Money Management

Should you buy auto insurance if you don't own a car?

Q I live and work in a large city and don't own a car, but I rent one occasionally. Can I depend on the insurance offered by the rental company to give me sufficient protection?

A It's doubtful. The collision coverage will be adequate, but the liability coverage may be only the state-mandated minimum—typically $50,000 or less. Even if the rental company will sell you additional liability insurance, you can't be sure under what conditions the policy would apply in case of an accident.

To limit your risk, consider buying a nonowner policy through an insurance agent. If you're ever involved in a serious accident, you'll probably be glad you did.

Taking advantage of a capital gain tax break

Q I'm going to sell some stock for around $10,000, to help pay my son's college tuition this fall. I'll have a $6,000 long-term capital gain on the sale. My son has no income of his own, so could I cut the tax due by transferring the stock to him and letting him sell it?

A Yes. Since the stock is a gift, your son's cost basis—and therefore his capital gain—would be the same as yours. But he'd pay no more than 10 percent on the gain, whereas you'd owe 20 percent. Better yet, if the holding period (yours and his together) is at least five years, his rate would be only 8 percent.

You can still take a dependent's exemption for your son if you provide more than half his support during the year. In that case, he can't claim one on his own return, but he can take a $750 standard deduction that would reduce his taxable $6,000 capital gain to $5,250. Accordingly, his net tax (at 10 percent) would be $525, compared with the $1,200 you'd owe if you were to sell the stock yourself.

If a retirement plan becomes burdensome

Q I opened my own practice last year and would like to set up a retirement plan now, but I worry that a prolonged recession might make it hard for me to continue contributing to it. Would I be obligated to do so anyway?

A Not necessarily, but the plan should explicitly give you the right to lower contributions, stop them temporarily, or even terminate the plan altogether. The language also must provide that if you terminate the plan, participants won't forfeit their accrued benefits.

If you amend your plan to reduce future benefits, you must notify participants and beneficiaries in writing ahead of time. And unless you set up a profit-sharing plan, you'll need to obtain a waiver of annual funding requirements if you want to skip a contribution.

Be mindful that the law presumes you intend to maintain the plan permanently, so you risk retroactive disqualification unless you can show a "valid business reason" for curtailing it.

How to stay connected when you travel

QWhen I travel in this country, I save time and money by using my laptop to exchange e-mail messages instead of phoning. But I'd rather not drag a laptop along on a trip abroad next month. Is there is a good alternative?

A In many large cities, you'll find cafes and other locations that offer inexpensive Web access—often well below $10 an hour. To zero in on convenient venues, try clicking on a specialized search engine like www.cybercaptive.com or www.cybercafe.com, which have several thousand public-access Internet points in their worldwide databases. You should also check with your regular Internet service provider about furnishing Web-based e-mail support, or you can arrange to get it without charge from Yahoo!, among others.

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

2001;15:117.