Money Management Q&As

Can you extend a pension loan's term?

Q:I took a three-year loan from my retirement plan account in 2000, but now I'd like to extend the repayment period to 2005. The plan administrator says I can't do this, even though the law allows loans up to five years. Is he right?

A: Yes. Although final IRS regulations issued last December permit an extension of a short-term pension loan up to five years from the date the money was originally borrowed, the new rule applies only to loans made after Dec. 31, 2003.

Let professionals handle an estate sale

Q: My mother left a houseful of furnishings and other possessions when she passed away last month. I'm thinking of an estate sale, but how should I go about it?

A: Your best move may be to engage an estate sale company to conduct it. Unlike at an auction, each estate sale item has a price tag and there's usually no bidding. Professionals have the experience to price most of the items reasonably or will employ an appraiser when appropriate. You'll pay a commission and may also have to shell out several hundred dollars for advertising.

If your mother owned antiques or other collectibles, consider leaving those items out of the estate sale and consigning them for auction or offering them to a dealer. An Internet auction site is another possibility.

Investing trust funds in a college savings plan

Q: My brother's will leaves some money in trust for my two young sons. As trustee, can I put it into a college savings program (529 plan) for them to get the tax breaks?

A: Yes, but you must set up a separate plan for each of your children, because a plan can have only one beneficiary.

Distributions from state-run plans are tax-free now, and those from private plans will be tax-free starting next year, as long as the money is used to pay qualified education expenses of the plan beneficiary. Otherwise they're subject to regular tax plus a 10 percent penalty. However, if one son doesn't spend all the money in his plan for his own education, the excess can be transferred to the other son's plan. If you set up a trust and later want to initiate a transfer, consult your attorney to make sure the legal formalities are followed.

If you rent your new home back to the seller

Q: We're buying a home and are willing to let the seller rent it back for a couple of months after the closing date, because his new house won't be ready until then. What should we do to protect ourselves?

A: The agreement—sometimes called a "holdover possession" or "post occupancy settlement" agreement—should be made part of the purchase contract. It should fix a daily rent and bind the seller to relinquish possession by a set date. A portion of the purchase price should be held back to cover any rent due and the cost of repairing physical damage attributable to the seller. Insist on a pre-closing inspection to avoid disputes about responsibility for remedying defects afterward.

As holder of the title, you'll need to take out casualty insurance, but the seller should pay for liability and personal property coverage while he occupies the home. It's best to have your respective carriers work out the details.

Finally, the agreement should state how you're to be compensated for any costs you incur if the seller doesn't vacate on time or fails to fulfill his other obligations.

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, 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 Q&As.

Medical Economics

Dec. 5, 2003;80:99.