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About Richard Barrington, CFA & MoneyRates.com Senior Financial Analyst
Richard Barrington

Richard Barrington, CFA, is the primary spokesperson and personal finance expert for MoneyRates. He is a 20-year veteran of the financial industry, including having served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. He earned his Chartered Financial Analyst designation in 1991 with the Association for Investment Management and Research (AIMR). Richard has written extensively on investment topics, including investments, money market accounts, certificates of deposit, and personal finance as it relates to retirement.

Richard has been quoted by numerous media publications such as The New York Times, The Wall Street Journal, and Pensions & Investments magazine.[...] Read more Richard can discuss economic and market history in detail and is well respected for his ability to relate to a broad audience from a personal financial standpoint. Richard approaches financial topics with an understanding that fresh perspectives are often more valuable than mainstream consensus. He has written for over 50 financial Web sites, such as Investopedia, Yahoo, MSN, Allbusiness, and Encarta, and is most sought after by members of the media for his niche expertise in these topics: Certificates of Deposit, Money Market and Savings Accounts, Saving for Retirement, Housing and Mortgage Meltdown, Interest rates, Investments, Macro Economic and Government Policy Issues, Historical Financial Events, Discerning Long Term Implications

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How do I find the best jumbo account with high interest rates?

January 3, 2017

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: Where could I find the highest interest rate on a jumbo account?

A: In today's low-rate world, banks are less hungry for deposits and thus jumbo accounts are more scarce and less rewarding than they once were. In fact, according to the latest FDIC figures, there is no difference between the average rate for a jumbo savings account and the average for a regular savings account.

Tips to maximize interest rates on jumbo accounts

Even so, there are some things you can do to maximize the interest on your account, and given the size of jumbo accounts - $100,000 or greater - even small rate differentials can add up to meaningful dollars.

Here are four tips:

1. Determine the time frame for needing the money

Jumbo account or no jumbo account, the amount of interest you earn can be affected by how long you are willing to lock up your money. Making a longer commitment can have a much greater positive impact on your interest rate than having a jumbo account. So, unless you need immediate liquidity, consider stretching out into a multi-month or even multi-year certificate of deposit (CD).

2. Consider splitting money into multiple accounts

The issue of time frame is not an all-or-nothing proposition. You may need only some of your money to be immediately on hand, while the remainder of it can be invested for the long-term. In that case, consider splitting your money between a short term account for immediate liquidity, and long term CDs that can earn a higher interest rate. You can even split your money into a series of CDs with different maturity dates - a technique known as laddering - to make money available for a corresponding series of future needs.

3. Distinguish between money market and savings accounts

To the extent you need immediate liquidity, money market accounts and savings accounts are the choices that allow for this. They are largely similar, but according to the latest FDIC data, money market accounts are paying a slightly higher interest rate on average. They also tend to pay a premium for jumbo accounts, which savings accounts are not typically doing at the moment.

4. Shop around for the best bank rates before you commit

Once you've figured out what type of account what you need, shop around. The difference in rates between banks is much greater than the difference between jumbo and ordinary rates is likely to be.

FDIC insurance coverage and limits for jumbo accounts

Due to the financial crisis, the FDIC insurance coverage limit was raised from $100,000 to $250,000, while the determination of a jumbo account still generally remains at $100,000. With the FDIC insurance limit now well above the jumbo account definition, depositors have a great opportunity to reap any benefits associated with a jumbo account without leaving any of their assets uncovered.

However, if your account is in excess of $250,000, you may want to consider splitting it among multiple banks. The resulting accounts should still be able to reap the benefits of jumbo accounts at two or more banks, but you would be avoiding the risk of having some of your deposits left uninsured.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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How do I deal with a divorce settlement from an IRA?

December 15, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I am receiving my divorce settlement from my husband's IRA. They told me that now I have to put it in another IRA account. Is that true? I need some of that money to pay down debt. I am 61 - does my age help?

A: According to the Internal Revenue Service, a divorce settlement from a spouse's individual retirement account effectively becomes a new IRA on behalf of the person receiving the settlement. So, to avoid tax consequences on the total amount, you would be wise to put the money into an IRA, and then look at how best to take distributions from that IRA to meet your needs.

First of all, you should arrange for the transfer of the money to be done via a trustee-to-trustee transfer, rather than by you receiving a check. This will clarify that it is a non-taxable transfer from IRA to IRA.

