I opened passbook savings accounts for my grandchildren last year. The accounts pay hardly any interest, and the bank recently started deducting service fees, so I’d like to buy stock for my grandkids instead. How do I go about it? --N.B., via e-mail
Several brokerage firms offer custodial accounts with low minimums, no setup or annual fees, and low or no commissions for buying and selling shares. For instance, TD Ameritrade has no fees or minimum investment and charges $9.99 for each online stock trade. Charles Schwab sets a minimum investment of $100 and charges $8.95 for online stock trades. Scottrade has a $500 minimum and charges $7 for online trades. Each brokerage also offers many exchange-traded funds and mutual funds without commissions.
ING Direct’s ShareBuilder program has no minimums and charges $4 per trade if you sign up for the monthly automatic investment plan. ING Direct also offers its Kids Savings Account, which has no fees or minimum and is currently paying 0.8% interest.
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Each grandchild will need a separate custodial account, with a custodian for each account. The custodian, who will manage the assets until the child reaches the age of majority (age 18 or 21 in most states), may be the grandparents, the child’s parents or another person who will manage the assets in the best interests of the minor. No matter who acts as custodian, anyone may contribute to the account.
Retirement accounts for the self-employed
I earned some extra cash on freelance writing projects this year. Can I use the money to set up a retirement-savings plan? --R.B., Boston
Yes. You have several retirement-savings options if you are self-employed or have freelance income on the side. The two best choices are a Simplified Employee Pension (SEP) and a solo 401(k). Contributions to either type of account are tax-deductible and grow tax-deferred for retirement.
The easier to set up is the SEP, which works a lot like an IRA and is available through most brokerage firms, mutual fund companies and banks. You can contribute up to 20% of your net self-employment income (which is your business income minus half of your self-employment tax), up to a maximum of $50,000 in 2012.
But you may be able to contribute more money to a solo 401(k). You can contribute up to $17,000 plus up to 20% of your net self-employment income, up to a maximum contribution of $50,000 in 2012. (Your total contributions cannot exceed your self-employment income for the year.) And if you are 50 or older by the end of the year, you can make catch-up contributions to a solo 401(k) -- but not to a SEP -- of up to $5,500, for a maximum of $55,500 in 2012.
The solo 401(k) can be a particularly good option if you have just a little freelance income for the year. If you earned $17,000 of net self-employment income from a sideline job, for example, you could contribute the full $17,000 to a solo 401(k) but only $3,400 to a SEP.
If you have a 401(k) through an employer and also have some freelance earnings, your total employee deferrals to your employer plan and your solo 401(k) are limited to the $17,000. But you can still contribute up to 20% of your net self-employment income to a solo 401(k).
You can get a list of solo 401(k)s at www.401khelpcenter.com. Fidelity’s Self-Employed 401(k) plan and Charles Schwab’s Individual 401(k) charge no setup or annual account fees, set no minimum requirements, and give you access to almost all investments available to brokerage customers.
You must open a solo 401(k) by December 31 to make 2012 contributions, but you have until April 15, 2013, to contribute the money. The deadline to open and fund a SEP for 2012 is April 15, 2013.
Preventive-care coverage
As soon as the provisions of the new health care law were introduced, my health-insurance company sent me a letter stating that my plan’s preventive-care coverage will not change because the plan has been grandfathered by the health care law. My insurer hasn’t covered preventive care, but the law says it’s fully covered. Can you explain? --M.S., Los Angeles
The health care law says that plans must cover preventive care without requiring co-payments or deductibles, but “grandfathered” policies are exempt from that provision. Grandfathered policies are those that have not changed their coverage or out-of-pocket costs substantially since the law was passed on March 23, 2010. Plans that make any substantial changes lose their grandfathered status and must provide preventive-care benefits under the new rules.
Grandfathered plans are also exempt from the new, more patient-friendly rules for appeals and from the rule that insurers must provide emergency care without requiring prior approval. Nor do grandfathered plans have to abide by new requirements that prohibit plans from requiring you to get a referral from a primary-care provider before seeing an obstetrician-gynecologist or a pediatrician.
Fewer plans are grandfathered every year, so yours may be among those that lose that status. In considering your choices during open enrollment, find out which plans are grandfathered and which must provide the extra coverage.
Estate planning after a name change
My daughter recently married and now has a new last name. Do I need to formally update my will, trust and beneficiary forms to reflect her name change? Can I hand-write the changes to my will and get it notarized rather than pay a lawyer to make the changes? --R.G., Alexandria, Va.
You don’t need to rush to update your will and trust with her new name because the beneficiary is the same person, says Martin Shenkman, an estate-planning attorney in Paramus, N.J. It’s fine to make the change the next time you have your lawyer update those documents. Don’t even think about changing the document yourself, he says. “If you hand-write on a will, you will potentially invalidate it.” Most lawyers will charge a few hundred dollars for a simple name change, says Shenkman.
You can usually change the beneficiary designation on your life insurance policies, retirement plans and other accounts by submitting a change of beneficiary form to the administrator. These documents supersede your will, so you’ll need to update them separately.
Update your health proxy and power of attorney as soon as possible to avoid hassles if your daughter has to act on your behalf in an emergency. Be sure to specify both names, such as: “I name my daughter Jane Married Name (a/k/a Jane Maiden Name) as my agent.”
This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.
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