Financial HelpLine

Have a Question for SmartMoney?

Our editors and reporters answer selected questions here at our Financial HelpLine. Email us at ask@smartmoney.com or call 866-219-0687 (free) and leave a voicemail. 

Podcast: Listen to the SmartMoney HelpLine podcasts to hear more answers to your questions.

QUESTION: I am 52 and would like to get life insurance, but I fear I am too old. Right now all I have is a term life insurance policy I started when I was 40. I don’t have any pre-existing conditions and am in good health. Can I get an affordable policy? Will I need to get a physical?

ANSWER: You’re definitely not too old to find an affordable life insurance policy. That may have been true once, but these days, people live longer, and prices have come down as a result.

“That used to be considered fairly middle-aged,” says Bob Hunter, the director of insurance at the Consumer Federation of America, but “the price of term insurance has come down so much it’s still very cheap, even into your 60’s.”

The term life insurance market is very competitive because it’s a relatively simple product offered by a lot of companies, says Conrad Ciccotello, an associate professor in the Department of Risk Management at the Robinson School of Business at Georgia State University. But although the variety of options available helps bring prices down, it also makes the market more confusing to navigate, Ciccotello says. “A consumer should still be very careful,” he says. “There’s, surprisingly, a lot of different prices out there.”

The first thing to consider when shopping for insurance is who the policy is really for. If you have children, think about how old they are and how many years it might be before they’ll be supporting themselves. How long will you need your new term life insurance policy to last? Whole-life policies aren’t worthwhile unless you’re using the policy as part of your estate planning, Hunter says. “Life insurance is supposed to cover the economic consequences of premature death,” Hunter says. “It’s not a bet you want to win.”

You will need to get a physical, but even a person with some health problems should be able to find an affordable policy as long as the problems aren’t too severe. Try to prepare for the physical by eating a healthy diet and exercising. Consider the lower premiums offered to individuals in good health, Ciccotello says. “The best single investment dollar that I have is my gym membership,” he says.

QUESTION: My savings for my child's college education is spread across 529s, taxable mutual funds and money market accounts. It's pretty uniformly distributed (one third in each form of investment), and I'm continuing to invest in the 529s. My daughter will be entering college this fall. How should I withdraw the money to pay for her college bills? Which accounts should I use first?
-- Mark Clark,  Rochester, Minn.

ANSWER: Choosing which account to use depends on several factors, including the amount of exposure you have to stocks in your 529 plan. However, the best place to start is most likely with the taxable mutual funds; if you use these to pay for tuition, you can qualify for the American Opportunity Tax Credit, which is worth 100% of the first $2,000 in tuition costs and 25% of the next $2,000 for a maximum of $2,500. Then, turn to the money market accounts. Chances are these accounts aren’t earning much interest right now, but they are guaranteed money that you have at your disposal. Meanwhile, leave your 529 plan untapped so that it has a few more years to recover from the market’s recent losses. Despite whatever losses your 529 plan may have incurred, it’s time to move out of stocks and into safe, low-risk investments like bonds or certificates of deposit. Because you’re going to need this money over the next four years, equities are a risky place to keep it, says Charles Buck, a financial planner in Woodbury, Minn.

QUESTION: My son is 14 and is starting high school this fall. We have been socking away small bits of money to help with the rising cost of college since the day he was born. However, that money was hit in the early ‘90s and then again this year. His college savings are now down to about $10,000. I’ve heard rumors that in four years a college education is going to cost $20,000 a year and take more than five years to finish. I don't want my son to graduate from college more than $100K in debt. We have been depositing $200 a month into Putnam College Advantage fund. What would you suggest is the best way to increase this amount in the next four years
-- Heidi Pagani, Oakdale, CA

ANSWER: A four-year college education can easily reach $100,000, and by the time your son starts college it’s likely to be much higher. According to 2008-09 data from the College Board, tuition and room-and-board expenses at public universities average $14,333 per year for in-state students and $25,200 for out-of-state students. Private university costs average $34,132 per year.

If you haven’t already done so, consider starting a 529 college savings plan, where you invest after-tax money and your earnings can grow, tax deferred. Withdrawals are tax-free, as long as you withdraw the money for college-related purposes (i.e. tuition or room and board). Consider reaching out to relatives and friends who can contribute, as well.

