Money Management

When a lender won't drop mortgage insurance

QThe lender refuses to cancel the private mortgage insurance (PMI) on my four-year-old loan. He claims the loan-to-value ratio is more than 80 percent, based on his appraiser's estimate of what my house is worth. I'm sure an independent appraisal would show a ratio of less than 75 percent. If I get one, can I force him to accept it?

A Not unless he has sold the mortgage to Fannie Mae or Freddie Mac and is merely servicing it. In that case, he's subject to their rules. Otherwise, federal rules on PMI cancellation apply only to mortgages taken out since July 29, 1999. So your best bet may be to refinance with another lender, if you can get an equal or lower rate and the present mortgage doesn't have a prepayment penalty.

Combining required withdrawals from more than one IRA

QI turned 70 1/2 this year and will have to start taking minimum distributions from my IRAs. I own two and am the beneficiary of a third. Can I add the balances in all three accounts to figure the required amount?

A No. You must calculate the minimum for each one separately, but you can combine the minimums for the two accounts you own and withdraw the total from either of them if you wish. However, you'll have to take the required distribution from the inherited IRA out of that account; you can't combine it with the others.

The differences between two types of retirement plans

QI've had a corporate money-purchase plan for several years, but a colleague who also has one is switching to a profit-sharing plan. What's the advantage?

A Unlike a money-purchase plan, which commits you to contribute a set percentage of participants' salaries annually, a profit-sharing plan lets you vary the percentage each year, depending on your financial situation. In the past, the money-purchase type had a higher contribution limit than the profit-sharing type—25 percent, compared with 15 percent—but the 25 percent limit now applies to both. So you can enjoy the flexibility a profit-sharing plan offers and still make the maximum contribution if you can afford to.

Can you roll a custodial account into a college savings plan?

QYears ago, I set up a custodial account in my son's name to provide for his future college costs. I invested the money in stocks and bonds. Can I transfer these securities to a state-run college savings program (529 plan) without paying tax?

A No. The assets must be turned into cash before the transfer, and you (or your son, if he's 14 or older) will owe tax on any gains. But the transfer may still be worthwhile, because future withdrawals from the 529 plan will be tax-free if they're made to pay education expenses. In contrast, distributions from a custodial account are taxable no matter what you use them for, although you may be entitled to offsetting education deductions and credits. The article, "How to pump up college savings," Jan. 25, 2002, compares various alternatives.

How marriage affects an existing will

QMy fiance and I plan to marry in six months and then take an extended wedding trip. What happens to our present wills if we don't get around to changing them until we return?

A Better get around to it. Otherwise, they'll be nullified once you're married, and state law will determine who gets what if you die. However, a premarital will can remain in effect if it contains a reference to the writer's forthcoming marriage. The future spouse needn't be a beneficiary, but after the marriage, he or she will have a right to share in the estate by law.

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;18:81.