Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 16, 1990 TAG: 9004140030
SECTION: BUSINESS PAGE: A7 EDITION: METRO
SOURCE: mag poff
DATELINE: LENGTH: Long
Please also discuss the term "fold-in" of an existing program into the base pay. Is it a part of the Roanoke Valley wage survey? Are exempt jobs in the wage survey as non-exempt jobs are?
A: A spokeswoman for the Virginia Department of Labor and Industry said it's perfectly legal to grant a raise to some employees but not to others.
She said federal and state laws are concerned only with payment of the minimum wage. Once the minimum is met, employers are free to set their own pay levels.
Are those workers who are paid hourly covered by a union contract? If so, that might explain why a raise was given only to those who are exempt from the labor agreement. The wage rates for hourly employees would be set through collective bargaining.
The wage survey is conducted by the Virginia Employment Commission. John Elliott, an economist with the department in Richmond, said the survey covers all full-time positions regardless of whether they are paid by the hour or by the week. (Part-time workers are not counted.) That means it surveys both those covered by a union contract and those exempt from from the contract.
Elliott is unfamiliar with the term "fold-in" and believes it might relate to a specific union contract.
Clinton S. Morse, a labor law specialist with the Roanoke firm Woods, Rogers & Hazlegrove, said the reference is to whether the costs of fringe benefits are folded into the wage figure in the survey.
Fringe benefits are not included in the wage figure, Morse said. He said fringe benefits, which average 30 percent of payroll, are an additional cost to the basic wage rate.
If that is your reference, Elliott confirmed that fringe benefits are excluded from wages in the Roanoke Valley survey.
Q: Please discuss annuities and the tax status, federal and state. If I understand, these annuities are offered by banks and brokers, underwritten by various insurance companies. The way these things are handled, it seems to me that you would have a large deferred taxable income at maturity on an annuity, and if that is true, can you continue to roll over into a new annuity at maturity without being taxed?
A: The income earned on an annuity is taxable when the money is withdrawn, just as with any tax-deferred investment. On the other hand, money builds up much faster when taxes are deferred.
Most people buy annuities for the purpose of assuring retirement income that they cannot outlive. Each of these payments is made up of some taxable earnings and some return of principal. The latter portion is not subject to taxation then because you invested the principal with taxed dollars (unless it was in an IRA).
You can roll your money from one annuity to another at any time, not just at retirement.
If you don't want to receive the retirement income, you should read your annuity carefully to determine what would happen then to this investment. In such a case, you might be better off with an alternative such as cash-value life insurance.
If you buy an annuity, you should choose a life insurance company with an A+ rating in Best's reports. The annuity contract is only as sound as the company writing it.
You must intend to keep the annuity until retirement because most policies have steep fees for early surrender, especially in the early years. Ask about commissions and fees which, in many cases, are very high.
Q: I am saving for my son's college education. He is now a sophomore. I have a savings certificate in his name for $5,100 at 8.75 percent that comes up for renewal in August. I also have a passbook savings balance of $5,000 at 5 percent.
In 1989, my son earned $550 at a part-time job. He had unearned income totaling $613. He had to pay $92 in federal tax on his unearned income.
I have checked into a money market certificate at 6 percent yield that is exempt from federal tax or a certificate of deposit paying 8.49 percent yield that will not be tax exempt.
My question is how should I invest the passbook savings to get the maximum safe return and would this outweigh the tax that would be paid? Should we keep both savings in my son's name? How to you arrive at a person's tax bracket?
A: Your son is in the 15 percent bracket. So is every individual who has taxable income this year up to $19,450.
Taxes, therefore, are not a consideration in your son's investments.
You should choose the certificate paying 8.49 percent. You would have to find a tax-exempt certificate paying 7.22 percent to equal that return. The 6 percent certificate is equal to a taxed 7.06 percent in the lowest tax bracket.
You are doing the right thing in getting out of a low-interest passbook savings account. Your emphasis on safety suggests you should stick to insured certificates at banks or thrifts. The risk is only slightly higher, however, in a money market mutual fund with a better return.
Equity mutual funds offer the best chance for long-term appreciation, but two years is not enough time to offset the risk.
There are tax advantages in keeping money in the name of a child over the age of 14. The problem with that course is that the money then belongs to the child, who can blow it on anything he chooses.
by CNB