Shopping safely on the Internet; Term insurance extras you can do without; How to check out an assisted-living facility; Spotting stocks that do better than the market; A reliable investment for a college fund; Why owning a spouse's Roth IRA isn't always best for a widow; Claiming depreciation deductions the IRS admits it owes you.
Q Shopping on the Web saves me time and money, but I worry about the reliability of some online retailers. Is there a practical way to check them out before making purchases?
A Look for a Better Business Bureau reliability seal (a torch with the letters BBB superimposed) on the merchant's Web site. The seal indicates that the online business has been operating at least a year, participates in the BBB's advertising self-regulation program, has a satisfactory complaint-handling record, and agrees to binding arbitration at the consumer's request. Clicking on the seal takes you to the Bureau's own site, where you can verify that the merchant is a BBB member in good standing. At the site (www.bbbonline.org), you can also access a list of businessescurrently more than 3,000licensed to display the reliability seal.
Q I'm comparing the premiums various insurance companies charge for term policies, and I'm wondering which features and options I should consider. Can you give me some guidance?
A The most important is a guarantee that you'll be able to renew your policy until at least age 65, regardless of the state of your health. Also desirable is a conversion feature allowing you to switch from term to cash value insurance without a medical exam.
Most other policy options offered generally aren't worthwhile. For instance, if your policy's face amount is enough to meet your family's needs, why pay extra for double indemnity in case of accidental death? And if you already have ample disability coverage, you can do without a waiver-of-premium rider that takes effect when you're disabled.
Q My mother suffers from severe arthritis, though she's otherwise in good health and mentally alert. She now lives alone but thinks she might be better off in an assisted-living facility. What should we look out for in making a choice?
A At the very least, the facility and the administrator should meet any state certification and licensing requirements, but checking on that is no substitute for a careful personal inspection and evaluation of amenities, staff competence, and services provided. Make sure you understand what the basic fee covers and whether other services are available at extra charge. Also find out what would happen if your mother's needs change. Will the facility arrange for care in a nursing home or hospital, and will your mother's room be held for her if the change in her condition is temporary?
You can obtain detailed lists of items to check and questions to ask from the Assisted Living Federation of America (www.alfa.org) or the National Center for Assisted Living (www.ncal.org).
Q An investment letter I subscribe to suggests picking stocks based on their "relative strength ratio." How does that work?
A The ratio tells you whether a stock's price is rising or falling faster than the market as a whole. To calculate it, divide the price by a market index such as the Standard & Poor's 500 Stock Index. Do this periodicallyevery week, say. If the ratio consistently goes up, this shows that the stock is doing better than average.
You can also use this technique to compare the performance of a particular stock group against the entire field. For example, to determine the relative strength of financial stocks, you'd divide their average price by the broad market average. If the ratio seems to be declining, you might want to stay away from stocks in that category for the time being.
Q I've read that zero-coupon municipal bonds are good investments for a college fund when the money won't be needed for some years. What are their advantages?
A Zero-coupon bonds are issued at large discounts from maturity value and pay no current interest. In effect, the interest compounds internally at a fixed rate for the life of the bond. For example, if you pay $600 for a $1,000 bond maturing in 10 years, you'd be sure of earning about 5.25 percent annually. With a bond that pays you interest periodically, you'd have to reinvest the payments as you receive them, so your total return would be subject to fluctuating market rates.
Zero-coupon bonds come in a wide range of maturities, so you can choose issues that will pay off exactly when you need the money. You could invest in higher-yielding corporate zeros, but they generally carry more risk than municipals and the interest is taxable yearly, even though you don't get it until maturity.
Q I want my wife to inherit my Roth IRA. Because we're both in our 40s, the custodian suggests that I name her as beneficiary but not as owner. Is this good advice?
A Probably. As owner, your wife would never be required to take distributions, but if she did want to tap the IRA before age 59 1/2, she might have to pay a 10 percent penalty on those withdrawals. As a nonowner beneficiary, she could make entirely tax-free withdrawals, provided the account is at least 5 years old. She'd eventually have to start taking minimum distributions, but not until the year you would have reached 70 1/2, had you lived.
Your best course is to let your wife choose to become owner or beneficiary when she inherits the IRA. To give her this option, the custodian will have to modify the standard Roth adoption agreement (IRS Form 5305-R), or else she'll automatically be named owner at your death.
Q I own a condominium apartment and rent it out. I've claimed depreciation deductions for appliances, furnishings, and carpets based on a seven-year life, according to IRS instructions, but now I hear the IRS concedes it should be five years. What should I do?
A If you first started renting the unit in 1999, you can file an amended return to claim a bigger writeoff. In the initial year of use, you can normally deduct 20 percent of the cost of an item with a five-year life, compared with only 14.29 percent for a seven-year item.
To claim additional deductions for items placed in service before 1999, you'll have to file Form 3115. If you decide that speeding up the depreciation isn't worth the trouble of doing the paperwork, the IRS will allow you to continue using a seven-year life.
Q A staff member needs $45,000 cash for the down payment on a home. This is less than half his pension plan balance, and he's asking for a 10-year loan from the plan. However, the bank that would hold his mortgage won't allow him to pledge the home as security for the pension loan. Can the plan make a 10-year loan to him without it?
A Yes. If he's using the money to buy a principal residence, the loan term can exceed five years, the maximum permitted when borrowing for other purposes. The loan must be repaid in equal installments every three months or more frequently, but it doesn't have to be secured by the property.
Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics magazine, 5 Paragon Drive, Montvale, NJ 07645-1742, or send an e-mail to email@example.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.
Lawrence Farber. Money Management. Medical Economics 2000;7:272.