Money Management Q&As

June 17, 2005

IRA custodian; chronic debt; CD annuity; bumped fliers

Spell things out for an IRA custodianQ. Some time ago, I named my two adult sons as joint beneficiaries of my IRA. If one of them dies before I do, can I be certain his half share will be distributed to his heirs?

A. No. The entire account will probably go to the surviving beneficiary, unless you instruct the custodian otherwise while you're still alive. (You can't dispose of an IRA in your will.) Say the deceased son had two kids and you'd prefer a three-way split. Then you should specify a "per capita" distribution. But if you want only the father's half-share to go to his children, specify a division "per stirpes." To make sure your wishes are carried out, have your own attorney draft appropriate instructions and obtain a receipt from the custodian.

Getting a pro to help manage chronic debtQ. I've had to help my son out of debt several times and want to get him professional credit counseling, but I've heard that some counselors aren't reliable. What are the pitfalls and how can we avoid them?

Reputable counselors are trained in these subjects and may be certified by a national association such as the National Foundation for Credit Counseling (NFCC). You may also want to check out the counselor with your state attorney general, local consumer protection agency, and the Better Business Bureau. Before choosing one, find out if there are setup and monthly fees. If so, get a specific quote in writing. To locate an NFCC member in your state, go to http://www.debtadvice.org/takethefirststep/locator.html.

Home sale tax breaks may interactQ. In 1994 my wife and I sold our home at a profit, but the rules then in effect let us postpone paying tax on it because we bought a more expensive house. We expect to net a sizable gain when we sell that place in a few months. Can we still claim the full home sale exclusion under present rules?

A. Yes, but your gain now must include the untaxed earlier profit. Suppose that came to $50,000 and you paid $200,000 for your present home. You'd use an adjusted cost basis of $150,000 (plus what you spent on subsequent improvements) to figure the gain when you sell it.

You reported the adjusted cost of your present home on Form 2119, which you filed with your 1994 return to postpone the tax then. If you haven't kept a copy, you'll have to rely on other records. But you can avoid the agony if the combined gains don't top $500,000, the amount a married couple can exclude. In that case, you don't have to report the sale.

Building a "ladder" of Treasury notesQ. I intend to invest $100,000 in Treasury notes with maturities staggered over 10 years. How should I go about it?