Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, August 30, 1993 TAG: 9308270393
SECTION: BUSINESS PAGE: 6 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
I have the option of leaving the funds with my previous employer invested in a stable capital fund.
A: You should judge completely based on the performance of the funds offered by both companies.
There is no advantage to you in having two separate 401(k) plans, unless you want diversity of investment. But, on the other hand, there's no reason against it either.
It is much better to roll over one 401(k) plan into another one rather than into a separate Individual Retirement Account because it preserves your tax-paying options for a future date.
Analyze the funds available to you from both companies as you would any other investment. Then keep the money in the plan with the best record for performance.
\ Paying a family debt
Q: A Navy captain, retired after 30 years of active and reserve duty, is determined to get his Ph.D., which has been his goal for 40 years. He borrowed $16,000 from his father and gave him a demand note, expecting the loan to be of short duration.
Because of the economic downturn and the unavailability of extra income opportunities, the son was forced into bankruptcy.
He wants to pay back the loan as soon as possible and wants to know if a new note at the present face value would be legal and binding against his life insurance in case of his demise before the note is paid.
He is hesitant about making loan payment provisions in his will because a divorce and remarriage might provide grounds for contest of his will.
Perhaps there might be another way to handle this.
A: You are correct that you can voluntarily repay one debt and not another after a bankruptcy. You can be selective in this, according to Richard C. Maxwell, a lawyer with the Roanoke firm of Woods, Rogers & Hazlegrove. You should, however, wait until after all of the proceedings are over and you are discharged from bankruptcy before you sign a new note.
You might explore several different options, Maxwell said. One is to give your father a security interest in your assets to secure a new note. Examples are a deed of trust against an owned home, a lien on your car or a pledge of some stock. These would survive your life to secure your debt to him.
If insurance is your only asset, Maxwell said, you should be aware that the money will go to the named beneficiary, not pass as part of your estate. Unless your father is the beneficiary, the money would not be available to pay him.
Presumably the policy would pay more than $16,000, and you would not want the extra money to go to the estate of a man who must be elderly. If you and he died close together, it would be subject to double taxation.
If you wish to use the insurance, you might name your estate as the beneficiary. The money should then go first toward satisfaction of your debts, including the $16,000 note.
Maxwell said it is also possible to name more than one beneficiary for your insurance. This would be a more certain course to protect your father.
Depending on the amount of your insurance, you could designate your father to receive, for example, 15 or 20 percent, and another person to receive the rest.
Maxwell said it's also possible to name contingent beneficiaries to cover the possibility of your father's death. Thus you would name him to receive a share equal to $16,000 with the money to go to "Joe" if your father predeceases you. "Mary" could get the balance, which would go to "Joe" or to "John" at her death.
\ Heirs and IRA
Q: I am 66 years old and retired. The major portion of my estate consists of an IRA. This is money I received from the distribution of a 401(k) I had with my former employer. No taxes have been paid on these funds. The current balance on the IRA is about $200,000. The total value of my estate is approximately $300,000.
The beneficiary of the IRA is my estate. My will states that the proceeds of the estate are to be distributed equally among my children, all over the age of 30. I have no wife.
When does the IRA collect the taxes that are not paid on the funds in the IRA?
A: Your heirs will pay the tax.
Harry Schwarz, a certified public accountant with Schwarz & Co. in Roanoke, said the estate would pay the money to your children.
The children, he said, would have five years to distribute the money from the account. They would pay taxes on the money as they take it, or one-fifth of the money every year.
These rules don't apply to spouses. Surviving spouses have the option of transferring the IRA to their own names and treating the account as if it was their own.
\ Mag Poff will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
by CNB