These plans offer a wide selection of investment options for people with tolerances for high risk (stocks) and low risk (CDs, bond funds). Parents who prefer to set the plan on auto pilot, rather than monitoring on it on their own (ideally once a month), can consider an age-based portfolio that becomes more conservative as your beneficiary approaches college. Just stay on top of your plan and your broker. As of February, the average fund for high school juniors and seniors had about 25% of its assets in stocks, and some went up to 71%. Many of these funds were wiped out with the market downturn.

And, keep in mind that your investing horizon is eight years – the four years your son has until college and four years as an undergrad, says Roger Michaud, the treasurer of the College Savings Foundation, a nonprofit focused on college savings strategies. “You still have a period of years to put this money to work and include some exposure to stocks,” he says. And, to make up for lost time, try increasing your $200 contribution by whatever amount possible, he says.

QUESTION: What percentage commission do real estate agents get on home sales?

ANSWER: The standard commission in residential real estate transactions is 6 percent, with 3 percent going to the agent representing the buyer and 3 percent to the agent representing the seller. Keep in mind that while the seller technically pays the commission, it’s generally built into the sales price. If the buyer has no agent, the listing agent and his or her firm typically pocket the entire commission. Some agents will negotiate their commissions, so it can pay to ask about the possibility of a reduction. Or, check out a discount brokerage like Redfin or ZipRealty.

QUESTION: Can I invest in other state's 529 plans and take advantage of the taxes? Which plans allow this?
—Regina Sanchez, Alexandria, Va.

ANSWER: A 529 plan is one of the best vehicles out there for long-term college savings. You can invest in your own state's plan or in one offered by another state. Even better, when it's time to withdraw funds from the plan to pay for your child's college expenses, you won't have to pay federal taxes.

There are also some state tax breaks, but those are dependent on the state you live in — not the plan you invest in. Many states allow residents to deduct all or part of their contributions. A couple of other states offer tax credits, and then there's a handful that offer nothing at all.

However, an overwhelming majority of states — including your home state of Virginia — won't extend deductions or credits to residents who invest in 529 plans from another state. In fact, only four states — Arizona, Kansas, Maine and Pennsylvania — offer what is called "tax parity," which allows their residents to make contributions to any state's plan and still be eligible for tax deductions.

QUESTION: What effect would rising interest rates have on a bond market index fund? As bonds in the fund mature, won’t they be replaced with higher interest, lower cost bonds, resulting in the same income potential (and lower net asset value)?
—James T. Waples, Sr., Sturgeon Bay, Wis.

ANSWER: For existing investors in a bond market index fund, rising interest rates don’t have a big immediate impact on the income those investors earn, says Greg Davis, head of bond indexing at Vanguard. However, over time, rising rates can increase the fund’s income, as the manager buys more higher-yielding bonds to replace bonds that leave the portfolio. (Keep in mind that bond managers often don’t hold bonds until they mature, so when they sell them they get the prevailing market price.) Also, bond prices move inversely to interest rates, so when interest rates rise, bond prices decline. That means bond funds can lose money, unlike an individual bond held to maturity.

QUESTION: How does one invest in the PPIP program? Is this through only a select few brokerage firms?
—Louis Prekop, Katy, Texas

ANSWER: So far, there isn't a way for consumers to invest in what’s known as the Public-Private Investment Program (PPIP). At this point, the White House has announced the nine private investment firms that will be participating. Those include AllianceBernstein, BlackRock, Invesco, Wellington Management and Oaktree Capital Management, among others. Under the program, these investors will pair up with the government to buy troubled assets off banks’ balance sheets, combining as much as $40 billion or more in equity and debt. As the program moves forward, analysts expect some firms like BlackRock, which caters to retail investors, to offer mutual funds or private equity funds to get individuals involved. Stay tuned.

QUESTION: I will be moving and leaving my current employer soon. I have a 401(k) with them (had it for years, it is vested). I’m going to be a stay-at-home mom and probably won’t get a new job anytime soon, but I don’t want to lose my 401(k). What can I do?
—Claudia Ellison

ANSWER: If you have more than $5,000 in your 401(k), you can leave it with the employer for as long as you want. However, you won't be able to contribute to the account or earn a company match.