Transferring from a traditional IRA vs. Roth IRA

Another important thing to establish in this process is whether the money is coming from a traditional or a Roth IRA. You'll most likely want to transfer into the same form of IRA to avoid unfavorable tax treatment. However, if it is a Roth IRA you should establish with your new trustee whether or not your IRA will be subject to the five-year waiting period on distributions from a Roth IRA, or whether the original start date of your husband's account can be carried over to yours.

Once the transfer occurs, and if you are not subject to that five-year waiting period for a new Roth IRA, the good news is that because you are older than age 59 1/2, you can take distributions from your IRA without penalties. However, the absence of penalties does not mean there are not potential tax consequences.

Non-deductible vs. deductible contributions

The key difference between a Roth and a traditional IRA is that a Roth is funded with non-deductible contributions, while a traditional IRA is funded with deductible contributions. What this means, in effect, is that tax has already been paid on money going into a Roth, but not on money going into a traditional IRA. Because of this, distributions from a Roth IRA are not treated as ordinary income for tax purposes, but distributions from a traditional IRA are.

That means that while you should not have to pay an early-distribution penalty on distributions from a traditional IRA because of your age, you would still have to pay regular income tax on those distributions. Since these distributions are treated as ordinary income, you should manage the timing of those distributions to avoid taking too much out in any one tax year. That could bump you up into a higher tax bracket.

The above are some general guidelines on what to look for, but keep in mind that it is difficult to generalize when it comes to tax topics. There are often specifics of a person's situation that could affect tax consequences, so you should consult with your IRA trustee or a tax advisor before taking any actions.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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Should I worry about losing my mortgage interest tax break?

December 2, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: There is talk about eliminating the mortgage interest tax deduction. Won't that hurt the housing market? If I'm thinking of buying a house for the first time, should I hold off and wait to see if prices go down once they do eliminate the deduction?

A: Interestingly, the head of the Mortgage Bankers Association came out and said there are circumstances under which his organization would support eliminating the mortgage interest deduction. Understandably, mortgage bankers have traditionally been among the staunchest defenders of that deduction. Even if they are open to discussing it, there is a possibility it might happen.

The question is, would this discourage home ownership enough to depress home prices? Conditions today suggest that it might not, for the following reasons:

1. Low interest rates diminished importance of mortgage interest tax breaks

Millions of people have already benefited by buying homes at or near record-low mortgage rates, and millions more have benefited from low refinance rates. Seeing mortgage rates drop from a normal level of around 8 percent to below 4 percent is more valuable to home owners than the deduction on mortgage interest. Furthermore, the lower mortgage rates go, the less the deduction on that interest is worth.

2. Entry-level home owners often don't itemize deductions anyway

Home buyers with relatively low incomes who are buying less expensive homes typically benefit more from the standard deduction than by itemizing. Thus, eliminating the mortgage interest deduction should have little impact on entry-level buyers. You mention planning on buying your first house. If you are buying at the lower end of the price range, you are less likely to see elimination of the mortgage interest deduction affect prices than if you were buying a more expensive house.

3. A broader tax reform effort could be stimulative to the economy

One factor that has lowered resistance to eliminating the mortgage interest deduction is that low purchase and refinance rates have helped shore up the housing market.

Another factor is that eliminating the deduction is being discussed in the context of a broader tax reform effort. Broader tax reform is the context in which the Mortgage Bankers Association has said it might be receptive to eliminating the deduction. A trade-off between eliminating specific deductions and lowering overall tax rates could be positive for the economy, and thus positive for the housing market.

In short, keep in mind that between people who don't itemize deductions and those who have paid off their mortgages, many home owners don't benefit from the mortgage interest deduction anyway. Add to that the fact that mortgage rates are extraordinary low right now, and the housing market may be less dependent on that tax break than ever.

Trying to guess the future of home prices is an exercise in speculating on the unknown. What you do know at this point is that mortgage rates are very much in your favor. You may want to act on what you know rather than trying to guess correctly about what no one knows.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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How should a single mother invest $25,000?

November 15, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I am a single mom with $25,000 to invest. Any ideas?

A: First of all, kudos on looking past immediate needs and temptations and thinking long-term by investing. Too many people in tight financial circumstances look at any lump sum as a windfall to be spent right away. But when this happens, it usually is not long before they find their finances tightening up again. The way to work towards a better future is through financial discipline and targeted investing.

