The author is a freelance writer in South Orange, NJ
Bumpers beg for a redesign, etc., etc.
If you earned too much last year to contribute to a Roth IRA, but unknowinglyopened one anyhow, the IRS has an early Christmas present for you. It willgive you until year-end to reverse your mistake without incurring any penalties.The original deadline was Oct. 15. The agency is extending the same courtesyto taxpayers who erroneously converted a traditional IRA to a Roth.
The IRS attributes its largesse to the "newness of the Roth IRAand problems that taxpayers have had in applying its rules and limitations."
By law, married couples who earn more than $160,000 cannot contributeto a Roth, and if they earn between $150,000 and $160,000, each spouse cancontribute only a prorated portion of the $2,000 limit. Couples and singlefilers earning more than $100,000 cannot convert a traditional IRA to aRoth.
High-income taxpayers who nonetheless made the conversion in 1998 andwere younger than 59 1/2 at the time now face a 10 percent excise tax onthe entire conversion amount. If they set up a Roth IRA and funded it withnew money (not a conversion), they owe 6 percent on the contribution. Ineither case, the account's earnings are not tax-sheltered.
To avoid these penalties, you must undo your Roth (or "recharacterizeyour contributions," in IRS lingo) by Dec. 31. Just tell your trustee(the mutual fund or brokerage or bank) to execute the paperwork.
You'll also have to file an amended 1998 tax return, but that won't bedue until April 15, 2002. If you converted a traditional IRA to a Roth,though, you'll want to file as soon as possible: Last April you paid incometax on at least one-quarter of the conversion amount, and now you're duea refund.
With the new yearexcuse us, the millenniumaround the corner,now's the time to make last-minute adjustments in your finances to qualifyfor favorable tax treatment in 1999. Use this checklist to get started.
Instead of rushing to the mall for the latest sale, sit down at the computer.You're likely to save more by making your purchases on the Internet.
Retail items cost an average of 13 percent less on the Net than theydo in conventional stores, according to a recent study from Lehman Brothers,a New York-based global investment bank. The biggest discounts were forclothes (38 percent) and prescription drugs (28 percent). Two professorsat the Massachusetts Institute of Technology found that books and CDs cost9 to 16 percent less when purchased on the Internet. Looking ahead, youcan expect even larger online discounts as competition increases and shoppersbecome more aggressive bargain hunters, says Lehman Brothers.
Why the discounts? Because it's cheaper to do business in cyberspace.Internet retailers don't have to maintain inventories at individual storesand therefore can save on shipping, real estate, and employee costs. Theycan also trim prices more frequently than traditional retailers. All theyhave to do is update their Web sites, whereas a traditional retailer hasto retag all sale items, which requires time and labor.
Currently, Internet transactions account for less than 1 percent of allretail sales. As online merchandising grows, the savings could translateinto a 0.5 percent lower inflation rate, predicts Lehman Brothers. That,in turn, could help buttress the stock and bond markets.
If you follow the Dow Jones Industrial Average like a sports fan trackinga favorite team, you'll want to know what the new Dow lineup really means.
First, the trades: Microsoft, Intel, Home Depot, and SBC Communicationsreplace Chevron, Goodyear Tire & Rubber Co., Sears, Roebuck and Co.,and Union Carbide.
The editors of The Wall Street Journal, who orchestrated the change,say the reconfiguration reflects the growing importance of technology andservices in the US economy.
The new roster should spur quicker growth in the index because its earningsgrowth potential has increased, says Chuck B. Carlson, portfolio managerof the Strong Dow 30 Value Fund. The stocks added have a five-year annualearnings growth rate of 26 percent vs 5 percent for the stocks that weredeleted.
If the change had taken place four years ago, in fact, the Dow wouldbe trading near 25,000 today instead of just under 11,000, says Ramy Shaalan,an analyst at Wiesenberger, a mutual fund rating firm in Rockville, MD.With the addition of two major technology stocksMicrosoft and Intelhebelieves the index will more closely track the Nasdaq, where tech stocksare heavily represented.
The new Dow contains few cyclical stocks, those that move in sync withthe economy's cycles. Only five of its current components are pure cyclicalplaysAlcoa, Caterpillar, DuPont, General Motors, and InternationalPaper.
The shortage of cyclicals could sound the death knell for the so-calledDogs of the Dow strategy, which involves buying stocks with high yieldsand relatively low pricesthe way cyclical shares look when they'reout of favor. Investors collect the relatively high yields while waitingfor the cycle to turn, then sell the stocks after they appreciate. Thisstrategy was successful until a few years ago. But now there are few cyclicalsleft, and among the four new Dow stocks, the largest dividend is from SBCCommunicationsjust 1.9 percent.
Next time you find yourself driving around a parking lot or stuck inrush-hour traffic, remember to keep close watch on the cars in front ofyou and behind. A crash at just 5 miles per hour could cost you dearly.The culprit: poorly designed bumpers.
In crash tests involving several large luxury and family cars hittinga barrier or pole at 5 mph, each model sustained on average more than $450damage. The Lexus GS 400 incurred the most damage, followed by the CadillacSeville's 2000 model, as the chart here shows.
"When you can't bump a car straight on into something flat at 5mph without damage, there's something wrong with the bumper design,"says Brian O'Neill, president of the Insurance Institute for Highway Safety,which conducted the tests. He points to the Buick Park Avenue as a casein point. Its parking lights are built into the bumper, so when the bumperis hit, the lights break, adding to repair costs.
The Insurance Institute, a nonprofit research organization funded byauto insurers, conducted four crash tests per vehiclethe front andrear into a flat barrier, the rear into a pole, and the front into an angledbarrier. The last two tests usually caused the most damage because the impactwas more focused and severe.
Bernice Napach. Financial Beat. Medical Economics 1999;23:24.