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Money Management


How to check an insurer's financial health, Choosing between CDs and Treasury notes, A way to avoid tax on disability benefits, Why some employees must take retirement plan payments, An education gift that keeps on giving


Money Management

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Choose article section...How to check an insurer's financial health An education gift that keeps on giving Choosing between CDs and Treasury notes A way to avoid tax on disability benefits Why some employees must take retirement plan payments

How to check an insurer's financial health

Q I'm concerned that the enormous insurance claims stemming from terrorist actions may seriously undermine the financial condition of companies I depend on for coverage. How can I check up on them?

A Ask the carriers or your agent for copies of all their current financial rating reports, and get the agent to explain them. The insurer should be ranked in the top three grades by two or more rating services and no worse than fifth by any of them.

If you're still in doubt, consider directly contacting one or more of the major rating services—AM Best (www.ambest.com ), Moody's (www.moodys.com ), Standard & Poor's ( www.standardandpoors.com ), and Weiss (www.weissratings.com). You might also check your local library for a copy of Best's Review, which details insurance company finances.


An education gift that keeps on giving

QI'd like to contribute $25,000 to a state-sponsored college savings program for my grandson. Would this be a taxable gift?

A Not necessarily. Although you're normally allowed to give only $11,000 tax-free to an individual each year, you can treat a lump-sum tuition gift as if you were making one-fifth of it annually for five years. This tax break applies for gifts up to $50,000 if you're not married ($100,000 for a couple). To take advantage of it, you should file a gift tax return each year, reporting a $5,000 gift.

Choosing between CDs and Treasury notes

QMy bank offers a 5 percent rate on its CDs. I suspect that I might do better investing in a five-year Treasury note, even with a slightly lower yield, because the interest on it is exempt from state and local taxes. But part of the state tax on the CD interest is deductible on my federal return. How do I take this into account when making a comparison?

A Say your state tax bracket is 7 percent. First subtract 7 from 100 percent, leaving 93 percent. Multiply that by 5 percent—the CD rate—which gives you 4.65 percent. If the T-note pays more than this, its after-tax yield will be higher, regardless of your federal tax bracket.

A way to avoid tax on disability benefits

QI'm covered by disability insurance under a group policy paid for by my employer. My accountant says I'll have to pay tax on any benefits I receive. Is there a way to prevent this?

A Yes. If you pay for the insurance, your benefits will be tax-free. Instead of buying the insurance on your own, you can have your employer include in your income the prorated amount of the premium he pays for your coverage under the group policy. Since you'll then pay tax on the cost of the coverage, the IRS says this arrangement is acceptable, provided you agree to it in writing at the start of the year.

Why some employees must take retirement plan payments

QI just bought my 74-year-old father's 20 percent interest in our joint practice, but he's staying on as my employee. Can he stop taking minimum required distributions from our retirement plan?

A No, because of the ownership rules that apply to distributions. An active employee may delay receiving plan distributions after age 70 1/2, but only if he owns no more than 5 percent of the business. Because your father turned 70 1/2 while he was a part owner and had to begin taking minimum distributions, he must continue to do so even though he has given up ownership. However, your practice can also continue making plan contributions for him.


Edited by Lawrence Farber,
Contributing Writer


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 memoney@medec.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.


Lawrence Farber. Money Management. Medical Economics 2002;16:86.

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