Q: We are both retired and have a $105,000 mortgage on our residence. Over the years, we have placed our savings in the stock market and show a "paper loss" of some 35 percent to 50 percent. Would it make sense to pay off the home loan even if we incur early withdrawal fees? We can withdraw 10 percent annually without penalty, but that is not enough to pay off the entire mortgage. Would you advise us to at least start with the 10 percent and continue doing so every year?
D.S., Idyllwild, Calif.
A: By paying off your mortgage, you may lose the ability to then itemize deductions on your federal income tax return, warns Thomas Curtis, a certified financial planner in Gaithersburg, Md. So you'll have to weigh the advantages of being rid of that mortgage versus the potential extra tax liability.
If you're already subject to the AMT - alternative minimum tax - then, Mr. Curtis says, it may not make a difference what you do.
Another problem he sees is the source of your funds. It sounds as if they would come from a CD or some other kind of investment that carries penalties for taking out too much at one time. It may not make sense to take too much money from such an account, and pay fees, to then pay off a mortgage that would result in higher income taxes. His advice? Check with your accountant to see which route works best.
Q: My 10-year-old son has a UGMA (Uniform Gift to Minors Act) account with a brokerage mutual fund and a UTMA (Uniform Transfer to Minors Act) savings account with a bank. Is it possible for me to consolidate both into one bank or a brokerage account without any penalty?
S.G., via e-mail
A: In order for you to transfer assets from a UGMA account to a UTMA account, the state of your residency has to have adopted the Uniform Transfer to Minors Act, says Joseph G. Campisi, a certified financial planner in Fairview Village, Pa. You cannot establish a UGMA if the UTMA is in effect.
The only penalties that you may incur is if the mutual funds have a back-end surrender charge, he says.
People sometimes want to transfer ownership of cash or other assets to children who are too young to handle such assets. UTMA and UGMA accounts provide an alternative that may be simpler, cheaper, and faster than a trust.
You can brush up on them at the Fairmark Press website, a publisher of tax guidance on the Internet (www.fairmark.com/custacct).