Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 9, 1990 TAG: 9007100410
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
I am fast losing all confidence in insurance companies, banks and any other institution that is not insured. Is it possible to roll over the tax-deferred account into an insured money market account without federal and state tax due on the full amount?
A: Yes, you can roll over the money within 60 days as long as you move it into another tax-deferred account. You should not mingle it with any other money.
Andrew Hudick of Fee-Only Financial Planning Inc. suggested that you put the money into a self-directed IRA if you roll it over. Then you can invest the IRA money in a money market account, CD or anything else you choose.
You have enough money to diversify by investing in more than one thing. Because you distrust the stock market and other growth investments, you might try a six-month $10,000 U.S. Treasury bill.
Hudick noted that state employees may be in either a 415 or a 403(b) retirement plan. The 415 plans are eligible for lump-sum distribution, but the 403(b) plans are not eligible for this option.
If you are eligible, Hudick said, you should get an accountant to calculate the benefits of a roll-over into an IRA vs. 10-year income averaging. This is a choice you can make only once, so you need professional help. If income averaging is beneficial, then you would pay the tax and not need to shelter the money in an IRA.
Feds fill gap
Q: What kind of "Medigap" insurance would a retiring federal employee need after retiring?
A: The federal government offers its retired employees several options that equal or exceed those of private insurers and at competitive cost. Federal employees should take advantage of this opportunity.
Tax on insurance
Q: What is the tax status of a participating ordinary life insurance policy cashed in?
A: If you cash in a policy, you owe taxes on the earnings but not on the amount you paid for the policy with after-tax dollars.
More on leasing
An answer in last Monday's column discussed a mail solicitation by Welco Securities for "money market thrift certificates" of Equipment Leasing Corp. of America. A prospectus for ELCOA, which leases primarily restaurant equipment, arrived later. It shows these "certificates" are unsuitable for the average investor.
The "certificates" are in fact debentures, which are a company's promissory notes unsecured by any lien. Debenture prices were "arbitrarily determined by ELCOA with the concurrence of Welco and bear no direct relation of ELCOA's assets, book value, net worth or any other established criteria of value." The prospectus said ELCOA is highly leveraged and lacks a bank line of credit.
Both ELCOA and the securities firm are subsidiaries of Walnut Equipment Leasing Co. Walnut's stock is family owned, and the family's law firm represents the affiliates and handles debt collection. ELCOA has posted declining profits, while Walnut has lost money over the last three years.
Although the debenture rates are attractive, the prospectus said there is no secondary market and the company is not required to redeem them early. There is a penalty against the principal if they are redeemed. The company, on the other hand, can call the debentures at any time.
In a note to the financial statements, the national accounting firm Touche Ross & Co. said, "Walnut has suffered recurring losses from operations and has a shareholders' deficit that raises substantial doubt about the entity's ability to continue as a going concern."
by CNB