Smart Money: HH Bonds won't eliminate tax responsibility

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

Dear Bruce: I have some Series E bonds that have matured. I need to roll them over into something in order to avoid paying taxes on them. What is your opinion of HH Bonds? J.S., Mount Sterling, Ky.

Dear J.S.: You can postpone the tax by rolling them over, but this will not eliminate the tax liability. Sooner or later, it's going to have to be paid. HH Bonds are a decent investment, particularly in today's climate of very low interest, and, of course, they have the full integrity of the U.S. government behind them.

Dear Bruce: If I file bankruptcy, I would like to protect intellectual property rights such as a manuscript that has not been published. Can this be done? Reader, via e-mail

Dear Reader: You didn't mention whether this property had been copyrighted. If it has not and has not been published, then it really only exists in your head. On the other hand, if it has been copyrighted and it does exist officially, it would seem to me that your creditors would have a right to attach it and extract whatever value there might be to satisfy your obligation to them. Be completely candid with the attorney handling your proposed bankruptcy and be guided by his advice.

Dear Bruce: I'm a 52-year-old widower with no dependents and working full-time for a company that has no pension plan. I am maxing out as many investments as I can since I have no debt. I find it hard to believe that there isn't another investment option other than money market funds, which are only paying a half percent. Do you have any other ideas? S.B., Inverness, Fla.

Dear S.B.: The problem here is risk aversion (or tolerance for a risk). Right now, money is virtually valueless. Many money markets are paying less than a half a point a year, where securities can vary 1 percent or 2 percent a day. However, there is an inherent risk in securities that you do not have with the money market account. Long-term government bonds are only paying around 3 percent. It should be observed, however, that your principal is guaranteed and many people who invested in the market in the last couple of years surely would like to have the value of their investments a couple of years ago.

Dear Bruce: A couple of years ago a financial advisor convinced me to purchase a tax-deferred annuity with a guaranteed interest payment of 6.25 percent. It seemed like a good deal at the time, but now the company is in receivership. If the company goes belly-up, can I recover any of my money? A.E., Oxnard, Calif.

Dear A.E.: When a company goes bankrupt, sometimes the creditors that may be you receive a portion of their money. Unfortunately, in other cases, they receive nothing. An annuity is simply a contract with a company. If the company goes away, so does your money. The thing that stresses me is when these peddlers call themselves financial advisors. There is nothing immoral or illegal about being a salesman, but they should be called "salesmen," not financial advisors. I have never been a great fan of annuities. I do caution people, before they purchase an annuity, to check the company's reputation in Standard & Poor's or Best Guide.

Dear Bruce: I have a self-directed IRA and I was investing in first trust deeds. I didn't lose, but two of the companies became problems. It took several years and many legal expenses to get my money. I no longer want to risk my money in this type of investment. I have $100,000 and have chosen to invest in CDs. I am 66 and need a monthly income. I'm thinking about taking some of the money out and waiting for interest rates to go up rather than locking in. Any suggestions? A.D., Las Vegas

Dear A.D.: Most experts feel that the interest rates are going to slowly go up. I applaud your idea of not getting involved with these companies that offer to help you invest in trust deeds, as some have questionable integrity. Sitting out the market and waiting right now is a costly adventure. To get a fairly decent return on your CDs, you will have to lock up the money for a considerable period of time. You might want to consider shorter-term, well-rated corporate bonds. While the bond prices could fluctuate, you will receive your full investment with a very modest degree of risk, if you hold them to maturity. After the second or third year passes, you can then decide whether you want to stay with bonds or go back into CDs.

Dear Bruce: My 34-year-old husband has $1,200 in an individual retirement account. The money is part of his retirement from a previous job. He was told that he had to put it in a Roth IRA or an IRA for it not to be taxed. The return on it is lousy. What do you suggest that he do with the money? D.S., via e-mail

Dear D.S.: Interest on monies in money market funds, CDs, etc., is very low. That's the way the market is. It would appear that you already have the money in some kind of self-directed IRA and there is no tax to be paid on that income until you withdraw it. If you withdraw it before age 59 (under the current rules), besides whatever tax would be due as ordinary income, you will have an additional 10 percent penalty. The one area that you might wish to consider is to transfer it to a Roth IRA.

You should know that the $1,200 will not be penalized, however you will have to pay whatever income tax bracket you are in on the $1,200. It is also possible that this $1,200 one-time shot would put you in a higher bracket on all of your money. You really should get someone to sit down and do the arithmetic before you make the move. As to the return on the $1,200, there are other ways to invest it within the IRA that involve some risk, but will give you a substantially higher return. Check with a stockbroker.

Dear Bruce: I thought you once wrote that it's OK to transfer credit card balances for the promotional rates and then move the balances in another six months after you find another offer. Is this correct? I was under the impression that revolving credit is a bad thing. E.M., via e-mail

Dear E.M.: What I have repeatedly said is that, if you can't pay for your purchases when the bill comes due, you are spending more money than you have. Most Americans carry credit card balances, often paying very substantial interest rates. If you are carrying balances, you can considerably lower the interest by transferring every six months or so. I have no quarrel with that. I do quarrel heavily with people who spend beyond their ability to repay. I recently heard a commercial where the wife was discussing their credit card bill with her husband. She said, "at this rate we'll be in our 70s before we pay it off." If you pay only the minimum balances at a high rate of interest, then her fate is yours.

Dear Bruce: My company is paying for my relocation. It will reimburse me the cost of selling my house, including the real estate agent's commission. Company policy requires the use of a real estate agent and pays up to 6 percent. I've already identified a buyer without needing an agent and found a real estate agent willing to rebate me 4 percent of his 6 percent commission. I plan to split the 4 percent evenly with the buyer. Is this ethical?

Since the agent is willing to accept just 2 percent to shepherd the paperwork through, should I direct him to pass the savings on to my employer rather than the buyer? A.V., via e-mail

Dear A.V.: You're playing with your corporate future. If the company is agreeing to pay the 6 percent, I find it difficult to believe that they are going to be happy with an employee who is getting two-thirds of this money. You should explain what is going on with your supervisor and have his or her written permission to do what you describe. Otherwise, I wouldn't consider such a plan. If you were my employee and pulled a stunt like this, you would be exploring unemployment. If you cheat me on one issue, then why would I trust you with another?