Money Management Q&As

Saving for college before a child is born

Q: My wife and I are newly married and don't plan to have a child for several years, but we'd like to start contributing to a college savings (529) plan now. Would that be legal?

A: You can set up a 529 plan that qualifies for tax benefits only for an existing beneficiary. However, you could name a family member as beneficiary and substitute your future offspring before plan payouts begin. The temporary beneficiary could be your (or your wife's) sibling, one of his or her children—even you, your wife, or a parent. No age limit applies.

If your executor moves to another state

Q:I named my brother as executor of my estate, but he's since moved out of state. Do I need to name someone else instead?

A: Possibly. State laws differ on this point, so ask the clerk of the probate court in your county what the rules are where you live. Even if a nonresident executor is allowed, he's apt to run into problems taking control of your assets from a distance, and the court may require him to appoint a resident agent for legal matters. You might save your brother trouble and expense by replacing him as executor or at least naming a resident co-executor to serve with him.

What you're paying for in a travel policy

Q:The cost of trip cancellation insurance for an overseas journey I'm planning varies from less than $100 per person to more than twice that. What gives?

A: Some TCI policies provide only restricted protection or none at all against the risk that a carrier or tour operator will default on the services you're paying for. Policies may also differ in the other types of coverage that are included. For example, with one deluxe policy, you get a CDW (collision damage waiver)—useless if you're not renting a car or if your auto insurance already covers that. The moral: Read the footnotes carefully before you sign up. For help in making an appropriate choice, visit www.insuremytrip.com or www.worldtravelcenter.com, and read "Travel Insurance: Should you leave home without it?" May 10, 2002.

How much you can earn if you get Social Security

Q:I took early Social Security benefits while continuing to work part-time, and I lost $1 for every $2 I earned above $11,280 in 2002. I'll be 65 this August. How will that affect my benefits?

A: Under rules effective in 2003, you won't reach full Social Security retirement age until two months after the one in which you turn 65. Starting in October, you can earn any amount without losing benefits. If your earnings before then total more than $30,720, you'll lose $1 for every $3 above that figure. (If you weren't going to reach retirement age in 2003, you'd have to forfeit $1 of benefits for $2 of earnings above $11,520.)

Income from a gift to charity

Q:A charity I support has offered to pay me a life annuity equal to 6.3 percent of any donation I make. How much of a tax deduction would I be able to claim for my gift?

A: It depends on the payout rate, your age when the annuity starts, and whether it's for one or two persons. For a single annuitant, the immediate deduction for a $10,000 gift varies from roughly $2,500 at age 60 to $4,000 at 75. Also, a portion of the annual payout is tax-free—about 50 to 60 percent in this age range. Many charities adjust their offering rates annually.

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. Medical Economics Jul. 11, 2003;80:99.