Smart Money: Anyone on payroll must pay Social Security taxes

Bruce Williams is a national radio talk show host and syndicated columnist

Dear Bruce: I would like to know if Social Security taxes are still withheld when a person reaches age 65, is a full-time employee, but is drawing Social Security benefits. P.K., via e-mail

Dear P.K.: You bet your life. As long as you are on a payroll, you will pay Social Security tax. It is limited by income, but the Medicare portion goes on forever. If you make $1 million a year, you will pay Medicare tax on your entire earnings. As long as you are earning, and even though you are a beneficiary, you will continue to pay the Social Security tax.

Dear Bruce: I would like to invest in an IRA, but I'm not sure if I should invest in a Roth IRA or a traditional IRA. Are the limits the same for both? Is the tax deductibility the same? Christina, via e-mail

Dear Christina: The maximum amount you can put into either IRA is $3,000. You can put $1,500 into a Roth IRA and $1,500 into a traditional, but the tax deductibility varies. The Roth IRA money is after-tax dollars, and the money that it accumulates is not taxable. The money that you invest in the traditional IRA is tax deductible at the time you invest it; however, the money that you earn over the years then becomes taxable as well as the principal.

Dear Bruce: My 94-year-old mother just sold her house for $260,000 to move in with my sister. My mom and dad bought the house in 1939 for $6,000. What is the capital gain liability, if any? E.D., via e-mail

Dear E.D.: There is no capital gains tax to my knowledge. Right off the top, your mom gets $250,000 deduction. At the very least, her base is $6,000, and I am confident that there have been some home improvements over the last 63 years. I'm sure you will find that the money is all hers.

Dear Bruce: I'm retired at 70 and my wife is 66. We have $50,000 U.S. money to invest. We are afraid to consult members of the investment houses because that seems like a case of using the fox to guard the hens. S.J., Karmiel, Israel

Dear S.J.: While it is true that there have been many cases of investment advisors taking advantage of clients, it is equally true that there are by far and away more who treat their clients with respect and use their knowledge to the client's advantage. Present what you would like to accomplish to two or three different brokerage houses and ask for their suggestions. You also should inquire among your friends and acquaintances as to individual brokers with whom they have had good experiences. I'm confident that there is someone out there who can do well by you.

Dear Bruce: You recently advised an older person that, as a means of handling IRA funds, CDs are not a worthwhile investment because of the small interest rate. I would consider CDs far better than what has been my experience with an investment adviser. I retired at the end of 1999 at 65 years of age. I worked for a small manufacturing company that had a profit-sharing plan. I received $79,025, which was transferred to an IRA account.

The advisor twisted my arm and placed the funds into two mutual funds. He explained the tremendous growth I would experience. On May 14 of this year, I had a whopping $51,945 left after the losses the funds have taken.

If I had invested the original $79,025 in a CD, which was paying 6 percent, I figured I would have $89,000 now. This money was supposed to help contribute to the $1,300 I receive from Social Security each month for living expenses. I would sure like to know how to recoup some of the losses. D.M., via e-mail

Dear D.M.: No one would have difficulty understanding why you were so upset. From the examples you gave, you would be ahead of the game had you invested in CDs even if they paid no interest.

However, hindsight is a wonderful thing. Had you made these same decisions 10 years ago when the market was really cooking, your $79,000 may very likely have grown to a couple hundred thousand, and you would have been grinning from ear to ear. The marketplace does have its risks. There are many people who retired a bit before you who are very happy, and who are way ahead of the game with investing than if they had invested in fixed income instruments such as CDs.

Dear Bruce: My wife and I live on Social Security for a total of $1,260 a month. We have a car payment and a mortgage payment of $216 and $217 in space rent. We purchased a manufactured home for $50,000, putting $25,000 down. Could we possibly get a reverse mortgage so that we have some money to pay off credit card bills and do some traveling? G.M., Las Vegas

Dear G.M.: Unfortunately, since you already have a mortgage, a reverse mortgage is out of the question. Even if you owned it free and clear, at the most it would be worth only $30,000 to $35,000. I don't know of any way you can use your equity other than to sell it. You will then have to figure out where you are going to live and how to pay that bill. I doubt seriously that you are going to reduce your housing costs. I wish I had a more positive answer.