When togetherness may not be a virtue, How a mutual fund merger may affect you, Merging two pension plans into one, Claiming car expenses plus the IRS allowance, Contributing annually after a Roth conversion
QI've read in your column that a married couple can claim the full $500,000 exclusion on gain from the sale of their home, even if only one of them (me, in this case) holds title to it. But would putting the title in both names offer an estate-tax advantage?
A Possibly. Because joint ownership keeps an asset out of the probate estate, it may reduce legal fees. In some states, the amount could be sizable, so it's worth checking into.
However, switching from sole to joint ownership might boost the capital gain tax if you die before your spouse and he or she sells the home. Assuming your will leaves the home to your spouse, it will pass estate-tax-free, but only the basis for your half will be stepped up to current market value when you die. So any gain on the sale after your death will be larger than if you'd held sole title.
QA mutual fund I have shares in has notified me that it's being taken over by another fund. Could this affect my tax situation?
A Probably not immediately. You'll receive shares in the successor fund equal in value to those you now own, so the swap won't result in capital gain or loss. But if your present fund's portfolio has appreciated substantially, the merged fund may want to cash in some potential profits and distribute them to shareholders. So you might consider selling before you receive a large dividend. Selling might also make sense if the merged fund's holdings would put you into a market sector you don't favor.
QNow that the limit on deductible contributions to a profit-sharing plan has been raised from 15 percent of salary to 25 percent, our corporation no longer needs to maintain its second (money-purchase) plan. Can we discontinue it and roll the assets into our profit-sharing plan?
A Yes, if the board of directors adopts an appropriate resolution and the plan administrator gives the plan participants written notice in accordance with IRS regulations.
It's unclear whether participants' shares in the money-purchase plan must become fully vested when it's discontinued. The IRS has stated informally that this isn't required in the case of a conversion to a profit-sharing plan. But 100 percent vesting could forestall future legal problems if any employees have benefits that are currently subject to forfeiture.
QI'll be using my new car in my practice, and I may opt for the IRS standard mileage allowance to avoid having to record operating expenses. Will I be able to claim depreciation as well?
A No. The standard allowance takes depreciation into account. For 2002, you can deduct 36.5 cents per business mile, which includes 15 cents for depreciation. The allowance also covers nonoperating costs such as insurance, but tolls and parking fees are extra. So is car loan interest, if you're self-employed.
QI'm planning to convert a $60,000 traditional IRA to a Roth account this year. After the conversion, will I be allowed to make annual contributions to this account?
A Yes, if your adjusted gross income doesn't top the limit. For 2002, you can contribute up to $3,000 ($3,500 if you're 50 or older), but the amount is phased out if your AGI is $150,000 to $160,000 on a joint return or $95,000 to $110,000 if you're filing singly or as head of household. The contribution ceiling is slated to rise after 2004.
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 firstname.lastname@example.org (please include your regular postal address). Sorry, but we're not able to answer readers individually.
Lawrence Farber. Money Management. Medical Economics 2002;8:99.