Money Management Q&As

A painless way to boost pension plan contributions

Q: Our corporation's profit-sharing plan pays administrative expenses out of plan assets, but a doctor who's just joined the practice suggests that the corporation pay them directly. Would this affect the deduction for plan contributions?

A: No. The corporation could claim trustee fees and similar administrative expenses paid separately, in addition to deducting the plan contributions in full. That would increase the amount of benefits for plan participants. Keep in mind, though, that a broker's commissions on stock transactions and investment management charges don't qualify as administrative expenses for this purpose.

Cash in savings bonds without losing interest

Q:I've been buying Series EE savings bonds periodically. Now I'd like to cash in some of them, but I understand that poor timing could cost me interest. Can you fill in the details?

A: A key factor is the date of issuance. Series EE bonds issued May 1997 or later increase in value every month. The bond's interest rate is subject to change every May and November and holds for a six-month period. If you cash the bond before it's five years old, you give up the last three months' worth of interest. For example, if you bought it in May 2001 and cash it 24 months later in May 2003, you'd get your original investment back plus 21 months of interest.

For most bonds issued before May 1, 1997, interest is added every six months, counting from the time of issue. For instance, the value of a bond issued in February 1990 goes up every Aug. 1 and Feb. 1. If you cash it in July, you'll receive the same amount as if you'd cashed it the prior February; but if you wait until Aug. 1, you'll receive another six months of interest.

If you have trouble sorting all this out, the Treasury's savings bond calculator can do the math for you. You can access it at www.publicdebt.treas.gov/sav/savcalc.htm .

Stretching the payouts from an inherited IRA

Q:My wife hasn't taken any money out of the IRA she inherited when her father died in 1999, because the regulations gave her five years (until Dec. 31, 2004) to empty the account. I've read that a change in the rules now allows withdrawals to be spread over the beneficiary's life expectancy. Does she still have to follow the old rule?

A: No. Your wife can assume that the new rule was in effect when she inherited the IRA back in 1999. That means she doesn't have to close it out in 2004, but she must make up for the distributions the new rule would have required her to take in the years since 1999. She can do this in the form of a lump sum or piecemeal, provided she takes out the total amount no later than Dec. 31, 2003.

Where to go for a good smoke

Q:On a recent trip to Canada, I passed up an opportunity to buy a box of Cuban cigars, because I assumed I couldn't bring them home. Now a colleague who just returned from Havana says he was allowed to do so. Are they no longer contraband?

A: You can bring up to $100 worth of Cuban cigars with you when you come back from a licensed visit to Cuba, provided they're for your personal use. It's still illegal for travelers to bring in any acquired in Canada, England, Mexico, or elsewhere.

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 Jun. 20, 2003;80:81.