From IRAs to 529s, our experts answer your questions

NYSE boardWith Christmas and New Year's just days away, WalletPop hopes to spread some holiday cheer. Here are answers to some of your questions to help usher in 2010 on the right financial footing.

Question: We're retirees age 70 and older holding an IRA rollover. In 2010, will we have to take money/stock out of our IRA? In 2009, we did not have to.
--Barbara J. LeFeve

Answer from Gary Lesser, author of Quick Reference to IRAs: For 2009 Contributions
The relief available for 2009 required minimum distributions (RMD) has not been extended. Thus, absent another extension (which I believe is unlikely), the next required minimum distribution from the taxpayer's traditional IRA will be for calendar year 2010. That distribution -- the 2010 distribution -- must be made by Dec. 31, 2010. However, for individuals reaching age 70 1/2 in 2010, the traditional IRA RMD amount may be distributed up until April 15, 2011.

Question
: I used to work for Anheuser Busch and have two loans from my 401(k). Now that the company has been sold, my payments are no longer automatically taken out of my paycheck. My wife and I are trying hard to get out of debt.

As I understand it, if I default on the loans, I have to claim the balance due as income, pay the taxes on that, and pay a 10% penalty to the government. My balance owed on the two loans is $30,000. If I've done my math right, I could owe $11,000+ for next year's income taxes. Do I have a better option for getting out from under these loans? Obviously, paying the monthly payment through the term is the best option, but I'd really like to get out from under that debt. I don't mind taking the loss on my 401(k), but I don't want to have to take out a loan to pay the $11,000 in taxes, either. Any advice here?
--Todd in Florida

Answer from Joseph A. Leonard, author of The Retirement Vault: A Guide to Protecting Your Assets in an Age of Uncertainty
The best way is, of course, to just pay off the loan from cash, but if that is not available, then you can keep paying the monthly installments. Depending on what kind of interest you are paying on the note. Another option could be to get a personal loan or other bank/home equity loan at a lower interest rate and pay it off that way. Make sure your option is at the lowest rate available to you -- not just the easiest way to get a loan. In my opinion, the last thing you want to do is default on this and pay the taxes and the penalty. That should not even be an option. It looks like you have already done the research on your choices and know how bad taxes and penalties could be. Go forward with finding the complete rates and home equity options available.

Question: What should I do if my 529 appears to be tanking?
--Paula Keung, Long Island City, New York

Answer from Tim Higgins, author of How to Pay for College Without Sacrificing Your Retirement
If your 529 plan investments appear to be tanking, then I would look long and hard at the underlying funds that you hold within your plan. You may be invested too aggressively for your risk tolerance, given the fact that you are uncomfortable with the volatility. Perhaps you have all of your account invested in just one stock/mutual fund.

An easy solution to consider is that most plans have asset allocation fund options. These investments are many investments in one, many times holding six to 10 mutual funds within one strategy. All you need to do is pick your risk tolerance: conservative, moderately conservative, moderate, moderately aggressive or aggressive. Look at the track records of these funds over the past few years and evaluate what levels of fluctuation you are most comfortable with. You can find out information about your investment holdings by going to the Web site listed on your statement.

A "tanking" 529 account is more an issue of investment selection within the account, rather than specific 529 plan per se. Most 529 plans offer similar investment options and strategies; some differ slightly on options and fees within the accounts. However, those aren't most likely the reasons why one would "tank" and another would not. It is investment selection that you, or you and your advisor, have chosen. Therefore, to simplify your next action steps, I would encourage you to focus on what allocation funds you have available to you within your current plan, and worry less about what other plans have to offer. But, if you would like to do some additional research, Savingforcollege has a lot of great information.

One of the most important things to consider is how much time you have before your child goes off to college. If your son or daughter still has over 10 years, you can afford to be a little more aggressive in the account. However, if your student is high school age, I strongly encourage you to lean toward more conservative options. We have had a strong market rally since March, which may be a good time to take some earnings off the table, but more importantly, you have much less time before you will need to access the funds. For most families, suffering a 20% decline in their account right before having to access the money hurts a lot more than the pleasure of gaining 20%. Therefore, with a shorter time frame, opt for more conservative options -- this should prevent any further "tanking."

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