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When investing, let bank customer beware

 
Published Oct. 23, 1994|Updated Oct. 8, 2005

Q. A year ago when my CD at Barnett Bank came due, someone at the bank called me about buying a tax-advantaged account for $20,000. Did I make a mistake? Should I get out now with a 7 percent penalty or is it safe enough to leave in for six more years? I just got a statement from Barnett on this account along with my checking and money market accounts. It says this account is a risk and is not an obligation of Barnett Bank. However, they used Barnett Bank's office to transact this business and had access to my CD account. I am totally confused.

A. You apparently bought an annuity from an agent for the James Mitchell & Co. insurance agency, which sells annuities through Barnett branches. You are not the only Barnett customer to be confused by this arrangement. A state administrative hearing officer ruled last August that James Mitchell agents used deceptive practices. A final order has not been issued in the case.

My mail indicates that a lot of bank customers are far too trusting. The reality is that it's "buyer beware" at the bank, just as it is at any brokerage firm. Barnett says you should have known what you bought.

"It was fully disclosed that it was not a government-insured product," Barnett spokesman Robert Stickler said. "Things get disclosed and people don't listen and people don't read."

So long as the insurance company backing your annuity is financially strong, your money should be safe. However, if you wanted a government-guaranteed investment, an annuity was not the right thing to buy.

If you have questions about your annuity or what your options are, call the Florida Department of Insurance at (800) 342-2762 or visit one of the department's local offices, which are in Largo and Tampa.

Your experience points out how important it is to do some research before making investment decisions. Investing based on blind faith is a big mistake.

Q. How can new residents of Florida find out the essentials of the Florida intangible tax? What kind of assets are subject to the tax? Are there exemptions? When and where do you file? How do you get a form?

A. The place to go for information is the Florida Department of Revenue. To get a copy of a pamphlet about the tax, call (800) 352-3671 or write Department of Revenue, Division of Taxpayer Assistance, Tax Publications, P.O. Box 7443, Tallahassee, FL 32314-7443.

The intangible tax applies to people who have more than $20,000 ($40,000 for a married couple) in stocks, bonds and mutual funds. Some assets are exempt from the tax and not counted in the $20,000 total. Among them are bank accounts, insurance policies, retirement accounts, Florida bond funds and individually owned U.S. government bonds and Florida municipal bonds.

The tax is based on the value of assets on Jan. 1 of each year. Forms usually are available in late December or early January, and the annual filing period is from January through June.

Reader Reaction: In last week's column, you correctly advised a reader that taking the money out of her low-interest CD and reinvesting it at a higher rate would more than compensate for the money lost to an early withdrawal penalty. However, you did not mention another benefit:

Line 28 of IRS Form 1040 allows a taxpayer to deduct the full amount of an early withdrawal penalty from total income. As a result, the real cost of the penalty for early withdrawal is reduced. The exact amount depends, of course, on the individual's tax bracket.

A. You are correct _ the tax deduction is an added bonus. However, interest rates have risen so fast that even people who pay little or no income tax may find it worthwhile to take an early withdrawal penalty.

All CD investors should look at whether they would be better off withdrawing their money and reinvesting it at today's rates. This is especially true for those holding CDs that will not mature for two or more years. Since each person's situation is a little different, do the math before rushing down to the bank.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Questions should be sent to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

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