So, what kind of investments should you be making? A good way to answer that question is to think of your future needs and work backwards from there.

Financial priorities for a single parent

As a single parent, you probably have a number of different needs to be met for you and your children. However, they probably fall into three major categories: short-term emergencies, future education needs and funding your retirement. Here's how you can put some of that $25,000 towards each of these types of needs:

1. Build an emergency savings fund

A basic building block of saving money is an emergency fund, a reserve of money you can access easily to meet unexpected expenses. Besides the usual expenses that can pop up - car repairs, medical bills, etc. - a single parent who is the only breadwinner for her family needs to be prepared in case she loses her job. Having an emergency fund of three to six months worth of essential expenses would help you cover the bare necessities while you look for a new job.

While people tend to think of savings accounts and money market accounts as the natural places to put an emergency fund, given today's low interest rate environment it may be worth looking for a long term CD with a relatively low early-withdrawal penalty. Unless a need arises in the first few months, chances are good that a higher-yielding CD would more than make up for the penalty if you have to break into your emergency fund a further down the road.

2. Look into a 529 education savings plan

These are funds that allow money invested in them to grow tax-free as long as they are eventually used for educational purposes. Long-term stock investments within a 529 fund may be appropriate if your kids are very young, but you should downshift to more conservative investments as their college years approach. Also, since you cannot access this money for non-educational uses once it is in the 529 plan, don't commit more than your kids are likely to need for school.

3. Continue to save for retirement

Between running a household on a single income and providing for your kids' education, there will always be plenty of demands on your money. Still, don't forget to also provide for your own future by using some of the money you have at hand to boost your long term retirement investments. And no, this isn't being selfish - if you don't provide for yourself, your kids may be called upon to do it when you are older.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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How do I transfer an IRA into a CD without taxes or penalties?

November 11, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I'm 62 years old and have a traditional IRA that is maturing and I want to put it in a high interest rate CD at a different bank. Can I take the money out and take the check to the other bank for the CD without any penalty or taxes on that money?

A: You should be able to make this kind of individual retirement account transfer without taxes or penalty. But you must take care how you do it to be sure you don't inadvertently trigger tax consequences.

How to avoid taxes and penalties when transferring an IRA

Specifically, the wording of your question raises three issues:

1. Make sure you roll over into a traditional IRA

People often refer to IRAs and certificates of deposits interchangeably. While they are often linked, they represent different things.

IRAs vs. CDs

IRAs. An IRA is a tax arrangement, a retirement account that allows you to defer taxes on contributions (for a traditional IRA) and on investment earnings. The money in this tax arrangement can be invested in a variety of ways, including savings accounts and CDs, but also more long-term investments like stocks and bonds.

CDs. A CD is not a tax arrangement but a type of deposit account, usually paying a specified interest rate over a particular length of time.

The key here is to make sure the CD at the new bank is within an IRA. Because you are above age 59 1/2, you could take money out of your IRA without penalty. But you would have to pay ordinary income taxes on the withdrawal and then you would lose the tax deferral on future investment earnings.

2. Look into a trustee-to-trustee transfer

You could get a check from your existing IRA and then deposit it in a new IRA. However, that withdrawal might be subject to tax withholding since it is going through you rather than directly into the new IRA. To avoid this you should look into a trustee-to-trustee transfer, where one IRA trustee (in this case, your first bank) transfers the money directly to another IRA trustee (your new bank). Trustee-to-trustee transfers are not subject to withholding.

Also, this might be the most efficient method of transfer, since it is important to make the rollover to new IRA within 60 days or else the withdrawal would be subject to taxation. Just be sure to check first on any bank fees associated with a trustee-to-trustee transfer.

3. Find the best CD rates before transferring

Take the time to compare banks to find the best CD rates before you transfer, because unless you do a trustee-to-trustee transfer, you will be effectively locked in for a year. The IRS only allows tax payers a single IRA transfer within any 12-month period, though trustee-to-trustee transfers are exempt from this limitation.

The kind of transfer you are talking about can be a good technique for earning a little more interest on your retirement savings by finding the best CD rates. Just make sure you stay within the guidelines for this kind of transfer, so that your extra interest gains are not negated by unnecessary tax consequences.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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