Another option is to roll over your 401(k) into an IRA. Before you do so, shop around for a brokerage firm that you're comfortable with handling your retirement savings. Once you've found a trusted broker, speak with your company’s human resources department. They should be able to provide you with the form that is required to transfer your 401(k) from the brokerage firm it’s currently managed by to the one you’ve chosen. (Even if you decide to stick with the same brokerage firm, you’ll still need to fill out this form.)

Before rolling your 401(k) into an IRA, read our story.

QUESTION: When the time comes to take withdrawals from your IRA, do you take it all at once or spread them over the year?
—Name withheld

ANSWER: Beginning at age 59 and a half, you can withdraw funds from your IRA without incurring a penalty. A general rule of thumb is that retirees planning a 30-year retirement would want to withdraw no more than roughly 4 percent a year to ensure that their nest eggs last. After age 70 and one-half, the IRS requires you to take minimum withdrawals, which are calculated based on your age and life expectancy.

Whether you take your yearly withdrawals all at once or incrementally throughout the year is up to you. Some firms recommend taking the entire withdrawal at once. “If this is cash you need, you don't want to be at the mercies of the market,” says T. Rowe Price financial planner Christine Fahlund. Others say it’s best to keep whatever you don’t need immediately or aren’t required to withdraw in your IRA to allow it to keep growing tax-deferred. Either way, keep an eye on the market. A sudden upswing could signal a good time to take a larger withdrawal, says Keith Garcia, senior manager for retirement at TD Ameritrade. Many firms offer automatic withdrawals so you can routinely
transfer IRA funds into a brokerage or checking account as often as you indicate.

QUESTION: I have money in a tax deferred annuity. I am no longer employed with the institution through which I started this annuity. I do not put money in this account as my husband has a retirement account that we contribute to on a regular basis. We are in need of some short-term cash and we're both in our 40s, so we have a ways to go before we can retire. Besides the taxes and 10% early withdrawal penalty, what are the downsides to closing out this account? Will it affect our credit scores in any way?
--Name withheld

ANSWER: It will not affect your credit scores, but the costs of tapping that account are high, says Michael Kresh, a fee-only financial planner in Hauppauge, NY. Depending on how long you’ve held the annuity, you may have to pay surrender charges in addition to the income tax and 10% early withdrawal penalty. Most annuities have to be held between five and seven years. Cash in the account before that time and you’ll pay a surrender charge starting at 7% in the first year and gradually going down to 1% in the final year that the account is required to be held.

Taxes and penalties aside, you should also consider that by taking the money out of a tax-deferred retirement account you are foregoing years of future tax-free growth. “If you need short-term cash, the question is: ‘Is pulling money out of a long-term investment the most sensible thing to do?’” Kresh says.

QUESTION: Does my current General Motors stock just get thrown away or could it eventually come back as GM is selling new stock.
-- Marianne Krauss, Gibbsboro, NJ

ANSWER: Unfortunately, you’re probably out of luck. During Chapter 11 bankruptcy proceedings the company works toward repaying (or at least creating some value for) secured and unsecured creditors first. It is only when the debts owed to these creditors are fully realized that anything is doled out to shareholders, which in the case of GM, is highly unlikely given that its debts far outweigh its assets.

Even the largest creditors to GM are likely to receive only a fraction of what they're owed. As part of the government's plan to get GM back on its feet -- and to help repay these creditors -- equity in any new company (what is being referred to as the "New GM") will be allocated to bondholders, the United Auto Workers health care fund and the U.S. and Canadian governments. Shareholders aren't included in that plan.

In a nutshell, things look pretty bleak for GM shareholders. You could try to sell your shares in order to recoup a tiny portion of your investment (stress on the word "tiny.") GM shares were delisted from the New York Stock Exchange on June 2. The shares now trade on a limited basis on the Over the Counter Bulletin Board. On Wednesday -- two days after the stock was delisted by NYSE -- the shares were trading at about 58 cents a pop. It's doubtful that the shares will even retain that value as the company moves forward with its bankruptcy proceedings. Before you make any move, consult your investment advisor about how to proceed and whether or not selling your shares will make sense.

For more information, visit the investor information section of GM's web site.

QUESTION: China and other countries are often tagged as currency manipulators. Exactly how do they do it?
-- Jim Caprio, Lubbock, Texas

ANSWER: There's really no such thing as "currency manipulation," since there is no law proscribing what countries can and cannot do regarding the value of their currencies, says Dan Seiver, professor of finance at San Diego State University. But China does indeed purposely keep the value of its currency low vs. the dollar. They accomplish that by buying up dollar-denominated assets, mostly Treasurys, of which they currently hold more than a trillion dollars worth, Seiver says.

