Money Management Q&As

Making the most of your home equity

Q:I'm in the market for a new home, and a real estate agent suggests I look into applying for a home-asset management account to finance the purchase. What's that?

A: It combines a first mortgage with a home equity line of credit based on your down payment. Say you put up $40,000 cash and borrow $160,000 to buy a $200,000 home. If you have a high credit score, the lender might allow you access to some or all of your initial $40,000 equity via a checking account or ATM debit card.

Your credit line could expand as your equity increases over time due to mortgage principal payments and a rise in the resale value of your property. The lender would charge a variable interest rate on the credit line loan balance, but you could pay it off or convert it to a fixed equity loan later on. It's an easy way to tap the value of your home equity—but this could be a major disadvantage if you can't resist the temptation to go to the well so often that you jeopardize the ownership of your home.

Sell office equipment or trade it in?

Q:If I trade in some office equipment I want to replace, the dealer will give me more than I can get by selling it. Either way, though, I'll receive less than the depreciated value of the equipment on my books. What tax angles should I consider in making my decision?

A: If you sell, you can claim an immediate tax deduction for the difference between the sale price and book value. That's not allowed on a trade-in, so the potential tax saving plus the sale proceeds may add up to more than the dealer's trade-in offer. If you end up accepting the trade-in offer, your basis for depreciating the new equipment will be the old equipment's book value plus the cash you lay out.

When an older employee has a SEP IRA

Q:I contribute to IRAs for staff members under a Simplified Employee Pension plan (SEP). One of my employees will turn 70 1/2 this year. Do the IRA distribution rules apply to her?

A: Yes. She must start taking minimum annual distributions from the IRA by April 1 of next year. However, the IRA remains eligible to receive employer contributions, even though the employee's age would bar her from making any herself. For plans that don't involve IRAs, nonowner employees can delay taking distributions until after they retire.

Smoothing the way for an elderly traveler

Q: I won't be able to accompany my frail, elderly mother on a cross-country flight to attend a family celebration next month. I know airlines provide wheelchair service for passengers, but what if she needs professional assistance during the flight? Do they offer any help, and what does it cost?

A: Some airlines have a medical escort program. American Airline's SkycAAre program, for example, offers personalized attention from skilled medical companions—usually registered nurses—for passengers requiring limited assistance. The traveler buys two adjacent seats in first class or the main cabin at a 30 percent discount off the full fare and also pays a fee ($90 per hour of flight time) for the nurse. This may be less expensive than the $2,500 to $5,000 it might cost to travel on a commercial flight with a registered nurse provided by an independent medical service company.

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 Jun. 6, 2003;80:109.