Money Management Q&As

September 1, 2006



Own real estate the right way

Q. Two colleagues and I plan to buy the building our office is in and rent space to another practice. We were going to set up a corporation for this, but a colleague says a limited liability company is best. Is he right, and if so, why?

A. Yes, he's correct. Although both ownership structures protect personal assets from liabilities related to the business, an LLC is less costly to establish and involves fewer formalities and tax complications-including the potential for double taxation. In your case, the profits from renting space in the building would flow directly to you and your partners and each of you would pay tax on your portion individually.

Tax deferral you don't need

Q. When I opened my IRA recently, the broker recommended that I put some of the funds into a variable annuity because of the death benefit, since I need additional life insurance anyway. Is this a good idea?

A. Generally, no. Assuming you can qualify for additional life insurance separately, buying it that way usually costs less than an annuity's hefty up-front commissions, annual fees, and potential surrender charges, which are levied if you close ("surrender") the annuity within a given time period. Moreover, the biggest selling point of annuities is the deferral of income tax on the investment earnings, but the IRA already provides that benefit.

Don't make the mistake of putting municipal bonds inside an IRA or other qualified retirement account, either. Not only may you earn more in a corporate bond fund with a similar risk level, but on withdrawal you'd pay income tax on interest that would've escaped taxation partly or entirely if you'd held the bonds outside the retirement account.

Saving money on a chatty teen

Q. To limit my 13-year-old daughter's time on the phone with her out-of-state friends and save myself some money, I want to give her prepaid calling cards every three months. Besides cost per minute, what else should I consider when buying these cards?

A. Choose an issuer that has been around awhile; it's less likely to go out of business and leave you with unused time. Some cards issue activity reports, so if you want to monitor who she's calling, opt for one of those.

Calling cards often impose hidden costs, so read the disclosures to make sure no surcharges, monthly fees, or other unexpected expenses will apply. Also check for a toll-free customer service number you can call if your daughter has problems using the card. If you choose a card that can be "refilled," so you won't need to buy a new one each time, ask your daughter for feedback about the service before reloading the card the first time. Common complaints include bad connections and access numbers that don't work or are often busy.

Collecting a judgment in small-claims court

Q. A local handyman tried to fix a small leak in the roof over my garage two months ago but botched the job. He has promised to redo the work but keeps stalling when I press him for a date. A friend suggested I sue him for a refund in small-claims court, but would I really have any luck collecting on a judgment?