Departments: Money
Mutual Fund Managers Make The Calls, You Pay the Taxes

Q: I did not sell any stocks or mutual funds in 1999, but I still have taxable gains. How did this happen?

A: This is one of the frustrations of mutual funds. You may not have sold any shares last year, but the mutual fund manager still bought and sold securities in the fund.

A mutual fund pays no taxes. All the profits, losses, and taxes are passed through to the shareholders, who are the owners of the fund. The 1099 form shows you your share of the gains.

There is another piece of bad news here. A couple of years ago, the capital gains tax was reduced to 20 percent on assets held for over one year. That's good for a long-term investor.

But short-term capital gains, those on assets held less than one year, are taxable at your highest marginal tax rate, which can be as high as 39.6 percent. Add to that state taxes and you see that investors can lose a big chunk of their gains to taxes.

Q: We got hit hard by Hurricane Floyd. Our insurance didn't cover the whole bill. Can we claim the uninsured loss as a deduction?

A: It depends on how big your loss was. Casualty losses from fire, storm, shipwreck, theft, and so forth are subject to a $100 floor. In other words, you must subtract $100 from the amount of your loss.

Beyond that, you can write off only the amount of the loss that exceeds 10 percent of your adjusted gross income.

The 1999 U.S. Master Tax Guide lists various types of damage that qualify. Hurricane is first, followed by flood, quarry blast, vandalism, sonic boom, earthquake, and earthslide.

Damage or loss caused by an "unusual and unprecedented drought can be treated as a casualty loss," the guide says, which might be good news to farmers and families in the Northeast, which was struck by drought last summer.

The key is whether a loss is from "sudden force." So the Internal Revenue Service takes the position that termite damage does not qualify, for example, although some courts have allowed it. Similarly, loss of trees from Dutch elm disease does not meet the IRS "suddenness" test.

Q: I did some computer consulting and earned $12,000. Is this money eligible for a retirement account?

A: It certainly is. You are eligible to put up to $2,000 of that money in a regular IRA or a Roth IRA. You have until April 15 to open and fund your account.

How to choose? The regular IRA provides a tax deduction for your contribution as well as tax deferral on your earnings. You pay tax on everything when you pull it out in retirement.

There is no current tax deduction for the Roth. But the money that you put into a Roth is never taxed again, making it an extremely attractive retirement saving vehicle.

Eligibility for the Roth IRA is phased out for single taxpayers with incomes between $95,000 and $110,000 and for married taxpayers with incomes between $150,000 and $160,000.

Q: Is there a minimum amount of money I need to see a financial planner?

A: No. Some planners do require a minimum of $1 million or even several million dollars before they will do business with you. But many others are happy to start small with someone who is committed to investing and to building a sound financial future.

Finding a good planner is a lot easier than it used to be because people with credentials like MBAs or law, engineering, education, and psychology degrees have entered the field.

Look for someone who is a certified financial planner (CFP), a designation issued by the Certified Financial Planner Standards Board. That's a good place to start.

Obviously, you want someone who is fair, honest, knowledgeable, and experienced. Other professionals, like accountants and lawyers, can be a good source of referrals.

Most importantly, though, you want someone you click with, who shares your values and will help you unlock your potential.

--Mary Rowland

Mary Rowland is a regular contributor to several major financial planning magazines.

Thrifty Educator

Each month, NEA members offer their best ideas for saving money at the workplace. This month's tips come from Suzanne Wargo, a media specialist from William J. Johnson Middle School in Colchester, Connecticut, and Jackie Stoklas, a fourth grade teacher from Holderman Elementary School in Tempe, Arizona.

Suzanne Wargo: "Frequently people donate books, magazines, and other materials to the media center. These donations are often duplicates of what I already have or not appropriate for our age group. So I keep a brightly decorated box called 'Adopt-a-Book . . . Plus!' I put all books, magazines, scrap paper, recycled binders from workshops, and freebees from workshops in this box. The kids love getting something for free and often come to the media center just to see what I have in the box. It's a great way to recycle older books that would just collect dust and get kids to read who might not otherwise pick up a book."/P>

Jackie Stoklas: "Gift bags decorate my classroom in a very practical way. I pinned some to the wall behind my desk to hold happygrams, attendance slips, and hall passes so that they don't get lost in the clutter of my desk. And I use a large gift bag to hide an object for a 20 questions game and another for a birthday bag that holds special markers for the birthday child to use. They look like decorations and are a great help to the organizationally challenged."

Heads Up from NEA Member Benefits

Many of us are bombarded almost daily with spectacular offers for low-interest credit cards. That's why NEA Member Benefits has issued a Consumer Advisory on "Things To Look Out For When Shopping For A Credit Card." The advisory warns of practices such as penalty rates, shorter grace periods, fees for cash advances, and two-cycle billing. To read more about the NEA credit card advisory, visit the NEA Member Benefits Web site at www.neamb.com.

Preparing for retirement can be an arduous task. There's a lot to think about. Did you save enough to adequately fund your lifestyle for another 20-30 years? What about health care? The NEA MemberCare® Medicare Supplement Program is there to help you over that hurdle. With rates as much as 15 percent lower than other plans, the NEA Member- Care® Medicare Supplement Program offers NEA members and their spouses or domestic partners all of the same plan options and benefits as other plans plus more. Through the NEA program, you can get discounts on dental care, chiropractic care, vision care, and prescription drugs. You even get to choose your own doctor or hospital. And the plan is portable from state to state. So when you're putting your retirement plan together, think about NEA MemberCare® Medicare Supplement Plan. You can't afford not to!