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Pensioner ponders over where to pay his taxes

Q: I live in Florida, where there is no state income tax, but my pension comes from Massachusetts. My accountant says I have to pay income tax to Massachusetts, but a local tax service says that the federal government said in the mid-90s that states could no longer tax retired people who did not live in their state. I don't know whom to believe.
M.H., via e-mail

A: Unless you have a special situation that gives Massachusetts some claim to your income, go with your tax service on this one, according to Miami CPA Phillip Sroka.

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In general, Mr. Sroka says, the rule is that you are taxed in the state where you currently reside (as long as you're a valid resident according to the tax laws) rather than the state where you worked.

Q: Both my wife and I are near retirement. We each have defined benefit retirement plans that will annually provide us with about $70,000. We also have about $500,000 in mutual funds, most of which has been invested in fairly aggressive growth funds. Most advice suggests that as people near retirement they put an ever increasing percentage of their portfolio in more stable and less aggressive investments. But should we really do this with our mutual funds? What differences would you suggest where a significant portion of the retiree's portfolio is in the form of pension payments?
P.J.H., via e-mail

A: Your money doesn't know how old you are, so your financial needs won't suddenly change just because you near retirement.

Since the income from the retirement plans is guaranteed, Rockford, Ill., financial planner Thomas Muldowney says you have the freedom to be aggressive with your personal investments.

But being aggressive doesn't mean that you should be speculative, he warns. Look at your goals in retirement. Can they be met with $70,000 per year, or will you need more?

From the sound of it, Mr. Muldowney thinks you might be a "rate-of-return taker" - that is, you place your money into a series of accounts and let them ride, taking whatever returns they generate.

He thinks you should consider becoming a "rate-of-return demander." This way, you insist that your funds produce returns at a specific level. If the fund doesn't produce the targeted rate of return, it's time to make a change. Index funds are good tools for rate-of-return demanders, says Muldowney.


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