Feature

What the experts say

Funds for boomers, Student loans feel the squeeze, Tax relief from phantom income

Funds for boomers
Many boomers fear they won’t have enough money to last through retirement, said Rob Wherry in SmartMoney, even though collectively they’ve “socked away a whopping $7.6 trillion in various investments and accounts.” Funds designed to put portfolios on autopilot, often known as “asset allocation” or “target date” funds, have attracted many baby boomers’ investments. “Now, several fund families are taking that idea a step further,” promising to combine the investing philosophy of target-date funds with the monthly payouts of annuities. Fidelity’s “income-replacement” funds and Vanguard’s “managed payout” funds factor in payments retirees will receive, based on the funds’ performance. The question for boomers is: Are these funds “just the latest fad” or will they actually “deliver on their hype”?

Student loans feel the squeeze
Student loans could become more burdensome this fall, said Robert Tomsho and John Hechinger in The Wall Street Journal. Investors who have been burned by the mortgage crisis are leery of putting money into the asset-backed securities needed to fund student loans. “Without a break in the credit crunch—such as stepped-up lending by major banks—the situation could become far worse, these lenders say, leading to many students being unable to fund their educations.” Even Sallie Mae has said it would tighten credit requirements. Students weighing financial aid packages should keep an eye on what portion of aid is given as grants, as opposed to loans. Then “pursue as much federal and state loan money as possible before considering private loans, which tend to have higher and variable interest rates.”

Tax relief from phantom income
Here’s a glimmer of good news for home­owners in foreclosure, said Sandra Block in USA Today. In the past, they would have been required to pay taxes on “phantom income” resulting from the lender’s resale of the house: Someone who walked away from a $400,000 debt, for instance, would have to record $100,000 in income if the lender resold the house for $300,000. That means a big tax bill for people who “probably don’t have much money” in the first place. Fortunately, Congress and the administration came together late last year to pass a law “that will make it easier to recover from foreclosure” by keeping such debts off former homeowners’ books. The law can also apply to “forgiven debts” from loan restructurings, short sales, and debt written off on a home-equity loan. One catch: This change isn’t reflected in most tax software or even the paper forms mailed by the IRS. Ask for a revised version of Form 982.

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