How to terminate a SEP-IRA; Why P-E ratios differ for the same stock; Does FDIC insurance cover fraud? Building flexibility into a trust
How to terminate a SEP-IRA
Years ago, my wife, who's a real estate agent, was advised to set up a Simplified Employee Pension (SEP-IRA) so she could set aside more annually than a traditional IRA would allow. Now she's earning only half as much and wants to switch to a regular IRA. How can she terminate the SEP?
She must notify the institution where she established the plan that she won't make additional contributions and wants to terminate the contract. Presumably she's the only plan participant, but if she owns the real estate agency and also contributes to SEP-IRA accounts for her employees, she should also tell them that the plan has been terminated. She needn't notify the IRS that she has closed the plan. Keep in mind, however, that annual contributions to a SEP aren't mandatory. So if your wife's earnings may rise again, she might want to keep the plan active rather than limit her future contributions by changing to a traditional IRA.
I've noticed that a stock can have different price-earnings ratios depending on which sources I consult. Why is that?
A stock's P-E ratio-its current market price per share divided by the company's earnings per share-can vary depending on whether the calculation factors in earnings reported in past months (trailing earnings), an estimate of future earnings, or a combination of both. Newspapers typically use 12 months of trailing earnings, for instance, and so does Morningstar. But Value Line uses trailing earnings for the most recent six months plus estimated earnings for the next six months. When evaluating stocks, just be sure that any sources you use perform the P-E calculation the same way, so you get an apples-to-apples comparison. The source's website or printed materials should include an explanation of how it defines a P-E ratio.
Does FDIC insurance cover fraud?
Someone ripped a blank check out of my checkbook and wrote a $500 check against my account before I realized it. Will FDIC insurance cover my loss?
No. FDIC insurance covers only consumer losses from bank failures, not those due to fraud or robbery. But state law will likely require the bank to take responsibility for your loss, assuming you discovered and reported it promptly. Banks typically carry private insurance to cover losses due to criminal acts.
Building flexibility into a trust
I've set up an irrevocable trust at my bank and the assets will go to my two children after I die. But I'm worried that once I'm gone, the trust may become less effective if estate and tax laws change or the bank trustee does a lousy job. How can I prevent those possibilities?
Consider appointing a trust protector, perhaps a knowledgeable estate-planning attorney. You could grant him or her the authority to amend the trust to reflect changes in the law and minimize the taxes your beneficiaries would owe. You can also provide a list of performance parameters that you want the trustee to meet and give the protector the right to replace the current trustee if he or she falls short of them. Keep in mind, though, that appointing a trust protector will add another layer of complexity and fees. And to avoid unintended consequences it's critical to clearly spell out the powers-and limitations-you're bestowing on him.
Send your money management questions to: MMQA Editor, Medical Economics, 123 Tice Blvd., Suite 300, Woodcliff Lake, NJ 07677-7664, or send an e-mail to firstname.lastname@example.org (please include your regular postal address).