QUESTION: What happens to stock shares and bond holdings in the much-talked about "Good GM-Bad GM" bankruptcy plan scenario?
—Sue Littles, Farmington Hills, Mich.

ANSWER: General Motors (GM) hasn't declared bankruptcy yet, though a June 1 government deadline for cost-cutting measures is fast approaching. For investors, the current scenario would follow the typical pattern for a company in bankruptcy — stockholders will be wiped out, and bondholders, who hold $27 billion in GM debt, will get a fraction of the face value of their positions as equity in the reorganized company. Analyst David Silver, at Wall Street Strategies, says the current proposed route to a settlement with bondholders would grant them 10% of a reorganized company. For every $1,000 they hold of debt, they'd get 225 shares of GM stock. The current plan by GM also calls for a 1 for 100 reverse stock split, so that would become 2.25 shares of GM stock, now trading $1.17 a piece. That comes out to $2.63 worth of stock for $1,000 in debt if the deal goes through, an outcome Silver doubts. "I think they'll be forced into bankruptcy and all bets will be off,” he says. "The settlement on $27 billion will be up to a judge to decide what they get."

QUESTION: How should one invest if he or she believes long-term interest rates will go significantly higher in the next year or two? I was wondering, specifically, about ETFs, ultra-short bond funds, and/or long-term options that are geared to this scenario.
—Gerald Jakubovics, New York, NY

ANSWER: When interest rates rise bond prices fall. Medium- and long-term Treasurys are especially sensitive to that inverse relationship, so theoretically you could profit by shorting these instruments through leveraged exchange-traded funds such as ProShares UltraShort 7-10 Year Treasury (PST) and ProShares UltraShort 20+ Year Treasury (TBT) — but it's a risky bet. Both ETFs seek to return twice the inverse daily performance of their underlying bond indexes, meaning twice the pain for your portfolio if you bet wrong. Furthermore such a strategy could easily come undone, depending on what's behind those higher long-term rates, says Michael Rubino, chief executive of Rubino Financial Group of Troy, Mich. "What will probably cause long-term rates to rise is a lack of confidence in the American dollar," Rubino says. "That would be an argument for inflation, so an ultra-short bond fund might not work." If anything, Rubino thinks higher long-term rates make the case for investing in inflation hedges such as commodities, energy and TIPS (Treasury Inflation Protected Securities).

QUESTION: I’m not working right now, so I have no income. What is the minimum gross income requirement to file a tax return?
—Jackie

ANSWER: Whether or not you have to file a tax return depends on your filing status and your annual gross income. Gross income includes all taxable income such as salary, capital gains, dividends and interest. Single taxpayers are required to file a tax return for 2008 if their gross income is more than $8,950; in 2009 that figure rises to $9,350. If your filing status is head of household, meaning you’re single but have at least one dependent, the minimum gross income starts at $11,500; if that dependent is your child, the minimum rises. Married couples filing jointly are required to file a 2008 tax return if their combined gross income is over $17,900. There are a variety of “refundable” credits available, though, which means that even if you don’t owe any tax you could be eligible for a bigger refund—and to get any sort of refund, you need to file, regardless of your income.

QUESTION: I have an aunt in a nursing home on Medicaid. She recently inherited $75,000. Consequently, they are removing her from Medicaid. It has cost our family money with her in a nursing home for the past ten years. Now, they want to ride down her money. Could she gift some of that money to us or does it all go to the nursing home?
—Name withheld

ANSWER: Medicaid issues are particularly tricky, and best executed with the help of a skilled elder-law attorney, but we can explain some basics. For starters, Medicaid rules vary state by state, but generally speaking, if your aunt receives money while she is Medicaid-eligible and tries to transfer it out of her name, Medicaid will penalize her for a period of time. The length of the penalty period depends on how much she transfers. Typically the penalty is one month without Medicaid for every $10,000 transferred out of the Medicaid recipient’s name. So, a $75,000 gift would incur about a 7.5-month penalty.

