Donald Chatham, Shelbyville, Ky.
A:Duly noted. Arbitration is iffy at best. It’s particularly awful to go to the trouble and expense of pursuing a case, win it and then not get paid. If the arbitrators had nailed the brokerage firm, too, you’d have gotten your money. But they have the right to blame only the broker, and the rest is history.
Your guy has been in and out of the business in six states (right now he’s apparently out), usually working for small firms. The NASD started an action against him for nonpayment. But after the debt was discharged in bankruptcy, nothing further could be done.
Anyone starting with a new broker would be smart to check his or her CRD report, which lists pending arbitrations, awards, regulatory actions and known complaints. It’s free from your state securities administrator (nasaa.org, or call the North American Securities Administrators Association at 202-737-0900) or the NASD ( or 800-289-9999).
Q:I’m really scared. I saved for 10 years in a 401(k) with no company match. It’s worth $22,000, which is about half my retirement savings to date. The company failed in October and one of its creditors put a lien on the 401(k). How can a creditor take an employee’s money to pay a company’s debts?
Paula Bawden, Lakewood, Calif.
A:I wish I could hold your hand until this comes out all right. Creditors cannot seize a legal 401(k). But anyone can take any kind of claim to court. The question is, who will defend you there?
The plan’s fiduciary should represent you. Unfortunately, yours was apparently tied to your employer and is also out of business. The 401(k) remains in a group annuity at Hartford Life, which has told the court that the money is yours. From this point on, the Department of Labor has to carry the ball. The DOL can’t speak to your particular case. Top official Alan Lebowitz says that, procedurally, the DOL would first try to force the fiduciary to act–adding, “We would want to avoid any loss of money.” It helps that your funds are held by a major financial institution that knows the rules of the road.
Q:My husband and I own some commercial properties. But we’re seniors and don’t want to be landlords anymore. We’re thinking of selling a building and taking payments over 20 years. The interest rate is tied to CD rates and will vary from 5 to 6 percent. A friend has advised us to sell for cash instead and invest the proceeds in a money-market account. We don’t trust stocks and don’t know anything about bonds.
Karen Bastion, Allyn, Wash.
A:The big question is whether the person who buys the property will pay. The buyer may look sound today, but what if circumstances change?
You probably asked too high a price for the property, says John Reed, publisher of the Real Estate Investor’s Monthly in Alamo, Calif. You ought to get at least 7 percent in return for the risk you’re taking. By accepting a lower rate, you’ve cut the property’s price through the back door. He’d take the cash. He thinks that sellers get a higher effective price when they refuse to give a buyer terms.
If you made a profit, you’ll owe a tax on your capital gain. But taxes are due only as payments are received, so by giving terms you earn interest on the amount deferred, says planner Mark Spangler of Spangler Financial Group in Seattle. He thinks you’re getting too low an interest rate for a 20-year contract. As consolation, he says, you’ve now got a floor under your returns.
Q:I’m an 18-year-old high-school senior and have been saving for college since third grade. My parents will pay most of the bill at a private college, but I will help cover books and other expenses. I have $2,000 in CDs that will mature when I’m a freshman, $780 in two IRAs and $800 in a savings account. How should I prepare for college? Can I put money in stocks I like, or do I need to keep it free?
Stephanie Ann Furman, Lutherville, Md.
A:Since third grade! Great job. You might think of merging those IRAs and using the money for the stock you want to buy. There’s no point to cashing them in and paying the 10 percent penalty you’d owe.
At your age, however, stocks would be wrong for your college funds. The market might fall just when you need to buy an expensive physics book. College adviser Ray Loewe of College Money in Marlton, N.J., tells parents that high-school seniors should have three years’ worth of college expenses in cash or short-term bonds.
On average, books, supplies and personal expenses cost about $1,700 a year at a private college, according to the College Board–but check each school’s Web site for specifics. It appears that your current savings and CDs are good for about a year and a half.
