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Investor Alert
Reverse Mortgages: Avoiding a Reversal of Fortune
If you are in your sixties, and own your home, chances are you have heard about reverse mortgages—or will soon. Reverse mortgages can be helpful to homeowners who want to stay in their homes but are having trouble keeping up with their mortgage payments, or who have no other source of funds to pay bills or meet unexpected expenses. But as more Americans near retirement age, some financial institutions are aggressively marketing reverse mortgages as an easy, cost-free way for retirees to finance lifestyles—or to pay for risky investments—that can jeopardize their financial futures.
FINRA is issuing this Alert to urge homeowners thinking about reverse mortgages to make informed decisions and carefully weigh all of their options before proceeding. And, if you do decide a reverse mortgage is right for you, be sure to make prudent use of your loan.
Read the Alert
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Investor Information
Bonds and Taxes
As with buying and selling stocks, there are tax consequences associated with buying and selling bonds. Whether or not you will need to pay taxes on a bond's interest income (coupons) or a bond fund's dividends depends on the entity that issued the bond.
- Corporate and Mortgaged-Backed Bonds—The interest you get from corporate and mortgage backed bonds is subject to federal and state income tax.
- Treasuries and Other Federal Government Bonds—The interest you earn on Treasuries and agency bonds backed by the "full faith and credit" of the U.S. government (e.g., Ginnie Maes) is subject to federal income tax, but not state income tax.
- Municipal Bonds—Municipal bonds are generally exempt from federal income tax. If the municipal bond was issued by your state or local government, the interest on the bond is usually exempt from state and local taxes, as well. However, if the bond was issued by a state or local government outside of the state in which you reside, the interest from the bond is usually subject to state income tax.
The 2003 tax reduction bill lowered taxes on stock dividends and long-term capital gains on securities held in taxable accounts to a maximum of 15%. However, income from bond interest is NOT included in this tax break.
Read more
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Thinking About Borrowing from Your 401(k)?
Before taking out a loan, weigh the pros and cons.
On the plus side:
- You may qualify for a lower interest rate than you would at a bank or other lender, especially if you have a low credit score.
- The interest you repay is paid back into your account.
- Since you’re borrowing rather than withdrawing money, no income tax or potential early withdrawal penalty is due.
On the negative side:
- The money you withdraw will not grow if it isn’t invested; and
- Repayments are made with after-tax dollars that will be taxed again when you eventually withdraw them from your account.
More pros and cons
More information on 401(k) loans
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Tools You Can Use
Saving Enough for Retirement?
Use this calculator to plan your investing strategy now so that you will have enough to see you through your retirement years.
Saving enough?
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