Withholding money for taxes on low earnings

Q My wife recently started to work on-call at a preschool. Her employer has not withheld any taxes. She'll probably make less than $1,000 this year. Will we be penalized next year for not withholding money now?

- Name withheld, Boston

A The IRS provides several exemptions for penalties on small amounts of earnings. There is generally no penalty if the tax balance due is no more than 10 percent of your prior year's total tax and you have paid all required estimated tax payments on time.

According to an IRS spokesman, the rules for penalties on underpayment of taxes can be found in IRS Publication 17. If you think you owe a penalty, file Form 2210 with your return and the IRS will compute the penalty for you.

Q We are bombarded with information from financial firms, telling us to 'do this or do that' to increase our returns. But what's the most important factor in ensuring that I get a good return on my investments over time?

- H.E., New York

A According to Ibbotson Associates in Chicago, the single key factor is your asset mix, that is, the makeup of stocks, bonds, and cash holdings in your portfolio.

Studies are clear that over time, such as a 20-year period, stocks outperform bonds, and bonds outperform cash. Over time, stocks run about 7.5 percent ahead of inflation, according to Ibbotson studies.

Q I'm about to sell my home and want to invest in Ginny Maes. Please tell me about them.

- Name withheld, Seattle

A The Government National Mortgage Association (GNMA) is a quasi-governmental agency in Washington. It buys mortgages from lenders, then packages and sells them as securities - called Ginnie Maes - to investors.

A number of major mutual-fund companies offer Ginnie Mae funds, including Fidelity, Vanguard, Dreyfus, and Lexington. The funds are "conservative," and operate like most government-bond funds.

They also don't provide much likelihood of gains when interest rates fall, since homeowners typically refinance and pay off their higher rate mortgages. Thus, in mutual funds, higher rate securities tend to be eliminated from Ginnie Mae portfolios.

Questions about finances? Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 1999. The Christian Science Publishing Society

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