FINANCIALconnection
Bonding with
your kıds
Also:
■ Credit scores
■ Cutting your
losses
■ Apartment
conversion
AskSuze
Orman
Send your personal-
finance questions to:
Q&A with Suze Orman
The Costco Connection
P.O. Box 34088
Seattle, WA 98124-1088,
or fax to (425) 313-6718
or e-mail to
suze@costco.com.
Please include
“Suze Orman Q&A”
in the subject line.
Suze will answer
selected questions
in this bimonthly column.
She regrets that
unpublished questions
cannot be answered
individually.
Suze Orman’s latest
book is Women &
Money: Owning the
Power to Control Your
Destiny. Suze’s TV
show airs Saturday
nights on CNBC. She
can be contacted at
www.suzeorman.com.
Are U.S. bonds taxable upon redemption? Also, I’m still investing in I bonds
for my grandkids’ college education. If they
cash them for tuition, will the bonds be taxable or tax-free?
YES, YOU OWE federal tax on redeemed U.S. bonds,
but the interest income is free of state and local tax.
On top of that, you get the backing of the federal
government; that’s the best assurance there is.
KEI TH LATHROP
As for the I bonds, yes, the proceeds can be tax-free if used for educational purposes, if certain IRS
rules are met. In your situation, you need to claim
the kids as dependents or the bonds need to be in
their names to be eligible for the exemption. There’s
also an income eligibility test. Single tax filers with
modified adjusted gross income (MAGI) of less
than $67,100 in 2008 and married filers (and widows and widowers) with joint income less than
$100,650 are eligible for a full exemption. The tax
break phases out for individuals with MAGI between
$67,100 and $82,100 and for married couples with
joint income between $100,650 and $130,650.
—Eleanor Jekot, Menlo Park, CA
Can you tell me how to check my credit score
and see credit reports without negatively
affecting my credit score?
—Richard DeRose, Via e-mail
WHEN YOU PERSONALLY check your credit
reports or your FICO credit score it does not have a
negative impact on your FICO credit score. You
have three credit reports from the three main credit
bureaus: Equifax, Experian and Transunion. You
can get all three reports for free at
www.annualcredit
report.com or by calling 1-877-322-8228. You can get
your FICO credit score at
www.myfico.com. Again,
you have three scores, based on the information in
your three credit reports. If you are in home-buying
mode it makes sense to pay to check all three scores
because mortgage terms are often based on a combined calculation of scores from all three bureaus.
So best to make sure that all three are in great shape;
that means 760 or higher.
Note: Costco offers a credit report, scores and monitoring service. Go to costco.com and type “credit reports”
into the search box—Ed.
When I had no income, we had a joint credit
card, during which time my husband charged
several thousand dollars to the card. I would
like to take my name off our joint card at this
time. Will doing this affect my credit rating?
—Susan Taylor, Salt Lake City, UT
RETROACTIVELY REMOVING your name isn’t
going to magically solve the problem. Because your
name was on the account when the debt was
acquired, you need to make sure you get rid of the
debt to get rid of your financial obligation. And, yes,
you might hurt your credit score if you remove
yourself from the account, because of what will
happen to your debt-to-credit ratio. This is a ratio,
used to calculate your FICO credit score, that
measures your outstanding debt as a percentage of
the combined credit limit on all your credit cards.
The lower the percentage, the better. But if you
remove this card (and its credit limit) from your
record, since you’re not also removing the debt, your
debt-to-credit ratio will rise. You don’t want that.
One solution is to ask the issuer of a card you
have in your own name to raise your credit limit.
But do this only if you promise me you will not use
the higher limit as an excuse to spend more.
I own three apartments. They are all paid off. I
receive about $40,000 annually in rents, which
represents about $10,000 in profit, or 1 percent on my investment. If I sell these apartments at the current market value and invest
at 4 or 5 percent, I will earn $45,000 per year.
Should I sell now, take the money and invest
it, or wait for the market to bring the property
to its pre-crash value, then sell?
—William Asmar, Reno, NV
YOU SEEM AWFULLY sure that your properties are
guaranteed to bounce back in value. Just because
any investment was once worth x doesn’t mean it
has to get back to x, or get back any time soon.
So the answer to your question depends on
what the outlook is for Reno real estate, how long
you are prepared to wait for a rebound and your
appetite for the risk. The risk is not just that you
have to wait for the rebound, but the possibility that
values will continue to fall for a time. I am not saying that is going to happen, but you need to factor
the possibility into your decision-making process.
Also, please remember that with real estate there is
always a risk that the roof will need replacing, insurance costs will go up or your tenant will decide to
move out and you will have a hard time getting a
new tenant at the same rent.
You need to decide what you want. You can lock
in your gain and get a stable income by selling. Or
you can hold out for the possibility of a bigger gain in
the future, but you must be just as prepared that your
operating expenses could also increase, and there is
never a guarantee that the price you get in the future
will be higher than what you can get today. C
