Attempt to shelter income falls short

Q. I became disabled in 1995 and have not contributed to my 403(b) retirement plan since then. Further contributions aren't allowed because I have no earned income. Recently I found out that because I'm younger than age 59, the monthly stipend I get from my state retirement fund is considered earned income by the IRS. Can I renew my contributions to an IRA or 403(b) based on this stipend? - J.M., Mystic, Conn.

A. "Unfortunately, you can't, if your only income is the stipend from the state retirement fund," says Gary Schatsky, an attorney and financial planner in New York.

You can't contribute to a 401(k) or 403(b) unless you are currently employed. In order to contribute to an IRA, you must have wages, a salary, or self-employment earnings. According to federal law, says Mr. Schatsky, an IRA cannot be funded with monies from pensions or annuities.

Q. I am a retiree with an IRA that contains two growth funds from IDS. While the funds have performed welI, I am considering rolling them into something more secure, especially since I must start withdrawing from them in about three years. Suggestions? - R.D., Castleton, Vt.

A. "You may want to shift some of your IRA assets to slightly more conservative holdings to avoid market turbulence, but don't do it just because you are close to having to take a distribution," says Tim Shmidl, a financial planner with Prizm Financial Group in Overland Park, Kan.

You could, for example, shift some assets to a balanced fund, which carry a balance of stocks and bonds, or to a money-market fund. IDS carries both types of accounts. You can call them to make the transfer.

If you roll your assets over to a different fund family, be sure to ask the new IRA provider to make the transfer to avoid a huge tax penalty. Shmidl recommends you avoid a bank CD IRA, because you could be locked into a low, fixed interest rate.

Q. Where can I find rates on bank CDs? Should one invest just in local banks? - L.N., New York

A. Check out Bank Rate Monitor at www.bankrate.com, or call BanxQuote Online at 800-666-2000.

Marshall Loeb, in his book "Lifetime Financial Strategies," argues that the rate, not the state, is the key. Just be certain the bank is federally insured.

Questions about finances? Write: Guy Halverson The Christian Science Monitor 500 Fifth Ave., Suite 1845 New York, NY 10110 E-mail: halversong@csps.com