Personal Finance Q & A

Is an ira sheltered from lawsuits?

Q. If I have an IRA with a New York bank or mutual-fund family but I am sued in Vermont, is my IRA exposed? D.J., Vermont

A. If by "exposed" you mean "subject to attachment in a legal proceeding," the answer is probably "no," says Brian Sullivan, an attorney with Burak, Anderson & Melloni, in Burlington, Vt.

The amount of the fund could be an issue, however. Vermont state law exempts "self-directed retirement accounts not to exceed $10,000" from attachment in a lawsuit.

But the Vermont Supreme Court has not specifically ruled on whether an IRA is a "self-directed account," says Mr. Sullivan.

Incidentally, the fact that the account is held by a non-Vermont company is irrelevant, Sullivan says.

Q. In the 1980s, we began purchasing E bonds as a means of tax-free savings for college education for our daughters. The banks tell us now that the program only started in 1990. Does that mean all the ones purchased prior to that date won't qualify? Also, many of them won't mature until the girls are out of college. Would we be smarter to cash them in and invest in a mutual fund? J.K., Wilder, Idaho

A "EE bonds issued before 1990 do not qualify" for the savings-bond tax-free college program, says a bond consultant with the US Bureau of Public Debt in Parkersburg, W.Va. (304-480-6112).

Only Series EE bonds and Series I bonds dated January 1990 or after qualify, she adds.

If you purchased the bonds in the name of your daughters, either as primary owner or co-owner, you could let your daughters cash in the bonds. The interest earnings would then be taxed at the child's tax rate, not yours. The child's rate would probably be lower.

To compare earnings with a mutual fund, according to mutual-fund experts, ask your local bank to compute the potential future interest earnings on the bonds. You would then need to estimate any taxes due.

Then, talk to planners at mutual-fund companies to see if they offer funds (including conservative bond and money-market funds) that could outperform the expected net earnings from the savings bonds.

Remember, unlike savings bonds, mutual-fund returns aren't guaranteed by Uncle Sam.

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