Before you and your aunt try gifting the money on the sly, be warned that transferring money without notifying Medicaid is considered fraud, and the government can claim a penalty on any transfers it finds within the past five years. However, there are ways to notify Medicaid of the inheritance while still keeping some of the money, says elder-law attorney Lawrence Davidow. Depending on your state’s rules and personal circumstances, here’s one way it can work: An attorney can arrange to have about half of the inheritance (in this case $37,500) gifted to a trustworthy relative, notifying Medicaid of the transaction. This would result in a penalty of nearly 4 months without Medicaid benefits for your aunt. The lawyer would then arrange for the remaining half of the inheritance to be loaned to those trusted relatives, through a legally binding document. The relatives would then repay the loan over the course of the penalty period, with the money being used to cover any healthcare costs. When the penalty period runs out, the former Medicaid recipient (in this case your aunt) becomes Medicaid-eligible again and you get to keep the gifted half that’s left over.

Clearly, this is complicated stuff that requires official documentation that adheres to state laws—and that kind of expertise may not come cheap. You’ll have to consult an attorney to determine if the legal fees involved are low enough to make the strategy worthwhile.

Another option: Use the inheritance to augment your aunt’s health care. By creating what’s called a “third-party special needs trust,” she’ll be able to continue her Medicaid coverage, while drawing from the trust to get better care in areas where Medicaid is lacking—such as purchasing higher-quality hearing aids or better dental care.

Both options involved complex legal maneuvers, so consider consulting local elder-care organizations or the American Bar Association for referrals.

QUESTION: Is there a minimum amount of time required between the time you're allowed to sell a stock and then repurchase the same stock?
— Don Moyer, Wernersville, Pa.

ANSWER: There is indeed a waiting period, as mandated by the Internal Revenue Service. This is what's known as the wash-sale rule, which says that you (or your spouse) cannot harvest a tax loss unless you wait 30 days before you repurchase substantially identical stocks or securities, including mutual funds. That means you have to wait until day 31 to go back in, says Shashin Shah, a financial planner with Dallas-based SGS Wealth Management. Shah also points out that index funds can get a little tricky. "In mirroring indices, some funds will not match the exact performance of others," Shah says. "This is certainly a gray area in the tax code from what I understand." Harvesting tax losses before the Dec. 31 deadline can make a difference at tax time. But every case is different and there's a sneaky new twist to the wash-sale rule. Since so many (or most) investors have losing positions these days, it's imperative to understand the wash-sale rule, and be aware that the IRS is trying to cast a wider net when it comes to this area of the tax law.

QUESTION: Can a 75-year old convert a regular IRA, from which he has taken distributions for several years, to a Roth IRA, and if so, what are the rules?
— Ed Spiller, Kensington, Calif.

ANSWER: Yes, as long as his adjusted gross income (including social security payments, dividends and distributions from an IRA or any other retirement plans) is no more than $100,000, he can convert a regular IRA to a Roth this year. (He’ll still need to make a required minimum distribution during the year he makes the conversion.) Keep in mind that if he converts in 2009, he will incur a tax hit on the amount he transfers. The good news is that the tax bill will likely be smaller than usual since his IRA balance has probably fallen over the past year. If he’s strapped for cash right now and can’t afford the tax hit the conversion will trigger, he may want to hold off until 2010. Next year, individuals at any income level will be permitted to convert from an IRA to a Roth IRA and won’t have to pay taxes on this conversion until 2011 and 2012.

QUESTION: Can I split my 2008 IRA contribution between a traditional IRA and a Roth IRA (half in each) or must I choose one or the other?
—Bruce Friedman, Philadelphia, Pa.

ANSWER: Yes, assuming you meet certain criteria. Splitting a contribution between an IRA and a Roth IRA makes sense for someone whose employer doesn’t offer a retirement plan, especially because of the tax benefits they offer. In this case, you’re eligible to contribute pre-tax money to a deductible IRA as long as your adjusted gross income (AGI) is no more than $250,000. And you can contribute after-tax money into a Roth IRA, as long as your adjusted gross income is no more than $120,000 (for married couples filing jointly, your combined AGI can’t be more than $176,000).

If your employer offers a retirement plan, the rules get a little stricter. You can contribute to a deductible IRA only if your adjusted gross income is less than $65,000. Those who make more than $65,000 can contribute after-tax money to a nondeductible IRA. With a nondeductible IRA the returns and dividends you earn on investments will be taxed when you make withdrawals. However, your contributions won’t be taxed.

