Variety of financial questions answered

Published online on Monday, Aug. 31, 2009

Beginning this week, Sacramento Bee assistant business editor Claudia Buck's column switches to a personal finance Q&A with a panel of experts. To ask a question, e-mail cbuck@sacbee.com or call (916) 321-1968.

Setting up retirement accounts. Making financial gifts to minors. Creating a living trust. This week, certified financial planner Cynthia S. Meyers and estate attorney Mark S. Drobny tackle those topics.

Question: My wife and I gross about $180,000 a year with minimum deductions. We contribute to the limit on our 401(k)s and qualify to contribute to a Roth IRA. I started some consulting work on the side and will earn about $20,000 this year. Are there other retirement vehicles I can use to save for retirement and shelter some taxes?

Answer: A retirement vehicle you could consider is a Simplified Employee Pension, or SEP IRA. As a self-employed individual, you could contribute to a SEP IRA, regardless of age. You can make tax-deductible contributions of as much as 20% of your net self-employment income, up to a maximum of $49,000 a year. You have until your tax filing deadline (including extensions) to open and fully fund a SEP IRA. You will receive a tax deduction for your contributions, and taxes on SEP earnings are deferred until withdrawals begin. Once you begin withdrawals, they are 100% taxable as ordinary income. In general, withdrawals cannot be made without penalty until age 591/2. Most mutual fund companies offer SEP IRA plans.

Q: I live in California and set up Uniform Transfer to Minors accounts for each of my three grandchildren in Missouri. I am the custodian until the children reach age 18, when the money is to be used for college. My former daughter-in-law, who has custody in Missouri, has filed for welfare. The Missouri Welfare Department recently asked me for current statements of these UTMA accounts. Is it possible they can seize this money? Am I legally obligated to provide the information?

A: I would encourage you to contact qualified legal counsel in Missouri.

From California's perspective, the UTMA custodian (you) can pay as much or as little as you deem proper for the child's health, education, support and maintenance. If your intent is to accumulate funds for the grandchildren's education, that is your prerogative.

Whether that impacts the Missouri Welfare Department's decision to provide welfare assistance is beyond the scope of a California attorney's advice.

Q: My husband and I own our home, cars, 401(k)s, etc., as community property. I also own stocks, a separate rental property and a Roth IRA, which will pass to our two sons when I die. Do we need to set up one or two living trusts?

A: If everything is community property, it would be highly unusual to do separate trusts. Similarly, even couples with separate property (acquired by gift, inheritance or before marriage) usually do a joint trust and identify which assets are community property and which are separate.