The best way to safeguard money for a home purchase, and other answers to your financial questions

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Q:
I have about $50,000 from the sale of a home that I would like to invest for 18 months. I am on a term position so I am renting a condo. But when I finish, I plan to buy a home. How can I get the most out of this money?

- M.C.R., via e-mail

A: Given the weak dollar, aging baby boomers, decennial and presidential cycles, and the real estate bubble, Mark Kollar, founder of Kollar Financial Strategies in Rosemont, Ill., thinks you need to hold that money close for now. To him, that means you should continue renting because prices have not approached where they will bottom out. Consider investing in a CD. Try a six-month maturity period first. Then roll the CD over twice. Thereafter, if the economy is still down and you haven't committed to a home purchase, Mr. Kollar suggests stretching the maturity period to one year.

"All of our indicators are showing that inflation will rise 4 to 5 percent and interest rates will follow," says Kollar. Tucking your money into a CD in a rising interest-rate environment will keep it safe. You should never risk money over such a short amount of time and never risk an asset that is earmarked for such an important purchase as a home, he says.

Q:
Is it allowed for 2008, or is it being considered, to directly transfer money from a traditional IRA to a charity without being taxed on the money transferred and still have it count toward the required minimum distribution from such an account?

- D.P., Edmonds, Wash.

A: Unfortunately, says Jennifer Oswalt, chief financial officer of Sovereign Wealth Management in Memphis, Tenn., this opportunity expired on December 31, 2007. But there is a strong potential that Congress will take up this measure again this year, Ms. Oswalt says, and it could pass and be effective for the 2008 tax year. This tax break, she says, would be a great tax-reduction tool if: (1) you take the standard deduction, (2) your itemized deductions are phased out, (3) your required minimum distribution from your IRA is your only income, or (4) you pay high state taxes. You should always work with your income-tax professional to ensure that this is the right option for you, Oswalt says.

Q:
There has been considerable interest in commodity funds lately. Will a natural resources mutual fund serve as a good substitute?

- M., via email

A: Yes and no, says Lutherville, Md.-based certified financial planner Drew Tignarelli, as the two investments will be both similar yet very different. Commodity stocks may overreact or underreact to a commodity bull-­­market move. A resource mutual fund will be a good investment if there is a commodity bull market, but the actual rates of return are going to look different and could happen earlier than the full move of commodity markets.

Q:
I'm 62 and retired. My wife will retire in about three years. We have $650,000 in IRAs and my wife will have a $5,400-per-month pension. I am now receiving my Social Security benefit of $842 per month. We have a mortgage at 5.375% interest, with a balance of $127,000 that will be paid off in nine years. If I use $650 of my Social Security check to pay down the principal, I can save about three years, nine months and $15,000 in interest. A wise use of Social Security?

- S.K., via email

A: If you don't need this money in the short term, then Tom Balcom, a certified financial planner in Lighthouse Point, Fla., advises you look for investments that would provide you with greater long-term potential returns. Your effective borrowing cost on this mortgage is 4 percent (assuming a 25 percent tax bracket). If you could invest your Social Security and get an after-tax rate-of-return goal that exceeds 4 percent, then it would make more sense to invest there than to pay off the mortgage. But if paying off your mortgage provides you with greater peace of mind, then that makes the most sense.

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