Lost those retirement-plan records? Don't fret.
Q: In the late 1980s, my employer offered a 401(k). So I conscientiously contributed and received a matching contribution. After a few years, I left the company and rolled the funds into an IRA. I no longer have my statements from the 401(k) and probably not even from the rollover. When I begin withdrawing from this IRA in 20 years or so, what cost basis will I use for my tax return? Was I shortsighted in shredding these statements along with my other financial records?
R.W., N. Little Rock, Ark.
A: While there are good reasons to keep financial records for a long time, in this case, you may be in luck, says Arthur Stein of First Financial Group in Bethesda, Md.
As long as you did not put any non-401(k) funds into that IRA, then any money withdrawn from the account after you reach age 59-1/2 is simply reported as taxable income.
So in this case, says Mr. Stein, there is no need for a record of contributions.
Q: Recent articles piqued my interest in Medical Savings Accounts. What do you think of MSAs for people with chronic illnesses? Where can I find more details about MSAs?
K.R., Princeton, N.J.
A: The new Medicare law replaced MSAs with Health Savings Accounts, or HSAs. These plans have a very high deductible amount and provide a "savings account" from which you can pay out-of-pocket medical expenses up to your deductible.
"These plans are ideal for the sole proprietor of a business or small businesses," says W. Thomas Curtis, a certified financial planner in Gaithersburg, Md. "They are also ideal for individuals who are in good health and simply want catastrophic coverage and a way to set aside tax-favored funds for their future."
But people struggling with long-term or chronic illnesses are unlikely to be accepted by an insurer because of the risk, he says. So, unless they're currently insured, it could be difficult for them to buy an HSA.
A simple Internet search will reveal more than 1 million hits on the topic of HSAs. One good source of information is Golden Rule Insurance Co. (www.goldenrule.com), which appears to be one of the leaders in this field, Mr. Curtis says.
Q: I have invested in a mutual fund that buys US Treasury securities. How vulnerable is such a fund given rising deficits and rising interest rates?
A.L., via e-mail
A: If this is your only fixed-income position, it may not be the most appropriate holding given today's rising interest rates, says Scott Michalek, a certified financial planner in Philadelphia.
As rates rise from historic lows, prices of existing bonds fall. In general, prices of longer maturity bonds will fall more than those of shorter maturity bonds (of similar quality). Your fund is considered an intermediate-term bond fund. It has low expenses and a decent long-term track record. As of June 30, it had an average maturity of almost eight years.
But in today's interest rate environment, Mr. Michalek recommends that you shorten the average maturity of your bond portfolio to less than two years.
The reward - in terms of higher yields - is currently not worth the additional risk and erosion of principal you likely will incur with longer-term bonds, he says.
