What a partner can put into a retirement plan; Cutting premiums for home insurance; Why you shouldn?t burn a paid-off mortgage; Can you claim a loss kept within the family? When co-owners rent out their vacation home; Taking your IRA payout as an annuity; A fail-safe will provision for a joint disaster; If the movers damage goods you packed
|Jump to:||Choose article section...What a partner can put into a retirement plan When co-owners rent out their vacation home Cutting premiums for home insurance Why you shouldn't burn a paid-off mortgage Can you claim a loss kept within the family? Taking your IRA payout as an annuity A fail-safe will provision for a joint disaster If the movers damage goods you packed|
Q: Soon I'll join a partnership that has a 10 percent profit-sharing plan. Since 10 percent of my compensation will be much less than the overall dollar limit on annual contributions for an individual ($40,000 this year), can I contribute the difference out of my compensation, even if the other partners don't do so?
A: No. The IRS treats partnership plans that allow variable contributions by partners as 401(k) plans, to which special nondiscrimination rules and elective salary deferral limits apply. No participant may defer more than $12,000 in 2003 ($14,000 if you're at least 50 years old). The partnership may make matching contributions and may also maintain a profit-sharing plan for eligible employees. Total employer contributions can't exceed 25 percent of individual salaries.
Q: My brother and I plan to buy a vacation home together. He'll vacation there in July and I in August. What will our tax situation be, if we rent the place out the rest of the year?
A: Your personal use of the property will limit the deduction you can take for rental expenses. Once personal use exceeds the greater of 14 days or 10 percent of the days a property is rented out at a fair market price, the expense deduction starts shrinking. Since your two months of personal use represents more than 10 percent of the year, you'll exceed those limits no matter how many days you rent the unit out.
You and your brother must deduct the rental expenses in proportion to your respective shares of the rental income. Despite the deduction limit, however, you can still write off all your mortgage interest and real estate taxes in the year paid. Whatever portion you can't treat as rental expenses you can claim as itemized deductions.
Q: We're buying our first home and are shopping for insurance. How can we keep our premiums down?
A: Consider accepting the highest deductible you're comfortable with. According to the Insurance Information Institute, a $1,000 deductible might save you as much as 25 percent over a $500 deductible. These other Institute suggestions may also be helpful:
Damage-proof your home by installing storm windows and shutters and upgrading the plumbing and electrical systems.
Take advantage of policy discounts by installing smoke detectors, sprinklers, and antiburglar devices. Some of these are expensive, though, so make sure the premium savings and the increased security are worth the outlay.
Limit the amount you pay for special coverage of possessions that may have declined in value. See whether the standard policy reimbursement for the loss of such items is adequate.
Q: When I bought my home, the seller took back a mortgage, which I recently paid off. I asked the seller to acknowledge that the debt was discharged, and he sent me a letter to that effect. Is that all I need?
A: Far from it. The mortgage will remain a lien on your property until evidence of its satisfaction is formally recorded. State law generally makes the mortgage holder responsible for this procedure, known as "reconveyance." In California, for example, the lender must record a certificate of discharge within 30 days or be liable for a fine and damages. The lender should also return the original mortgage and note to you on request.
The procedure is usually fairly simple, and you or the seller can obtain information on how to go about it from the recorder's office, or you can have your title insurance company handle the matter. Don't fail to get the paperwork done. Without it, your credit standing may be affected, and you'd have difficulty selling your home.
Q: My brother, my wife's brother, and I own a business that's currently losing money. If they buy my shares for less than my cost, can I claim a capital loss?
A: Not for the loss on the shares you sell to your brother. You can't claim a loss on the sale of an asset to a family member, even at fair market value. But only your spouse, siblings, ancestors, and lineal descendants count as family members; other relatives, by blood or marriage, are excluded. So you can deduct your loss on the shares your brother-in-law buys.
Q: I'm contributing regularly to an IRA maintained by an insurance company that will provide me with a life annuity starting at age 65. How do the minimum distribution rules apply to this situation?
A: Assuming the annuity payments are irrevocable and based on your life expectancy or a shorter period, they'll generally satisfy the minimum distribution requirements. Keep in mind that the annuity starting date may be a factor in determining how soon any funds remaining in the IRA at your death must be distributed to your beneficiaries. The various possibilities are covered in IRS Regulation 1.401(a)(9)-6T, available in many libraries, but you'd be wise to ask the custodian of your IRA for guidance.
Q: My will leaves the maximum tax-exempt amount to a trust for our children and the residue to my wife (or to the children, if I outlive her). Her will provides similarly for her small estate. But what happens if we die together in an accident?
A: State law would likely interpret your will as if you survived your wife, and her will as if she survived you, so the children would be the only heirs. To achieve the maximum estate-tax savings, it would probably be better for your will to stipulate that in case of a jointly fatal accident, your wife should be presumed to survive you. That way, the residue of your estate would initially go to your wife tax-free due to the marital deduction, and the children would then get a larger benefit from the tax exemption available to her estate.
Q: We expect to move shortly to another state and want to do our own packing, to keep track of our belongings. Would the mover still be responsible for any damage?
A: Yes. The typical service contract usually gives the mover the option to inspect and repack cartons if he feels they're improperly packed or may harm the rest of the shipment. If he's had a reasonable chance to look them over beforehand and accepts them as is, he can't later claim that damage in transit was your fault. Even if a pre-move inspection wasn't possible, the mover would have to prove the damage was due solely to defective packing.
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 firstname.lastname@example.org (please include your regular postal address). Sorry, but we're not able to answer readers individually.
Lawrence Farber. Money Management Q&As. Medical Economics 2003;7:121.