Your age is also a factor. If you're younger than 50 years old, then you can split a maximum contribution of $5,000 between an IRA and a Roth IRA each year. Those who are 50 years old and older can contribute an additional $1,000 per year.

QUESTION: My father is a retired U.S. Army Major and has been growing his wealth independently through the markets for as long as I can remember, and now that he is elderly he has accumulated quite a large estate. Sadly, in 2005, my mother and his wife of over 50 years passed away. My father remarried but it has not worked out. Now she is living in Texas and has sent my father home to North Carolina, but there is no formal divorce. My father has many medical complications (most attributed to his time in the Army), and I fear that when he passes this estranged spouse will come calling for my father's estate. What can I do, or encourage my father to do, before this situation becomes a legal battle over my father's estate without him here to say what he wants done with his estate?
— Name withheld

ANSWER: Your stepmother still has significant claims to his estate as long as she’s legally his wife. Lawyers say that the surviving spouse almost always retains more rights than the surviving children, regardless of the duration of the marriage. As a result, you may want to find out what estate planning your father has already done. If a prenuptial agreement is already in place, your concerns could be moot. If not, you should know that most states allow the surviving spouse to opt for what is known as the “elective share” of the estate regardless of what the will says. Assuming your father is a North Carolina resident, your stepmother would automatically be entitled to as much as a quarter of the estate if they’re still married when he dies, and even more if he dies without a will.

QUESTION: My mother is a retiree of Bank of America. She's concerned that if the bank goes under, she will lose her pension. Should she be worried and, if so, what can she do about it? Is there somewhere she can obtain information concerning the status of her pension?
— Anonymous

ANSWER: Even if Bank of America (BAC) declares bankruptcy, its pension plan is guaranteed by the Pension Benefit Guarantee Corporation. The PBGC insures defined-benefit plans for any private sector company that has 25 employees or more, so if a company is in financial distress and cannot afford its pension payments the PBGC will step in. But there are federal limits on how much participants can receive, says Marc Hopkins, a PBGC spokesman. For 2009, the maximum guarantee for someone who retires at age 65, for example, is $54,000 a year. (The limits are higher for those who retire at an older age; lower for those who retire younger.) According to a PBGC study, roughly 85% of people that receive a benefit payment from the PBGC get their full benefit.

QUESTION: My daughter’s father bought her four savings bonds. She is 14 and her father’s name is on the bonds as is my daughter’s. Can I cash them in?
—Judith Smith

ANSWER: No. Savings bonds are generally non-transferable because the registration on the bond is a contractual relationship between the owner and the U.S. Treasury. So only one of the named owners – in this case, either your daughter or her father – can redeem the bonds, says Russell Francis, certified financial planner and CPA at Portland Financial Advisors in Beaverton, Ore. A parent can redeem a child’s bond if the child is too young to sign the request for payment and if she lives with the parent. But since your daughter is old enough to sign them, she must cash them in. 

QUESTION: Is there a free web site that gives information on all the Master Limited Partnerships in the United States that a person can buy into?
—Richard Smith, Salem, Mo.

ANSWER: Unfortunately, there aren’t any free “one-stop-shopping” web sites that list all the master limited partnerships for investors. The National Association of Publicly Traded Partnerships provides some useful background, but not a comprehensive list. The best place to start is with Alerian Capital Management’s site. Alerian runs an MLP Index, which is a composite of the 50 most prominent master limited partnerships. You can then research each MLP individually on other sites (including SmartMoney.com), much like you would other stocks. 

QUESTION: My husband and I are both 45 years old. We have adopted two children, now ages two and three. We are currently paying for college for our 19-year-old out of our savings. We were considering a 529 plan for the two- and three-year-olds, but got worried about the market. Our other concern: of course, we will insist that the kids go to college, but if they don’t, we would like to have access to the savings. What are your thoughts on a flexible annuity? My husband and I will both be 59 ½ by the time the eldest goes to college.
— Dorothy Lohman, Redlands, Calif.

ANSWER: Whoever suggests that you buy an annuity as a way of saving for college is probably interested in helping their own bottom line—not yours, says Michael Kresh, a financial planner in Islandia, NY. Annuities are high-commission, high-cost products that may make sense for skittish investors who want to insure at least part of their retirement savings against market swings. But saving for college for your toddlers? Stick to the 529 Plan, Kresh says.

