Q: I am 38 years old and would like to work with a financial planner to plan for my retirement. How do I choose one? There are so many of them, and some might not be nearly as qualified as others. I don’t earn much money, but I do have a small sum that I have saved and want to invest.
A: A lot depends on how small that sum is. Many financial planners won’t accept clients with assets of less than $100,000, and some insist on a million dollars or more. They evidently feel that the fees they would receive from small accounts wouldn’t be enough to justify their time and effort.
If you know someone who works with a financial planner, and who is thoroughly satisfied with the services provided, that might be as far as you have to search. You also might be able to get a list of recommended planners from your securities broker, if you have one.
It also would be worthwhile to explore the Web site of the Financial Planning Association, a trade group that represents thousands of certified financial planners.
Members are licensed by the federal government or the states in which they live and must adhere to the association’s professional requirements, including a code of ethics. The Web site — at www.fpanet.org – gives detailed advice on how to find a planner and what to expect from one.
Included on the Web site is a search engine that allows you to get the names of planners geographically and by any of 32 specialties.
Q: In a recent column, you mentioned Internal Revenue Service Publication 590, Individual Retirement Accounts. I tried to find it on the Internet, but couldn’t. Can you tell me how to get a copy?
A: Go to the IRS Web site at www.irs.gov. On the left side of the screen, click on More Forms and Publications.
Next, click on the link for Publication Number. You will see a window that lists the publications in numerical order. Scroll down to the entry for Publication 590, highlight that line, then click on the button that says Retrieve Selected Files.
Now you will see a link to Publication 590 in PDF format. Clicking on the link should bring up a copy of the publication, all 104 pages of it. You can print it if you have enough paper.
If your computer refuses to cooperate, request a copy of the publication by telephone. Call (800) 829-3676.
Q: I recently received a check for about $200 from a class-action lawsuit related to stock which I had sold about five years ago for a big loss. How do I show this on my tax return?
A: The answer hinges on information that you haven’t supplied, says Internal Revenue Service spokesman Jesse Weller. The reason the suit was brought and the way the settlement agreement was structured will affect the tax treatment.
Because you previously sold the stock, you most likely would have to report the settlement as income. Whether it is characterized as ordinary income or a capital gain, or both, depends on what the damage award represents.
For example, if any part of the award consists of punitive damages, that would be reported as “other income” on IRS Form 1040 and taxed as ordinary income. (This also would be true if you hadn’t sold the stock.)
On the other hand, any part of the settlement that is designed to reimburse shareholders for a decline in the stock’s value might be considered a return of the purchase cost, which ordinarily would reduce a shareholder’s cost basis.
Because you already sold the stock, however, you have no cost basis left to reduce. In such a case, the payment usually would be reported as a capital gain.
For further information, see IRS Publication 4345, Settlements — Taxability.
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