With the Fiscal Cliff Coming, Is My Money Market Safe?


Question: With all the upcoming changes is it safe to keep your money in a savings account? Or should you invest in Gold or some other safer investment? R.K.
Answer: I assume you are not referring to the Mayan calendar that some folks think predicts the end of the world on December 21st, but rather the fiscal cliff with predictions of economic doom beginning January 1st. If Congress does not throw an eleventh hour ‘Hail Mary’ solution before the end of the year, I feel certain they’ll reach a compromise deal before the end of the first quarter. Investors hate uncertainty so ‘no deal’ means a very volatile stock market in the short term. I am perfectly comfortable that under any scenario your money is completely safe in a money market account. As an added measure, you may want to use a bank money market account in order to get FDIC insurance. Remember, with a bank which is covered by FDIC insurance, coverage is limited to $250,000. 
Question: A reader had a follow up question to last week’s column regarding Required Minimum Distributions (RMDs) for retirement plan owners who have turned age 70½ or older. “When you turn 70 1/2 ; have named your spouse as the beneficiary of your IRA and she or he is 10 years or more younger than you, isn’t there a different schedule of RMDs that you use?” B.P.
Answer:   Yes. There is a separate table for IRA owners when the spouse is the sole beneficiary and that person is more than ten years younger.  The effect is to require a smaller distribution each year.
Question: I’m a 61 year old retiree living on my pension from my company. I don’t plan on taking my social security benefit until I am 65. I have a 401k with my company and at this point I’m 99% in money market and 1% in mutual funds. My question is should I take the whole amount out now and take the tax hit at the lower capital gains rate and reinvest in Roth IRA’s later? R.H.
Answer: If you were to cash out your 401k this year, it would be treated as ordinary income (maximum of 35%) not capital gains (maximum of 15%). If you do consider converting your retirement money to a Roth IRA, be sure that you estimate what your tax would be on the conversion and that you have the cash outside of retirement money to pay the tax. 
Question: My understanding is that a person who is actively employed and continues to contribute to a 401k plan after age 70½ does not need to begin taking Required Minimum Distributions until the year that the person retires or by April 1 of the year following their retirement. Is this correct? J.S.
Answer: You are correct! This rule applies only to your current employer and only to your 401k with that employer. If you own 5% or more of the company you cannot postpone your RMDs. Also, if you have an IRA account or if you have funds still in a 401k with a previous employer, you must take RMDs for those accounts in the year you turn 70½ or, alternatively, by April 1st of the following year.