered their ratings on AT&T's bonds. Moody's downgraded the bonds from A2 to A1 and Fitch IBCA from AA- to A-. Fitch said there is "execution risk" related to the company's plans to allocate debt to another corporate entity with a different capital structure and management team. The price of the bonds dropped when the breakup was announced, but it has been going back up as the shock has worn off. "The market is telling us people aren't too worried about it," said Greg Ghodsi, a broker who specializes in bonds at Robert W. Baird & Co. in Tampa. Nevertheless, he said his advice is to sell if the AT&T bonds represent more than 5 percent or 10 percent of your bond portfolio. On the other hand, he said you might want to hold if the position is just a small one for you. In general, it is not a good idea to have any corporate bond represent more than 5 percent to 10 percent of your bond portfolio. That is particularly true when there is some uncertainty regarding the company's future. Those guidelines do not not apply to Treasury securities and insured CDs because the federal government stands behind them. Online money mapIf you've got children at your house who are interested in money, tell them about Kids' Money (http://www.kidsmoney.org). The site includes kid-submitted tips for earning money. -- 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 huntley@sptimes.com by e-mail.
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