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Q While practicing as a solo physician, I intend to enter a graduate-schoolprogram leading to a degree in the medical humanities. Will I be eligiblefor any educational tax benefits?
A It's doubtful. You can deduct the cost of education that improves skillsneeded in your present work, even if it leads to a degree, but not if yourstudies qualify you for a new trade or business. You might be hard put toconvince an IRS auditor that the program passes these tests.
Such restrictions don't apply to the Lifetime Learning Credit, but it'ssubject to income limitations. The credit is phased out for joint filerswith adjusted gross income of $80,000 to $100,000 ($40,000 to $50,000 forsingles). If you meet the AGI requirement, you can claim an annual creditof 20 percent of the first $5,000 of tuition and related expenses--the limitfor your entire family--for the graduate-level education you have in mind.After 2002, the limit on expenses eligible for the 20 percent credit willdouble to $10,000 per family.
Q I've asked colleagues to recommend a lawyer experienced in dealingwith medical practice issues, but I'm looking for additional referrals.Can you suggest a few good sources?
A The American Academy of Family Physicians (800-274-2237, ext. 3448)offers information on attorneys in various geographical areas at its Website, www.aafp.org/fpassist.A list of "physician friendly" lawyers is also available at nocharge from the American Medical Association's Doctors Advisory Network(800-366-6968).
Q I'm buying a house, but I won't own the land it stands on. Instead,I'll have to pay the seller a fixed amount of ground rent annually. Is thisdeductible?
A You can claim a mortgage interest deduction for the rent, providedthe rent is "redeemable." That means the term of your land leasemust be longer than 15 years (including renewals), and you must be freeto assign it if you sell the home.
Also, state or local law must give you the present or future right toend the lease and buy the land for a specified amount. Should you make suchtermination and purchase payments, they won't be deductible, if the houseis a personal residence. If it's a business or rental property, you candeduct the payments as rent.
Q You pointed out [Financial Beat, Jan. 11, 1999] that the administrativeand management fees mutual funds charge can take a sizable bite out of investors'profits over the years. But isn't there a tie-in between high expense ratiosand good fund performance?
A It doesn't seem so. For the 10 funds with the best total returns in1998 and assets of more than $100 million, expense ratios ranged from 1.05to 2.50 percent (average 1.47). For the 10 funds in that asset categorywith the worst records last year, the ratios ranged from 1.22 to 2.98 percent(average 1.93).
According to figures compiled by Morningstar, funds specializing in small-capissues have greater average expense ratios than large-cap funds, and theaverage is even higher for foreign-stock funds. That's not surprising, sincethe high visibility of large companies makes that market sector easier--andpresumably less expensive--to monitor than others.
Q I think our economy is headed for trouble, so I'm cashing in mypersonal investments and putting the money into Swiss banks and securities.I'd like to do the same with my pension fund, but would that be legal?
A The pension law doesn't bar foreign investments as such. However, you'dhave to manage and control them through an American fiduciary--for example,a bank, broker, or trust company--because Department of Labor regulationsrequire pension assets to be subject to the jurisdiction of US districtcourts. Those regulations also require plan investments to provide sufficientliquidity and current return to meet anticipated cash-flow needs. This couldbecome a problem with direct investments in Switzerland or with securitiesthat pay interest or dividends in Swiss francs. Consequently, you'd be wiseto keep a reasonable portion of your plan's assets in conservative domesticinvestments.
Q I don't want video satellite dishes or antennas to spoil the looksof an apartment building I own, but a tenant says that a federal regulationgives him the right to put one up. Is he correct?
A Yes, if the dish is no larger than one meter in diameter and its installationisn't unsafe. A Federal Communications Commission rule barring restrictionson such equipment overrides state or local laws and prohibitions by homeownersassociations, condominiums, or cooperatives.
However, the tenant doesn't have the right to install the equipment inthe building's common areas--such as a hallway or roof. Furthermore, youcan set reasonable conditions to prevent property damage--for instance,by not allowing holes to be drilled through exterior walls. But a restrictiondesigned to prevent ordinary wear and tear (e.g., marks, scratches, andminor damage to carpets, walls, and draperies) would likely not be consideredreasonable. For additional details, contact the FCC by phone at 888-225-5322,or on the Web at www.fcc.gov/csb/facts/otard/html.
Q I worry that my present personal and business liability coveragemay fall short if I'm ever sued. Would adding an umbrella policy give meadequate protection?
A Maybe not. Consultants warn that many policies sold as umbrellas won'tprotect you against risks not covered in your basic insurance contracts.Furthermore, a personal umbrella policy doesn't raise your coverage forbusiness risks, so you may need a separate umbrella for them. You also needto guard against leaving a gap between the ceiling on your underlying coverageand the floor at which the umbrella policy kicks in.
Suppose you have $300,000 of auto accident insurance and a million-dollarumbrella that starts paying at $500,000. A $700,000 judgment would costyou $200,000 out of your own pocket. To prevent this, you should eitherraise your auto policy maximum to $500,000 or buy an umbrella that requiresonly $300,000 of basic coverage.
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 firstname.lastname@example.org(please include your regular postal address). Sorry, but we're not ableto answer readers individually.
QMy brother thinks that my 15-year-old, who works for him part time,should open a Roth IRA at a mutual fund company. But wouldn't his age makehim ineligible?
A No. Anyone with earned income--wages, salary, and tips, as opposedto interest or dividend income--and with adjusted gross income of less than$95,000 (single) or $150,000 (married) can contribute up to $2,000 of earningsannually, regardless of age. However, some mutual funds won't set up a Rothaccount for a minor, while others may stipulate a minimum investment thatexceeds his earnings.
As little as $250 will get him started at Invesco, Neuberger Berman,Strong, or USAA. Depending on state law, a parent's signature may be requiredon the account.
Lawrence Farber. Money Management.