Tom O’Connor: ‘Are mergers all they’re cracked up to be? It seems like many turn out badly, with lowered share prices, debt-laden balance sheets, etc. With all the people who stand to benefit from mergers (investment banks, M&A lawyers, management), I wonder if the long-term benefit for shareholders is often overpromised.’
Hugh Hunkeler: ‘One other reason not to move money from an IRA to a Section 529 Tuition Plan: When (if?) you apply for financial aid, the money in the child’s name is earmarked for expenses at a higher percentage than parents’ money. (The rates are something like 30 percent to 8 or 12 percent.) In fact, retirement money may not be counted as ‘spendable on college expenses’ at all, since it’s retirement money. This stuff is taking on a new interest to me, since my oldest just became a teenager.’
Anonymous: ‘Can you explain why 90% of States offer such poor 529 plans for their citizens? I thought a fair and benevolent State government would always pick a Vanguard or TIAA-CREF. Yet the facts are only 5 states, at best, appear to have thoughtfully set up their plans. Is this the power of kickbacks, which is plainly illegal, or incompetence of State employees? If Utah or New York can get it right, how do you explain the others? I want to see your opinion but not my name printed, please. PS – Is this the way privatized social security money will end up?’
☞ Is this the way privatized social security money will end up? I hope we never find out. It would be a mistake to privatize social security. (For that, we have IRAs and Keogh Plans and 401(k)s and even, if you must, variable annuities.) As to the rest of your question: Good question. I don’t know. But I’m hoping the new rule allowing people to switch between plans once a year will provide the competition that will drive all 50 states to offer good values.
[Less Antman: ‘There are a couple of errors in the comments above. The assets of a 529 plan are treated as assets of the owner, not the beneficiary, and if the parent makes contributions, it will only be assessed by college financial aid officers at around 6%. (The Coverdell ESA is treated as assets of the child, and has the dreadful consequence cited by the reader.) But it is STILL better to leave it in the IRA, since it may not be counted at all in that case. . . . Also, as regards to the small number of states offering good investment choices: TIAA-CREF alone is represented in the plans of 12 states, and both Vanguard and Fidelity offer reasonably low-cost plans in a handful of others states. But it is still true, as your reader suggests, that most states ought to be ashamed of themselves for the choices they made of provider.’]
Rick Meriwether: ‘I’ve got some Keogh money burning a hole in my pocket. In looking for a place to throw it, I’ve noticed in reading Barron’s, the Journal, and the like that a lot of people are touting gold stocks. I’m skeptical and wondered what you think.’
☞ First off, risky bets are best made outside the shelter of a retirement plan, because if they lose big, you at least get to take the tax loss, and if they win big, and you wait a year and a day, the gain is only lightly taxed. (Within the retirement plan, any gain will ultimately be fully taxed as income.)
Second, gold and gold stocks have already had quite a run – many have doubled from their 52-week lows – and, as you say, people are already touting them. In an ideal world, you’d be investing not in what people are touting now, but what they will be touting next.
If it’s safety you’re after – and some people buy gold as a disaster hedge or an inflation hedge – take a look at TIPS for your Keogh. Treasury Inflation-Protected Securities. The simplest way to buy, although you give up a quarter of a percent in annual fees: Vanguard’s Inflation-Protected Securities Fund (VIPSX).
Maybe the best advice is to find someone to sew up the whole in your pocket.
Quote of the Day
No other human occupation opens so wide a field for the profitable and agreeable combination of labor with cultivated thought, as agriculture.~Abraham Lincoln
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