Q.I have two questions about bond investments. First, with individual bonds, would a personbe better off keeping the bonds to maturity when rates went up and receiving the full value at maturity? Or should he sell and reinvest in higher interest rate bonds? Second, does this work with bond funds?  Do fund managers hold bonds to maturity, or do they generally sell and reinvest when interest rates are going up? —J.T., Austin, Texas

A. On highly liquid and secure issues such as Treasuries, the market adjusts the price of the bonds so that the discounted present value of an older, lower coupon obligation would be identical to the present value of a new bond with a higher coupon. Some of the damage done to lower coupon bonds in a rising rate market is reduced by reinvestment of the coupons at the new higher rates. Basically, it’s a toss up, but some managers realize and use the capital losses. You can learn the basics of all this in the classic "Inside the Yield Book" by Sidney Homer and Martin L. Liebowitz, first published in 1972.

Q.  I have some questions regarding limits on required minimum distributions. I am a 70-year-old divorced female in good health. I retired late last year. In January I set up monthly RMD withdrawals to meet my obligation for 2013. The withdrawals are to be deducted from my money market fund in my SEP IRA account. The amount of my annual RMD was based on a percentage of my account balance at the end of 2012.

The total value of my account rose by nearly $8,000 during the first quarter of 2013. I’m not sure, but I think at some point my RMDs are legally obligated to empty the SEP IRA account. In the event I should be able to continue growing the account balance while making future RMD’s, could I continue to invest? If that is permissible, will I be required at some point in the future to move all the remaining funds to a taxable account? —M.F., by email

A. You have no cause for worry. Many people have had the good fortune to make their retirement accounts grow even as they are taking required distributions. It's pretty easy at the start. The initial withdrawal rate is only 3.65 percent. But the rate climbs every year. Sooner or later it will be well beyond any reasonable expectation of annual gains. When that happens the account will start to shrink.

Most people who take RMDs will die with money in their accounts because they will die before the RMDs are so large that their accounts shrink rapidly. You can understand how this works in action by playing with an online RMD calculator at Fidelity: https://web.fidelity.com/mrd/application/MRDCalculator
This calculator doesn't account for the ups and downs of the stock market, but by putting in different annual returns you can see how the RMDs eventually start to diminish the account.

You will never be required to do anything but take RMDs. The only raw spot here is that if you build the account enough, the rising RMD percentages will eventually force you to take more taxable income than you need. They may also put you into a higher tax bracket. Lots of people grind their teeth about this, but this is a nice problem to have.

Q. I have a question about a retiree’s homestead and concerns about future nursing home needs. I have an aunt and uncle, both retired, in their late 60's. They own their home free and clear. I would estimate the value between $50,000 and $100,000 (It’s in rural west Texas.).

My aunt recently said they were considering transferring ownership of the house to one of their sons so they could qualify for nursing home assistance in their later years. They have no other assets. Social Security is their only income. They have no retirement accounts or savings.

A figure of $2,000 sticks in my head as a magic number related to what you can have in financial assets. I told her that I thought she was mistaken, that the homestead is exempt from Medicaid means testing. I'm concerned that "giving" their house to their son could create more trouble than benefit. —B.P., Dallas, TX

A. You’re right on both counts. That $2,000 figure stuck in your head is the correct number. Your instincts are also correct on keeping the house. A home is an excluded asset as long as one of them lives in it or one of them declares intention to return to it.