Remember that annuities are designed so that withdrawals start in retirement and last a lifetime—or for a number of years, anyway. That’s certainly longer than the five or six years that it will take your kids to graduate from college. So your withdrawals will hardly cover those tuition bills, Kresh says. With 15 years to grow your money in a 529 Plan, meanwhile, you needn’t worry about today’s abysmal market. On the contrary, it’s a great time to take advantage of the market’s low prices and its upside potential. And if you’re really concerned that your kids may skip the college route, and you plan to save less than $5,000 a year, a Roth IRA may be a viable option—if you qualify. For help determining how much you should be saving, use our calculator.

QUESTION: I carry a large balance on my Chase card. Previously my interest rate was at prime inclusive of cash advances. I have not had any new transactions but Chase is now charging me a very high rate on the cash advance portion of my account. As this balance is not diminishing due to the bank applying my payments toward the lower rate transactions, would it make sense to write them and ask them to comply with the new credit card legislation that will be implemented in July 2010 that would have them apply payments to higher rate balances first?
— Geoffrey S. Koonin

ANSWER: You can try, but don’t hold your breath. Issuers are expected to drag their feet when it comes to implementing the Federal Reserve’s new credit card regulations, particularly those that are going to put a serious dent in profits. Allocating payments toward the highest-rate balances instead of the lowest is certainly one of the last rules they’ll embrace. Assuming your credit is good, a better option would be to take advantage of one of the rapidly disappearing low-rate balance transfer offers. (Just make sure the benefits outweigh the fees these offers charge).Then, your whole balance will accrue interest at the same low rate, enabling you to pay it off faster.

QUESTION: Is it better to pay off half of my credit card debt, and risk that the bank will lower my limit - thus impacting my credit score by losing the available credit, or would it be better to negotiate payments of 50 cents on the dollar and close out the accounts? What is the ramification of debt forgiveness on your credit score?
— Bill Hansen, Palm Desert, Calif.

ANSWER: You’re better off risking the cut to your credit line. Debt forgiveness is one of the more punishing things you can do to your credit score. That’s because lenders report the account to the credit bureaus as “not paid as agreed,” says Craig Watts, a spokesman for Fair Isaac Corporation (FIC), the company that calculates and issues the FICO credit score that most lenders use. It hits your score like a late payment, easily knocking off more than 100 points — and it can linger for years. “It’s unlikely you’ll get a gentle reporting from your lender,” says Watts. “They have to report that loss ... and you haven’t lived up to your end of the agreement that you made when you applied for the card.”

Make no mistake: having your credit line cut to the point where it’s maxed out is no picnic either. But your debt-to-available-credit ratio, which accounts for roughly one-third of your score, can change monthly. Your score can recover swiftly if you continue paying down the debts, and expand your available credit by applying for a new card or asking for an increase in your credit line. (Read our story, How to Blow Your Credit Limit – Without Spending, for more information on the recent spate of credit line cuts by card issuers).

QUESTION: I am 69 years old with a husband that has Alzheimer’s. I’m trying to get some income to help me with pay for my husband’s health care. Can you please tell me where I can find the best high-yield dividend funds and which companies sell them? Also, is the principal protected?
—Margo Izabel, Upland, CA.

ANSWER: Dividend funds are simply mutual funds that hold stocks that pay a dividend. Virtually all fund firms offer them. They’re often called “equity-income” funds (since the dividend income comes from equities, or stocks), but don’t be fooled by their safe-sounding name. Ultimately, you’re still buying stocks—and as we’ve all seen in the past few months, there’s certainly no principal protection in stock ownership. That’s why the stock market is no place for money you need on a regular basis for health care costs or any other necessary expenses.

Any money you need in the next five years should be in cash or very short-term bonds. It’s tempting to invest with a riskier bent in hopes of a higher payoff, but not a good idea. Look for a high-yield checking or money market account; you can find the best rates at www.bankrate.com. If you have a large sum of money that you’re trying to manage, you might consider an immediate annuity, which will give you guaranteed income for the rest of your life.

If you have some money that you can invest with a longer-term horizon, dividend funds can certainly be a good way to go. Three funds that stand out are Parnassus Equity Income (PRBLX), T.Rowe Price Dividend Growth (PRDGX) and Tweedy, Browne Worldwide High Dividend Yield Value (TBHDX). All three were down in 2008 but have strong track-records.

