Money Management Q&As

February 16, 2007

Inherited 401(k); trading halt; insuring an unoccupied house

A tax break if you inherit a 401(k)

My father died recently and I'm the sole beneficiary of his $550,000 401(k) account. He was only 57 and hadn't begun taking distributions. The plan administrator says I must withdraw the account's entire balance over the next five years, but if I do I'll get hit with a huge tax bill. Is there any way around this?

Yes, thanks to a provision in the new pension law. But to take advantage of it you must make sure the plan doesn't send a check for the proceeds to you in your name. Instead, set up a new IRA account to receive the funds. The account title should include your father's name, the date he died, and state that it's for your benefit. Then have the plan transfer the money from your father's 401(k) directly into the IRA. If the administrator insists on cutting a check instead, have him make it out to your new IRA account, not to you.

What trading halts mean to investors

Why do stock exchanges sometimes halt trading on certain securities?

Often it means the company is about to release news that could significantly affect the stock's price, such as an earnings report that's better or worse than expected. The exchange temporarily stops trading to give investors a chance to absorb the information and decide how to respond. A halt can also signal that far more investors are interested in buying the stock than selling it, or vice versa, or that the exchange isn't sure the security still meets its listing standards. If trading has been halted on a stock you own, you can find out why at http://www.nasdaqtrader.com/asp/tradehaltshowpage.asp, assuming the stock trades on the New York Stock Exchange, the American Stock Exchange, or Nasdaq. If it's an over-the-counter security, go to http://www.otcbb.com/dynamic/marketwatch/mwsubhome.stm.

Insuring a home during construction

I'm having a new home built and I'll live in my current house until it's completed. Should I buy a homeowners policy on the new place while construction's under way?

For now, a dwelling policy may be a better choice-perhaps your only choice, in fact, since some homeowners policies don't cover unoccupied residences. A dwelling policy will cover damage to the new house and other structures on the property and, depending on the issuer, may also automatically insure the new structure's contents. But typically it won't include coverage for theft or medical payments. It may not include liability insurance, either. To increase or add to the basic coverage, you an buy separate endorsements.

Do you have a money management question that may be stumping other doctors, too? Write: MMQA Editor, Medical Economics, 123 Tice Blvd., Suite 300, Woodcliff Lake, NJ 07677-7664, or send an e-mail to memoney@advanstar.com (please include your regular postal address). Sorry, but we're not able to answer readers individually.