Why keep an IRA out of a will?

QThe beneficiaries of an IRA and of another financial instrument in which I have money have not been included in my will. I filled out forms with these institutions, giving the names of the beneficiaries. Should they also be included in the will?

D.W., via e-mail

AThe individual retirement accounts can pass to the beneficiaries independent of the will, says Gary Schatsky, an attorney and financial planner in New York. They do not have to be included in the will.

If the accounts are part of your estate, however, they may trigger estate taxes. Check with an estate attorney to see what tax ramifications there might be for your beneficiaries.

QDo mortgage-backed securities receive the same tax treatment as Treasury bonds?

R.R., New York

ANot always. Treasury bonds are exempt from state taxes.

Mortgage-backed securities, such as Fannie Maes and Freddie Macs, do not receive the exemption in most states, according to "Let's Talk Money," written by Dee Lee and David Caruso. Both Treasuries and mortgage-backed securities are subject to federal taxes.

QWhere is the best place for a novice investor to invest, especially a person trying to rebuild their finances after having lost everything? A money-market fund? Mutual funds? A certificate of deposit? Bonds?

R.H., Frackville, Pa.

AThere is no one simple answer to give without knowing about your personal financial situation. Each type of investment is designed for different time frames.

Money-market funds are usually considered best for short periods of time, although some people use them as savings accounts, instead of lower-paying bank accounts.

Mutual funds, including both stock and bond funds, are for long-term investors with investment horizons of three to five years or more.

Bank CDs require that deposits be held for set periods of time, usually from six months to five years or more.

To invest in mutual funds or CDs, however, you are required to have an initial contribution of anywhere from $500 to $1,000 or more.

To reach that level, experts say, set aside small savings amounts, such as through your payroll savings plan, or a bank savings account.

In "Wealth Happens One Day At A Time" (Harper Business), personal finance consultant Brooke M. Stephens points out that if you save just $2.74 a day, you'll have $1,000 at the end of the year. More, with interest. That's enough to get into many mutual funds, including money-market accounts.

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