QUESTION: We have a home equity loan of $93,000 against our house which is worth $500,000. I'm 56 years old, planning to work until I'm 65 and can collect 20% of my salary as a pension. My husband is 61 years old and has no set plans on when he can retire. I'm contributing $200/month to a 403(b) plan at work. Should I use that money to pay off the home equity loan faster, or should I continue to make the contributions?
— Fran Christ, Rockville Center, NY

ANSWER: There’s nothing like retiring debt-free. And when you think of it, prepaying a loan earns you a guaranteed return equal to the loan’s interest rate. So if your loan carries a 6% rate and your total marginal tax rate (that is, your federal, state and local tax rates combined) is 25%, the actual return on prepaying that loan is 4.64%. If you think you can do better on your investments over the long term—and you need the extra retirement savings—then certainly keep those 403(b) contributions going.

And note that we said “long term.” You could easily beat today’s market returns by stuffing your cash under the mattress, but at some point the market is poised to come back. So keep things in perspective. To crunch the numbers yourself, use our “Should You Prepay?” calculator.

QUESTION: I have a trading account in the U.S., but don´t live there and I´m not American. I have noticed than I´m being taxed 30% of the dividends I have earned for Morgan Stanley. Is there another kind of tax I should be aware of for trading? Are my gains going to be taxed, too?
—Valentina Roldós, Montevideo,Uruguay

ANSWER: Individuals who aren't U.S. citizens and have a trading account in the U.S. are subject to 30% withholding on the American dividends that they receive, but they aren't taxed on capital gains, says San Francisco-based certified public accountant Laura Ross. Assuming this is the only income you receive from the U.S., you don't need to file a tax return.

QUESTION: Is there a certain time frame to transfer funds from one IRA to another without a tax penalty? Also, how can you switch from an IRA to a Roth IRA without a tax penalty?
—Mitzi Augur

ANSWER: Transferring one IRA to another (whether you’re combining existing IRAs or just want to open a new account at a different firm), is best done directly, through what the Internal Revenue Service calls a “trustee-to-trustee transfer.” In other words, you won’t see a check, and you won’t risk any tax implications. That’s by far the best scenario. If you do end up the intermediary, you’ll have 60 days to reinvest the money in a different IRA. Your IRA custodian will withhold 20 percent of your IRA, though, in taxes—so you’ll have to replace that money from another source if you want to roll the entire sum into your new IRA. (You’ll receive a tax credit for that 20 percent, so you’re not losing the money outright, just temporarily.) What’s more, if you don’t put the money into a new IRA within 60 days, the whole amount will be considered a distribution and you’ll owe federal and state income tax, plus a 10 percent penalty on the amount if you’re under age 59 1/2. The upshot? Trustee-to-trustee transfers are by far the better way to go, and virtually all mutual fund companies and brokerages are set up to allow them.

As for your idea for a tax dodge: Sorry, but there’s no way to convert a traditional IRA to a Roth IRA without paying taxes. That’s because you didn’t pay tax on the money that went into the traditional IRA, so you have to pay tax on its way out. Roths contributions aren’t eligible for any tax break going in, but withdrawals are tax-free so long as the account has been open for five years and you’re 59½ or using the proceeds for a new home. If you think a Roth might be a good idea for you, this could be a particularly good time to convert. Your IRA balance has likely taken a hit—and a lower balance means you’ll owe less tax if you convert now. If the market falls further later in the year, you’re able to undo that conversion (it’s called a recharacterization) and convert again using the lower amount.

QUESTION: How do I go about buying corporate bonds? Are online brokerage companies ok for this purpose?
— Anonymous

ANSWER: You can buy individual corporate bonds safely and securely through an online brokerage account, but that’s probably not the ideal way to gain exposure to this asset class, says Bill Walsh, President and CEO of Hennion & Walsh. That’s because sorting and picking through individual bonds is as tricky and risky as picking winning stocks. A better option for regular folks would be to look at bond mutual funds or exchange-traded funds. “ETFs are a great way to attain exposure to the sector,” Walsh says. As with any investment decision, Walsh cautions that it’s important to know your goals, time-frame and appetite for risk, so sit down and have an honest conversation with yourself or your adviser before investing in corporate debt.