An express track to higher stock values, If you pay the premiums on a policy in a trust, Saying goodbye to a spouse but not to his banker, You're never too old for a SIMPLE IRA.
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Q I terminated my Keogh plan when I turned 65, but I intend to remain in practice as long as I'm able. I want to set up a SIMPLE retirement plan (Savings Incentive Match Plan for Employees), which would let me contribute $6,000 of my earnings annually to an IRA. Will I have to stop contributing after I reach 70 1/2?
A No. Contributions to traditional IRAs are barred starting with the year in which you turn 70 1/2, but no age limit applies to IRA contributions associated with SIMPLE plans or with an alternative type called a SEP (Simplified Employee Pension) plan.
However, once you turn 70 1/2 you'll be required to make minimum withdrawals from the IRA, based on life expectancy, even though you continue contributing.
Q I read recently that a company I own shares in is thinking of issuing a "tracking stock" for a subsidiary. Why would it do this, and how could it affect my investment?
A The subsidiary is probably growing faster than the company's other operations and is being undervalued by the market. By allowing the public to invest directly in the subsidiary via a separate stock that tracks its performance, the company may be able to raise a sizable chunk of capital. Investors who currently own shares of the parent would receive tax-free dividends of stock in the subsidiary, which may well have a higher price-earnings ratio than the parent's stock now does. However, the parent would retain control of the subsidiary, and assets of either could be used to meet the other's liabilities.
AT&T, for example, recently garnered more than $10 billion through an initial public offering of a tracking stock for its rapidly growing wireless business. Other tracking stocks issued by major corporations include Hughes Electronics, a General Motors' communications subsidiary, and Sprint PCS Group, which operates Sprint's wireless phone business.
Q I'm planning to give my new life insurance policy to an irrevocable trust set up for my children, so that the proceeds won't be taxed in my estate. Will I owe gift tax on the money I'll be contributing annually to pay the premium?
A Yes, unless you arrange for the payments to qualify for the annual exclusion ($10,000 per child, or $20,000 if your spouse joins in the gift). The exclusion will apply only if your children have some immediate rights in the trust. To meet this requirement, the trust should include a "Crummey provision" allowing each beneficiary a short time60 days, perhapsto claim his share of your yearly contribution. Presumably, the beneficiaries won't exercise this right, but without it, the premium payments will reduce the estate tax exemption when you die.
Q As part of our divorce settlement, my wife will get title to our house, which is now in my name alone. She'd like to keep the existing mortgage, which has a very low interest rate, but a due-on-sale clause gives the lender the option to cancel the mortgage if there's a change of ownership. What steps can we take to forestall that?
A You needn't do anything. Federal law bars a lender from exercising a due-on-sale option in a residential mortgage when ownership of the property is transferred to the borrower's spouse under a divorce decree or a legal separation agreement, or by a settlement agreement incidental to either document.
Lawrence Farber. Money Management. Medical Economics 2000;19:211.