Balancing bonds and taxes for an elderly parent
QI have power of attorney for my mother, who is in her late 80s. Some questions:
1. She has Series E savings bonds in the amount of $42,800 that are only earning 4 percent interest. I have been cashing just enough of these each year to avoid heavy taxes. I have taken the money and now have $60,000 invested in T-bills and certificates of deposit. Should I cash the remaining bonds and take the tax hit, or should I continue as I have been doing? Is there a better way to invest this money? Her adjusted gross income for 2000 was $11,600. She owed $521 in federal taxes.
2. I am planning to sell her modest home for about $85,000. How should I invest the proceeds? Her total assets are about $235,000. Her rent at an assisted-living residence is $79 a day.
- J.W., via e-mail
A"As long as your mother is in the 15 percent tax bracket, as is now the case, it will pay you to cash out the savings bonds," says Gary Schatsky, a financial planner and attorney in New York. "You can easily earn 5 to 6 percent in a money-market account."
Regarding the house, "sell it and invest the proceeds - and as much of her other financial assets as you wish - in high yielding CDs or short-term bond or money-market accounts, such as the Vanguard Short Term Corporate Bond Fund or the Vanguard Prime Money Fund. Both are yielding around 6 percent," Mr. Schatsky says.
"If you need to tap into principal to pay her assisted living, that's OK ... since that is common in handling finances for the elderly," he adds.
QIf you were to pick the foundation of a stock investor's library, which books would be best for getting started?
- K.Z., via e-mail
A"One Up On Wall Street," by Peter Lynch; "Investing For Dummies," by Eric Tyson; "A Random Walk Down Wall Street," by Burton Malkiel, "How to Be Your Own Stockbroker," Charles Schwab, and "The Complete Idiot's Guide to Making Money on Wall Street," by Christy Heady.
Q I have a small mutual-fund account. I reinvested all dividends and capital gains. Do I owe taxes on these earnings?
- S.D., New York
AYes, reinvested dividends and capital gains are subject to taxes, says Walter Updegrave, writing in "The Right Way To Invest In Mutual Funds."
By Guy Halverson Questions about finances? Write:
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