Understanding the difference between bank money accounts and mutual funds and what you use them for. You can make them Payable on Death(POD) or Transfer on Death (TOD) too.
*MMAs vs MMMFs :
Your bank may offer a money market accounts (MMA). They're similar to savings accounts but may pay higher interest rates.
But MMAs tend to have higher balance requirements than savings accounts. And different interest rates may apply to different account balances. As an example, it may offer one rate for balances below $10,000, a higher rate between $10,000 and $25,000, and an even higher rate for $25,000 and above. In addition, you may need a larger deposit to open a money market account.
Unlike traditional savings accounts, money market accounts let you write a limited number of checks each month - combining features of savings and checking accounts. The ceiling is usually three checks-another of the restrictions imposed by Federal Reserve Regulation D.
The FDIC insures bank accounts up to $250,000 per person per account.
If you exceed the check limit, the bank won't process any new transactions until the next period. However, you can make all the withdrawals you want by visiting a bank branch office in person, and you can deposit money into your checking account without penalty.
Money market mutual funds (MMMFs) are similar to money market accounts in some ways. They typically pay interest at about the same rate and may offer check-writing privileges too. One advantage is that there's usually no limit on the number of checks you can write each month.
However, any check you write against your MMMF account may have to be for at least the required minimum - perhaps $500.
What you should be aware of too is that MMMFs - unlike MMAs - are not FDIC insured although some offer their own insurance. While these money market mutual fund companies try to keep their money market share price stable at $1 a share, there's always a possibility you could lose some of your principal.
Holding money in either MMAs or MMMFs is a good idea for emergency funds, ready cash, or while you're waiting for an investment opportunity. You can also arrange to leave it to someone if you die. Here's how...
*Leave It to Your Beneficiaries with PODs and TODs:
Payable-on-death (POD) and transfer-on-death (TOD) are common account registrations for leaving your account's holdings to your chosen beneficiary. Here's how they work...
A POD is simply a regular bank account you've chosen to leave to a person after you die. To make it a POD, request your bank or credit unit for the paper work for designating a pay-on-death beneficiary of your account.
Realize that your POD beneficiary has no right to your account while you're living. But upon your death, he automatically owns the account. The account doesn't go through probate since it's transferred directly to the beneficiary.
Some institutions have you set up a Totten Trust to leave your account to a beneficiary. It works similarly to a POD, except you're designated as the trustee of the account.
One extra advantage of a POD account is that the FDIC insures the account value for $100,000 not just per the account but per each qualifying beneficiary. Qualified beneficiaries include your spouse, children, grandchildren, parents, and siblings.
If you own stocks, bonds or mutual funds you can designate a beneficiary for them using a TOD. Like the POD, it confers no rights to the beneficiary to your assets while you're alive. Similarly, when you die, those assets are transferred directly to the beneficiary - again without having to go through probate.
Request your brokerage institution for the paper work to designate or change your beneficiary(s).
*No probate but subject to your estate tax:
Though these POD and TOD accounts bypass the probate process - since they automatically flow to a designated beneficiary - they remain in your estate. That's because you own - and control - these accounts. So they're subject to the rights of your creditors and the Internal Revenue Service.
The executor of your estate must pay all of your estate's outstanding debts and expenses - and taxes, if any. So if it's necessary, your TOD and POD beneficiaries may have to use some of the accounts' assets to do so.
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